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Misbehaving: The Making of Behavioural Economics Paperback – 5 May 2016
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RICHARD H. THALER: WINNER OF THE 2017 NOBEL PRIZE IN ECONOMICS
Shortlisted for the Financial Times and McKinsey Business Book of the Year Award
ECONOMIST, FINANCIAL TIMES and EVENING STANDARD books of the year
From the renowned and entertaining behavioural economist and co-author of the seminal work Nudge, Misbehaving is an irreverent and enlightening look into human foibles. Traditional economics assumes that rational forces shape everything. Behavioural economics knows better. Richard Thaler has spent his career studying the notion that humans are central to the economy - and that we're error-prone individuals, not Spock-like automatons. Now behavioural economics is hugely influential, changing the way we think not just about money, but about ourselves, our world and all kinds of everyday decisions.
Whether buying an alarm clock, selling football tickets, or applying for a mortgage, we all succumb to biases and make decisions that deviate from the standards of rationality assumed by economists. In other words, we misbehave. Dismissed at first by economists as an amusing sideshow, the study of human miscalculations and their effects on markets now drives efforts to make better decisions in our lives, our businesses, and our governments.
Coupling recent discoveries in human psychology with a practical understanding of incentives and market behaviour, Thaler enlightens readers about how to make smarter decisions in an increasingly mystifying world. He reveals how behavioural economic analysis opens up new ways to look at everything from household finance to assigning faculty offices in a new building, to TV quiz shows, sports transfer seasons, and businesses like Uber.
When economics meets psychology, the implications for individuals, managers and policy makers are both profound and entertaining.
- Print length432 pages
- LanguageEnglish
- PublisherPenguin
- Publication date5 May 2016
- Dimensions19.7 x 12.9 x 2.59 cm
- ISBN-100195678575
- ISBN-13978-0578991559
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From the Publisher

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Review
Gripping... a novelised intellectual history, replete with heroes and villains, triumphs and disasters, conflicts and comradeship... Thaler is a brilliant scholar, endlessly curious, empirically inclined and public spirited ― Guardian
Misbehaving gives us the story behind some of the most important insights in modern economics. If I had to be trapped in an elevator with any contemporary intellectual, I'd pick Richard Thaler -- Malcolm Gladwell
A long, genial, often humorous account of the progress of Behavioural Economics by one of its most gifted practitioners. Kahneman has described Thaler as lazy; he meant it as a compliment because Thaler's laziness means he concentrates only on the really important questions that get him out of bed in the morning... this is important stuff -- Bryan Appleyard ― Sunday Times
Robust enough intellectually to be a serious work of social science and a proper record of an important intellectual movement, Misbehaving is also fun for the general reader... a good book about an important topic -- Daniel Finkelstein ― The Times
Professor Thaler's entertaining book provides an important reminder of both the challenges and opportunities that come from working across the sometimes artificial boundaries between academic disciplines -- Jonathan A. Knee ― New York Times
From the Author
From the Inside Flap
Whether buying an alarm clock, selling football tickets, or applying for a mortgage, we all succumb to biases and make decisions that deviate from the standards of rationality assumed by economists. In other words, we misbehave. Dismissed at first by economists as an amusing sideshow, the study of human miscalculations and their effects on markets now drives efforts to make better decisions in our lives, our businesses, and our governments.
Coupling recent discoveries in human psychology with a practical understanding of incentives and market behaviour, Thaler enlightens readers about how to make smarter decisions in an increasingly mystifying world. He reveals how behavioural economic analysis opens up new ways to look at everything from household finance to assigning faculty offices in a new building, to TV quiz shows, sports transfer seasons, and businesses like Uber.
