Misbehaving: The Making of Behavioral Economics

by Richard H. Thaler

When you have the flu you feel like you are going to die, but when you are dying, most of the time you feel just fine.”

the difference between their respective research agendas that won them the prize was that Smith was trying to show how well economic theory worked and Kahneman was doing the opposite.‡

Because learning takes practice, we are more likely to get things right at small stakes than at large stakes. This means critics have to decide which argument they want to apply. If learning is crucial, then as the stakes go up, decision-making quality is likely to go down.

As cruel as the market may be, it cannot make you rational. And except in rare circumstances, failing to act in accordance with the rational agent model is not fatal.

Many people have made money selling magic potions and Ponzi schemes, but few have gotten rich selling the advice, “Don’t buy that stuff.”

The bigger lesson is that once you understand a behavioral problem, you can sometimes invent a behavioral solution to it. Mental accounting is not always a fool’s game.

It is much easier to detect that we may be in a bubble than it is to say when it will pop, and investors who attempt to make money by timing market turns are rarely successful.

The same people who complain most about these extraordinary recovery measures are also those who would object to relatively minor steps to reduce the likelihood of another catastrophe. That is simply irrational.

the real point of behavioral economics is to highlight behaviors that are in conflict with the standard rational model.