MBA ASAP Top Behavioral Economics Books
What is Behavioral Economics?
For over two centuries the ideology of free markets has dominated the world, bending politics as well as economics to its core assumption that market forces produce the best solution to any problem. Any problem. These days we are exploring more nuanced versions of capitalism and economics.
Behavioral Economics is a method of economic analysis that applies psychological insights into human behavior to explain economic decision-making. Traditional economics assumes that people are completely rational actors and are always optimizing their decision making.
If that were a true and accurate description of our behavior then supermarkets wouldn't have impulse purchase sections by the check out line and their would be no advertising industry or influence selling tactics. Behavioral Economics attempts to paint a more nuanced portrait of our decision making behavior, our heuristics, and our cognitive biases. To paraphrase Leonard Nimoy: we are not Spock.
Learn about who you really are."You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes."
The reviews of the books below are from my opinion laced with New York Times reviews because they are so articulate.
Check out these fascinating reads!
This is compiled from the New York Times review:
In 2002, Daniel Kahneman won the Nobel in economic science. What made this unusual is that Kahneman is a psychologist. Specifically, he is one-half of a pair of psychologists (the other is Amos Tversky who died in 1996 at the age of 59) who, beginning in the early 1970s, set out to dismantle an entity long dear to economic theorists: that arch-rational decision maker known as Homo economicus. Human irrationality is Kahneman’s great theme.
“Thinking, Fast and Slow” is an astonishingly rich book: lucid, profound, full of intellectual surprises and self-help value. It is consistently entertaining and frequently touching,
So impressive is its vision of flawed human reason that the New York Times columnist David Brooks recently declared that Kahneman and Tversky’s work “will be remembered hundreds of years from now,” and that it is “a crucial pivot point in the way we see ourselves.” They are, Brooks said, “like the Lewis and Clark of the mind.”
Malcolm Gladwell has written one of the best and most successful nonfiction books of the past decade, the ubiquitous Tipping Point. He's the author of dozens of unfailingly fascinating articles in The New Yorker.
Blink moves quickly through a series of delightful stories, all about the backstage mental process we call intuition. He opens the book with a crisp anecdote that suggests each of us possesses a hidden power, which we could use to improve our lives if only we knew how to tap it more fully.
Blink is about making split second decisions or rapid cognition from a thin slice of reality. Gladwell says we are thin-slicing all the time -- when we go on a date, meet a prospective employee, judge any situation. We take a small portion of a person or problem and extrapolate amazingly well about the whole.
This book has deep insight into our behavior and decision making.
Predictably Irrational is a book that both exemplifies and explains Behavioral Economics. Dan Ariely is an economist at M.I.T. and his premise is that “life with fewer market norms and more social norms would be more satisfying, creative, fulfilling and fun.”
He is a researcher at the Federal Reserve but this insight came to him at Burning Man, the annual anarchist conclave in the Nevada desert where clothes are optional and money is banned. Ariely calls it “the most accepting, social and caring place I had ever been.”
Also check out Dan's new book Payoff: the Hidden Logic that Shapes our Motivations
For more information on Dan check out his podcast with James Altucher.
According to Richard Thaler and Cass Sunstein’s book Nudge, there is such a thing as common sense.
Nudge is an engaging and insightful tour through the evidence that most human beings don’t make decisions in the way often characterized (some would say caricatured) in elementary economics textbooks as completely rational actors.
Nudge also contains a rich array of suggestions for enabling us to make better choices, both for ourselves and for society.
Wikinomics is a dazzlingly timely book that provides an accurate and comprehensive account of how the technological trend of online collaboration and open source is translating into a business trend. It also offers some ground-floor advice on how to apply "wiki" thinking to existing businesses.
The heart of the idea is a a transparent and collaborative business model. This is not at all newfangled, but as old as economics itself: that the labor of many is always better than the labor of one.
This idea has, however slowly, been going out of fashion since the the industrial revolution. Wikinomics describes a scenario where the post-industrial age is being transformed by allowing more people to put their intellectual muscle to the wheel. The Web 2.0 not only allows this, but also provides the means by which one can filter and rate the ideas of the many. Wikipedia, the online collaborative encyclopedia, is hailed as one such project, which has been a resounding success.
This book represents ideas about the future of work, collaboration and economics outside of pure capitalism.