When economics meets psychology, the implications for individuals, managers and policy makers are both profound and entertaining
From the Back Cover
About the Author
Product details
- ASIN : 0241951224
- Publisher : Penguin
- Publication date : 5 May 2016
- Edition : 1st
- Language : English
- Print length : 432 pages
- ISBN-10 : 0195678575
- ISBN-13 : 978-0578991559
- Item weight : 320 g
- Dimensions : 19.7 x 12.9 x 2.59 cm
- Best Sellers Rank: 16,847 in Books (See Top 100 in Books)
- 79 in Business & Economic History
- 236 in Applied Psychology (Books)
- 2,112 in Arts & Photography (Books)
- Customer reviews:
About the author

Richard H. Thaler is the Charles R. Walgreen Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Graduate School of Business where he director of the Center for Decision Research. He is also a Research Associate at the National Bureau of Economic Research where he co-directs the behavioral economics project. Professor Thaler's research lies in the gap between psychology and economics. He is considered a pioneer in the fields of behavioral economics and finance. He is the author of numerous articles and the books Misbehaving: The Making of Behavioral Economics; Nudge: Improving Decisions about Health, Wealth and Happiness (with Cass Sunstein), The Winner's Curse, and Quasi Rational Economics and was the editor of the collections: Advances in Behavioral Finance, Volumes 1 and 2. He also wrote a series of articles in the Journal of Economics Perspectives called: "Anomalies". He is one of the rotating team of economists who write the Economic View column in the Sunday New York Times.
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Customers find the book entertainingly written and consider it essential reading for those interested in behavioral science. The book provides good basics of behavioral economics, with one customer noting how it ties together the history of the field. The narrative style receives mixed reactions from customers.
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Customers find the book highly readable, describing it as brilliant and entertainingly written, with splendid insights that make it essential reading for those interested in behavioral science.
"...It's a summary of the main findings, a history of how they came about and a preview of coming attractions, with due care taken to pay tribute to..." Read more
"...It is a good book to read if you want to understand the evolution of behavioral economics through time." Read more
"...Rather than being a straight economics text, Thaler presents key concepts within the context of anecdotes, often to amusing effect...." Read more
"...It is a fascinating and very readable account of how economists have started to understand the way humans really behave and why, and in so doing..." Read more
Customers appreciate the book's coverage of behavioral economics, describing it as a great introduction to the subject, with one customer noting its fusion of economics and psychology, and another highlighting how it explains human behavior in economic situations.
"...waited his turn, but Richard Thaler has delivered the definitive book on Behavioral Economics, the one you can't afford to miss...." Read more
"...Even though the book does contain some information about the behavioral economics and it's evolution through time it is more an autobiography of..." Read more
"...Ideas such as Sunk Costs, Hindsight Bias and Confirmation Bias, Loss Aversion, Heuristics and variations on classic Game Theory are well explained,..." Read more
"...is part autobiography, part history of an idea and part popular economics guide as Richard Thaler recounts his career and key part in the making of..." Read more
Customers have mixed opinions about the narrative style of the book, with one customer appreciating how it brings together behavioral economics stories, while another finds it self-indulgent.
"...It's a summary of the main findings, a history of how they came about and a preview of coming attractions, with due care taken to pay tribute to..." Read more
"...making under uncertainity. The book is wriitten in a lazy autobiographical style but emphasises the the importance of psychology to decision..." Read more
"...: The Making of Behavioural Economics is part autobiography, part history of an idea and part popular economics guide as Richard Thaler recounts his..." Read more
"...Thaler gives a full history of his career, essentially a history of behavioural economics and its journey for acceptance, with description of his..." Read more
Top reviews from United Kingdom
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- Reviewed in the United Kingdom on 25 May 2015He's taken his time and he's waited his turn, but Richard Thaler has delivered the definitive book on Behavioral Economics, the one you can't afford to miss. It's a summary of the main findings, a history of how they came about and a preview of coming attractions, with due care taken to pay tribute to those who came before Thaler and apportion credit to those who worked with him.
