I’ve never thought I’d once read a book about economics that I’d have to violently pry from my own hands at 1:00 a.m to force myself to go to sleep, after promising myself three times that I’d definitely sleep after just one more chapter, and failing to keep this promise three times.
What’s more, I’ve never thought I’d ever willingly read about economics. I used to have this weird prejudice against economics and economists that economists are probably like one of my high school classmates who was preparing for a career in this field and who once borrowed a 500-page volume of poetry from the library (perhaps in an attempt to attain a rounded education) and read through it from beginning to end while I watched in horror. Anyway, based on this I thought that economics must be an awfully regular and cold and logical field of study, and those always make me want to break down and cry.
In hindsight, I think this classmate of mine must have been an Econ – a homo economicus, who – based on this book’s definition – is a human who behaves rationally in all circumstances, makes all the right choices based on knowledge and facts, knows what’s advantageous for him, and doesn’t suffer from issues with self-control and will-power, so he can always act according to what’s in his best interest. According to Thaler, though, Econs – even though for a long time they served as models for all kinds of theories in economics – don’t really exist. Instead of Econs, the world is mostly filled with Humans, who tend to make irrational decisions based on impulses; who prefer to eat one Oreo cookie now instead of eating three 15 minutes later; who sometimes go all the way across town to get something for a couple of dollars less while in other situations cheerfully ignore those same couple of dollars; who know in the depth of their hearts that they should finally start saving money for retirement but still tend to postpone dealing with this question because setting up a retirement fund or taking out a pension insurance is complicated and involves filling out various forms.
And what a relief to read about Humans, not Econs.
Because don’t get me wrong: Thaler doesn’t say that it’s the Humans’ fault that they don’t behave as if they were Econs. He says it’s economics to blame when it bases its theories and models on the impossibly predictable behavior of beings who don’t even exist. And Thaler spent his life trying to change this false belief economics had about Humans.
Richard Thaler is one of the founding fathers of behavioral economics. Right from the beginning of his career, he liked to misbehave a lot, he had a penchant for studying all kinds of anomalies (phenomena where Humans didn’t behave in the way they were supposed to behave based on the tenets of economics based on Econs), and he liked to team up with psychologists and social scientists during his work (which, again, didn’t endear him to the supposedly precise and data-driven bunch of economists).
The book is partly a professional autobiography, and partly the story of the birth and development of the field of behavioral economics – and it’s certainly an exciting story. There’s a whole lot of entertaining debates and fights here between professors of different elite universities, and it’s exhilarating to watch all these duels between old-school economists who hang on for dear life to the old economical models while the misbehaving economists of Thaler’s kind go on to demonstrate that the old models don’t work.
And then there’s a lot of down-to-earth and entertainingly presented examples of everyday economics: why we feel regret if we have a ticket to a concert but decide to stay at home on the big night because of a snowstorm; why we feel it’s grossly unfair if the hardware store sells snow shovels at twice their regular price on the day after the big snowstorm; why we tend to choose a small reward we can be sure about instead of taking risks but why we tend to take bigger risks in a losing situation; and how cleverly we convince ourselves that if we buy a bottle of expensive wine now, which we want to drink ten years later, then this is not really an expense but an investment, and ten years from now we can drink a bottle of special wine for free. (Of course, none of these forms of behavior conform to the way an Econ would behave.)
So all in all, this is a very educational and interesting book, and it’s very humanistic in its approach. And Thaler is a funny, ironic and self-ironic natural-born storyteller, someone who – believe me – can even talk about pension insurance in a way that you want to read one more chapter about it. And then one more. And then you feel like you want to take out an insurance policy first thing next morning.