Misbehaving: The Making of Behavioral Economics

by Richard H. Thaler

I share a view held by all three authors that the “truth” is somewhere in between the two extremes: partial naiveté. Most of us realize that we have self-control problems, but we underestimate their severity. We are naïve about our level of sophistication. In particular, we suffer from what George Loewenstein has called “hot-cold empathy gaps.” When we are in a cool, reflective mood—say, contemplating what to eat at dinner on Wednesday after just having finished a satisfying brunch on Sunday—we think we will have no trouble sticking to our plan to eat healthy, low-calorie dinners during the week. But when Wednesday night comes along and friends suggest going out to a new pizza place featuring craft beers, we end up eating and drinking more than we would have predicted on Sunday, or even on Wednesday before arriving at the restaurant with its tempting aromas wafting from the wood-burning oven, not to mention an intriguing list of special brews to sample. For such cases we may need a planner to have established a rule—no midweek beer and pizza outings—and then to think of a way of enforcing that rule.