The field is not as new as Thaler would have you think. There's bias in this account and it is a bias against those among his predecessors who tried to explain human behavior in a way that was consistent with mainstream economic theory. I'm thinking Gary Becker here (who tried to explain long lines outside empty clubs and packed cheap restaurants alike using an "upward sloping demand curve" and famously sat down to write a paper on suicide when his wife took her own life); I'm thinking the very same Robert Barro that Thaler makes fun of when he describes him as the smartest man ever, but who nonetheless made me understand in his book "Getting it Right" why superstars could get paid so much in a zero-sum game and got confirmation to his theory when Maradona was paid more than the rest of his team, Napoli, put together, and justifiably so because he not only took them to the Campionato, but also thwarted much more fancied teams from winning it.
Thaler's predecessors operated in a world where most Economics books had to start with a chapter explaining why Economics is a science. Of course they had to stick to the utility-maximizing / profit-maximizing orthodoxy! Besides, orthodox economic theory was not all that shabby when it came to predicting human behavior.
By the time Thaler was entering his prime, Economics no longer had to apologize to anybody and was much more open to heresy, of course. It was in a position to withstand additional questioning. Armed with a nice piece of math invented by Tversky and Kahneman it was ready to be taken to the next level.
Thaler takes you through the whole thing in the space of the shortest 358 pages you will ever read. As he promises at the start, he tells it through a bunch of stories, mostly the stories of his collaborations and his epic fights with Economic Orthodoxy.
The book is worth reading for the humor alone. The jokes range from pure slapstick (example p. 128: "we were trying to learn what ordinary citizens, albeit Canadians, think is fair") to the esoteric inside joke, like when he mentions Vishny is a common co-author of Shleifer (to the best of my knowledge he's never written a paper without Shleifer). If you're not laughing the whole time, basically, there are squadrons of jokes flying over your head. My favorite type of humor, relentless repetition, is also very well represented. I lost count of the number of times I read the expression "invisible handwave." The man is irrepressible, basically. You can't keep him down.
There's a sadness that goes with this too, and it's that this is a bit of a category killer. "Misbehaving" Pareto-dominates all behavioral economics books that precede it in terms of readability, context, scope, you name it. I don't know what I would do with myself if I was Dan Ariely or if I was Steven Levitt (Roe v. Wade findings notwithstanding), to say nothing of Tim Hartford. They now have to accept that there's a book out there that beats their entire life's work on all fronts.
The long problem set masquerading as a re-interpretation of behavioral economics that is Kahneman's "Thinking Fast and Slow" is the only true exception to the rule, it continues to stand alone, but relative to "Misbehaving" it's a cop-out. As he told Michael Lewis in the interview that preceded that book, Kahnemann did not want to write the history of the field, he did not want the book to have the feel of one's last book. So the door was left wide open to Kahneman's self-admittedly "lazy" student to jump into the breach.
This he has done with gusto.
Prospect Theory (how we are risk averse when we're winning and risk loving when we're losing) is taught straight from Tversky and Kahneman's 1976 graph and is used to explain: (i) transaction utility, including Costco's business model (ii) sunk costs (i.e. why you will carry on wearing an uncomfortable pair of shoes you paid 300 dollars for) (iii) the endowment effect (including later in the book how it undermines the Coase theorem) and (iv) "gambling with the house's money" at the casino, versus the fact that outsiders get overpriced toward the end of the day at the racetrack. Bucketing of budgets gets thrown in for free.
Next comes a tutorial on Self-Control. Thaler explains that many humans discount future pleasure (or pain) on a scale that is totally unrelated to how we present-value bond cashflows and mainly operates on three levels: Now (intense), Later (much less intense) and Much Later (only slightly less intense than Later). This leads to preferences that are intertemporally inconsistent, a nightmare to Economic Orthodoxy, but very often true in real life. Heady stuff, and I promise, he makes it clear. He does not use graphs or charts or math. He explains it all with one picture: the famous cover of New Yorker magazine where everything this side of the Hudson is rendered in great detail, New Jersey through to California takes up as much space as West Manhattan and Asia is visible behind. You get that chart, you get how we humans really think about delayed gratification. Genius.
A chapter follows which is a summary of "Thinking Fast and Slow" but without trying to shoehorn the rest of Behavioral Economics into that model.
