The Irrational Economist: Making Decisions in a Dangerous World

by Erwann Michel-Kerjan (Editor), Paul Slovic (Editor)

Of the twenty most costly catastrophes since 1970, more than half have occurred since 2001. Is this an omen of what the 21st century will be? How might we behave in this new, uncertain and more dangerous environment? Will our actions be rational or irrational? A select group of scholars, innovators, and Nobel Laureates was asked to address challenges to rational decision making both in our day-to-day life and in the face of catastrophic threats such as climate changes, natural disasters, technological hazards, and human malevolence. At the crossroads of decision sciences, behavioral and neuro-economics, psychology, management, insurance, and finance, their contributions aim to introduce readers to the latest thinking and discoveries. The Irrational Economist challenges the conventional wisdom about how to make the right decisions in the new era we have entered. It reveals a profound revolution in thinking as understood by some of the greatest minds in our day, and underscores the growing role and impact of economists and other social scientists as they guide our most important personal and societal decisions.

Genres: Economics, Psychology, Science

336 pages, Hardcover

First published December 15, 2009

Reviews

[Fabio Ismerim Ismerim · Rating 4 out of 5]

O livro é uma série de textos escritos por psicólogos, economistas, neurocientistas e profissionais que atuam no ramo da Economia Comportamental. A ideia do livro surgiu de uma confraternização para celebrar o aniversário de um dos maiores cientistas e pesquisadores do ramo, Howard Kunreuther.

A ideia foi que cada um contribuísse com um texto que mostre como nossas escolhas são falhas, como somos péssimos em prever e como escolhemos mal. Isso reflete principalmente na elaboração das políticas públicas e, principalmente, no que tange as incertezas ocasionadas pelos desastres naturais. O livro fica um pouco massante pois fala muito da industria dos seguros e sobre catástrofes climáticas.

Dei quatro estrelas pois pra mim, que estava buscando fontes de pesquisa acadêmicas nessa área, me atendeu bem e vai me ser útil em um futuro próximo. Mas não é um livro voltado para um público geral.

Se você se interessa por comportamento e em como a Economia Comportamental vem ganhando força e travando um embate saudável e interessante com a economia tradicional, eu recomendo este livro. Mas adianto que não é para iniciantes :)

[Omayma]

The "Irrational Economist" is not the first read for me about rationality, decision theory, risk handling...etc. However, it is always good to read different theories and research outcomes. First, because there are always new hypotheses coming up, and second, because it is a good reminder that we are usually affected by our biases and blind spots, since "There is a clear tendency to view our own thoughts, words, and actions as rational and to see those who disagree as irrational" as the authors begin the book. 

The awareness of our biases and how humans make decisions should make us deal with our decisions with humility and have more empathy towards others. 

In the five parts of the book, different concepts and theories are discussed, since the book is a product of several authors. One of the interesting concepts presented is the "emorationality", which suggests that our "brains do not seem to generate emotions and rationality in an independent fashion. Rather, it might be dealing with a complementary pair". Also the idea of "the collapse of compassion", which I already knew about and I find it reasonable, given the human reactions towards grave events and disasters. 

I liked the first two parts in particular and the last two where the least appealing to me.

[Sean Goh · Rating 2 out of 5]

Very dry and academic, the opening chapters were better, but it degenerated quickly. Didn't even realise I had read this book 2 years ago (probably shows its forgettability).

____________

Reliance on our gut feelings works when our experience enables us to anticipate accurately the consequences of our decisions. It fails miserably when the consequences turn out to be very different from what we expected.

Commit only so far as you can predict.

After a virgin (previously unexperienced) risk occurs, people tend to overestimate the probability of another occurrence in the future, while after an experienced risk occurs, people will under-update their assessment of another event occurring soon.

We often fail to invest optimally in protection because we cannot foresee the consequences of how we decide to protect against losses. We've an instinct to learn by trial and error that subconsciously rewards us for inaction rather than action,
a tendency to base decisions on poor mental models of the physical mechanics of hazards,
and a tendency to be lured to take risks by a misplaced confidence of our ability to survive hazards, no matter how severe.

[Martin · Rating 1 out of 5]

The book may be appropriate for undergraduate level students. A general reader will probably get more out of a book like Predictable Irrationality. I found the collected articles in this book to be repetitive and consistent theme is that human decision making, despite available rational concepts is overridden by human emotional frailty. It is a bit troubling that many of the references cited are old and contributors frequently cite each other’s works. This book is of dubious value to the general or academic reader.

[April · Rating 3 out of 5]

I was a little misled about what to expect from this book, as I was told it's "like the follow-up to Freakonomics." So I was expecting witty investigation into some interesting scenarios relating to society. Instead, it was more technical and the scenarios are more mundane--though definitely important to think about and consider. I do appreciate the research and analysis that was done about people's behaviors around catastrophe insurance and such, but it was a little hard to get through.

Book: from Robby's collection.

[Mikko Arevuo · Rating 2 out of 5]

A good intro to decision-making under uncertainty and the basic concepts of behavioral economics. However, a general reader would probably find the chapter contributions by different scholars repetitive and an academic reader too general. In summary, the book is poorly positioned in terms of its target audience.

[Ariadna73 · Rating 3 out of 5]

This is a book about how it is better to rely on intuition than committing to science and forecasts. It is entertaining in the beginning; but as pages pass; it becomes heavier and complex. I dragged myself to the end of it; but unfortunately was unable to extract much from the second and third parts.

[Smellsofbikes · Rating 3 out of 5]

Short essays by a variety of economists about irrationality, human behavior, risk assessment, and related topics. Good, but the piecewise nature made it feel pretty fragmented and a lot of the essays were just okay.

[Mimi Somsanith]

No comment. Couldn't bring myself to read it. I understand that saying that the market can remain solvent longer than the trader can remain irrational (or rational).

[Zulugoat · Rating 1 out of 5]

impossible to finish... so disorganized, confused, boring... needs a complete rewrite