Steven Levitt is an economist that has looked into the casual underpinnings of many fascinating human behaviors by applying the analytic tools of economics. Freakonomics was written with the journalist and co-author Stephen Dubner. Freakonomics grew out of a profile Dubner wrote about Levitt in The New York Times Magazine
This book changed the way we think of appropriate areas for economics to comment on. Economics is usually thought to be about price elasticities, interest rates and diminishing marginal utilities, but in Freakonomics the authors take on abortion, crime and lots of topics far from the traditional purview of economics. A great read.
Superforecasting: The Art and Science of Prediction is by the psychologist Philip Tetlock and the journalist Dan Gardner. Tetlock is famous for his previous work on different personality types of hedgehogs and foxes. Foxes are generalists and hedgehogs are specialists. Foxes tend to make better predictions.
Superforecasting focuses on how we form theories of what will happen in the future. The book is a sequel to Tetlock’s 2005 book Expert Political Judgment, in which he analyzed 82,361 predictions made by 284 experts in fields like political science, economics and journalism. He found that about 15 percent of events they claimed had little or no chance of happening did in fact happen, while about 27 percent of those labeled sure things didn’t. Tetlock concluded that the experts did little better than a “dart-throwing chimp.”
Superforecasting describes the findings of the Good Judgment Project, an effort started by Tetlock and his collaborator and wife, Barbara Mellers, in 2011, which was funded by an arm of the American intelligence community.
The central lessons of Superforecasting can be distilled into a handful of directives. Base predictions on data and logic, and try to eliminate personal bias. Keep track of records so that you know how accurate you, and others, are. Think in terms of probabilities and recognize that everything is uncertain. Unpack a question into its component parts, distinguishing between what is known and unknown, and scrutinizing your assumptions.
Robert Cialdini is considered the leading social scientist in the field of influence. He is the Regents’ Professor Emeritus of Psychology and Marketing at Arizona State University and the president of the consulting firm Influence at Work.
His 2001 book Influence is a classic. His academic rigor brought science to the art of persuasion. Influence famously lays out six principles of persuasion. His recent book Presuasion is a highly anticipated sequel and examines the front end of the persuasion process.
The misbehaving of Professor Thaler’s title refers to how human actions are inconsistent with rationalist economic theory. It is an account of the major developments in behavioral economics over the last half-century.
The title also refers to his professional posture in rejecting the prevalent worldview of traditional academic economists. The book is part memoir and part critique a breed of economist who dominated the academia and influenced policy, particularly the Chicago School of economic theory developed at the University of Chicago, for the latter part of the 20th century.
The Undoing Project is about the famous collaboration between two brilliant scientists that changed our way of thinking about behavior and economics. The two men are Amos Tversky and Daniel Kahneman. Their work earned Dr. Kahneman the Nobel Prize which Dr. Tversdy would have participated in but for his tragic early life death. Do yourself a favor and read this and everything else by Mr. Lewis.
Cass R. Sunstein is a professor at Harvard Law School, a former official in the Obama administration, an expert in behavioral science and constitutional jurisprudence, and the author of many books, including the best-selling Nudge. He is, in other words, a formidably accomplished intellectual.
But he is also a regular guy: a son, a father and a big fan of the Star Wars movies. In his book, The World According to Star Wars, he brings his intelligence and expertise to bear on a phenomenon that is widely known and easily understood and to uses that pop culture phenomenon to illuminate more arcane matters.
What would have happened if, at the end of "Casablanca," Ingrid Bergman had stayed with Humphrey Bogart in Morocco, rather than boarding the plane to Lisbon with her Nazi-fighting husband? Would she really have regretted it? Or did she end up lamenting the decision she did make? According to Daniel Gilbert, odds are that either decision would have made her equally happy in the long run.
If this sounds like an odd question for a professor of psychology at Harvard to ask in a serious book about cognitive science, there are dozens more where that came from. Is it really possible that Christopher Reeve believed himself in some ways better off after he became a quadriplegic, or that Lance Armstrong is glad to have had cancer, or that cancer patients in general tend to be more optimistic about the future than healthy people? (Answers: yes, yes and yes.)
Dr. Gilbert has a serious argument to make about why human beings are forever wrongly predicting what will make them happy. Because of logic-processing errors our brains tend to make, we don't want the things that would make us happy — and the things that we want (more money, say, or a bigger house or a fancier car) won't make us happy.
Read Stumbling on Happiness and avoid some errors and make more life enhancing choices and decisions.