The next couple chapters deal with Fairness (the Ultimatum Game, the Dictator Game, the Punishment Game, cooperation games such as the Prisoner's Dilemma) and a revisit of the Endowment Effect as exemplified by the trading of Mugs with capital M. Then Thaler attacks Finance and the Efficient Market Hypothesis in Particular.
Not that anybody sane thinks markets are efficient, but you could tear out the rest of the book and keep pages 203 to 253 as a quick guide to why markets are inefficient. Thaler starts with Keynes' "beauty contest" analogy for stock picking (we pick the girl we think most other people will like, not the one we really fancy). Next he explains why a stock ought to be worth the net present value of its dividends and takes the reader through Shiller's discovery that stocks move around tons more than dividends do (or can be reasonably expected to do), which proves they wander around tons relative to what they will ever pay out. He offers additional proof by going through closed-end funds' variation from their NPV and gets some serious kicks from pointing out that stocks on occasion sell for less than the market value of their listed subsidiaries. He's a bit of a showman, Thaler, he calls this "negative stock prices."
From there he goes for the kill and notes that Royal Dutch Shell shares have a different price in New York versus Europe, and never more so than they did during the blow-up of LTCM, providing a real-life example of Shleifer and Vishny's mathematical formalization of Keynes' old aphorism that "the market can stay irrational for longer than you can stay solvent."
At some point, Chicago had to follow Al Pacino's view that "you keep your friends close and your enemies closer" and put him on the faculty. From his angle, it was time to storm the citadel, and this is what Thaler chronicles next.
He had been ready for them from day one. The book actually starts with "The Gauntlet," which is the series of challenges orthodox economists lay out for the behavioral crowd:
1. The "As If" challenge states that even if nobody is an expert in everything, society operates as if we all were, because through division of labor we all end up doing things we understand.
2. The "Incentives" challenge states that people respond to incentives once the stakes are large enough. All the wishy washy behavioral stuff washes away once we're talking real money.
3. The "Learning" challenge states that even if we get it wrong in "one-shot" games, in real life most games are "repeated" and behavior thus converges to what Orthodox Economics would suggest.
4. The "Invisible Hand" argument states that if we all go about doing what's best for us we nevertheless end up doing what's right for everyone else as well.
Won't spoil it for you and take you through Thaler's answers to the above. It's after all what the book is really all about. But forgive me one indulgence, I've GOT to tell you about the bit where he demolishes Robert Barro:
The Rational Expectations Hypothesis has a number of implications, chief amongst them the prediction that fiscal stimulus does not work. If the government writes you a check, the story goes, you know you'll be taxed for it in the future, so you save it rather than spend it. And the stimulus ends up being a damp squib. Thaler proves the circularity of this argument by suggesting a similarly circular counter-argument: what if the rational agents that compose this economy believed in Keynes' multiplier? What if they thought the stimulus will work and the economy will fly and their taxes will actually go down? Should they spend TWICE the check they were sent?
From Chicago he goes on to a couple (well-earned) victory laps. He applies Behavioral Economics to Americal Football, where he advised three separate teams on how to conduct their affairs during the annual draft, to game shows he was allowed to set up with Endemol, where he proved that his theories can withstand some pretty high stakes and from there onto "nudging" people to contribute more to their pension and pay their taxes on time.
He ends the book with a wish that one day there will be one Economics again, with the Orthodox Economics of utility maximization and profit maximization as a quaint special case. We're probably already there.
- Reviewed in the United Kingdom on 21 September 2018When I bought this book, I thought I will learn a lot of things about behavioral economics. Even though the book does contain some information about the behavioral economics and it's evolution through time it is more an autobiography of Richard Taler.
It is a good book to read if you want to understand the evolution of behavioral economics through time.
