The Winners Curse: Behavioral Economics Anomalies, Then and Now

People make crazy decisions with their money that leave economists shaking their heads, according to this eye-opening study. Nobel Laureate Thaler (Nudge) and his colleague Imas, both University of Chicago economics professors, revise and update Thaler’s first book, published in 1992, with additional material, spotlighting experiments and real-world studies that confound economists’ theories that humans are cold rationalists seeking to maximize their wealth and enjoyment. These include laboratory games where moralism wins out over greed, as when players agree to contribute money towards a common goal when they could earn more by free riding on others’ contributions. Other experiments probe people’s aversion to losing what they own: experimental subjects given mugs demand $5.25 to sell theirs but are only willing to pay $2.75 to buy one. Thaler and Imas gleefully trash numerous central dogmas of modern-day economics and instead foreground how knee-jerk intuitions, fuzzy rules of thumb, and social pressure rule human decision-making. It’s a sophisticated discussion, complete with a few equations, but lay readers will enjoy the lucid prose and down-home conclusions. The result is an enlightening analysis of economic choice as a stubbornly flawed and human endeavor. (Oct.)