- Reviewed in the United Kingdom on 6 July 2015Less than two decades ago, when I first studied Financial Economics, the Capital Asset Pricing Model was state of the art, Beta almost the only measure you needed to know, and the Efficient Markets Hypothesis was your basic guide to behaviour. Nowadays, CAPM is an interesting historical footnote, Beta virtually worthless and the EMH a guide to not very much at all. When I returned to economics studies about five years ago the EMH was still being taught, but alongside alternative views such as those of Richard Thaler, who points out, in this book and elsewhere, that only amongst fully rational Econs, mostly economists, does the EMH work. For the rest of us, sometimes known as Humans, anomalies are the rule.
Misbehaving is a sort of biography of Behavioural Economics or rather, as Thaler points out towards the end of the book, Behavioural Sciences, a fusion mostly of economics and psychology, the product of extensive collaboration between practitioners in both disciplines, together with inputs from people with a less discipline-specific role who have been puzzled by the results of some of their endeavours or research. Thaler begins with a few questions of his own, which he develops into The List, a record of behavioural anomalies which contradict rational expectations. He is then lucky enough to encounter the psychologists Amos Tversky and Daniel Kahneman, whose own studies complement his growing sense of discontent with conventional economic models. Together they develop a set of alternatives which seek to understand observed behaviour, and as an increasing number of people are drawn to similar conclusions, both under their influence and independently, the general idea gains traction. Among those named within the Behavioural camp along the way are such luminaries as Lawrence Summers, Robert Shiller and George Akerlof. Others encountered include Eugene Fama, Merton Miller and Michael Jensen.
Rather than being a straight economics text, Thaler presents key concepts within the context of anecdotes, often to amusing effect. Ideas such as Sunk Costs, Hindsight Bias and Confirmation Bias, Loss Aversion, Heuristics and variations on classic Game Theory are well explained, illustrated and justified (I think it would be too presumptuous to say “proven”). In a particularly amusing tale (partly because it involves the Washington Redskins, arch-rivals of my Philadelphia Eagles) he illustrates the “dumb principal problem” of Agency Theory through owner Dan Snyder’s initial enthusiasm for a more rational approach to drafting players, which subsequently founders on his reversion to the traditional approach, trading several picks the following season for an early pick which would secure him the services of quarterback Robert Griffin III. A couple of seasons later the other team involved in the trade, the St Louis Rams, made a big point of fielding the players it thereby gained, during a game in which Griffin was benched, and beating the Redskins 24-0.
On at least one occasion, when he tackles the debates over the Endowment Effect, which describes, in simple terms, the tendency of people to value things they already own more than things they do not, I found myself less than in total agreement with him, and in agreement with those who felt Transaction Costs to be at least partly explanatory. This may not work too well when experimenting with college mugs (Thaler’s starting point), but when it comes to changing gyms (a choice currently confronting me) there’s more to consider than the monetary cost of inertia compared with that of trading out. Nevertheless, the Endowment Effect is slightly less problematic as a practical guide to behaviour than is, say, a Supply and Demand curve, which nevertheless is a useful foundation for understanding; for use, as Thaler suggests for the EMH, as an extreme special case or normative benchmark to be studied before the slightly less straightforward behavioural models.
He also finds himself a hostage to fortune when he talks up survey evidence against economists who sneer at it: he here cites Nate Silver’s past success in predicting election results; unfortunately even Nate was unable to predict the result of the UK General Election in 2015.
There is little doubt, however, of the practical results achievable through application of principles of Behavioural Science. In the chapter prior to the Conclusion, Thaler recounts his meeting with Richard Reeves. Apart from being the person who reviewed Misbehaving for The Guardian (though a little late; I’d almost finished the book by the time they published the review), Reeves was also instrumental in bringing Thaler into what would eventually become the Tories’ “nudge unit”. Like Thaler, I normally distance myself from anything bearing the label conservative, (large or small c), but the nudge unit is one piece of Tory policy I can live with, though I worry that it’s also a bit of a sop to cuddliness, like hug-a-husky or hug-a-hoodie PR, for an outfit whose usual brand of nudge is delivered with a steel toecap by Ian Duncan Smith. The aim of the nudge unit was to make it easy for people to achieve outcomes they would want, rather than outcomes they were conned or forced into. Some of these are associated with pensions, an area where behavioural science has been able to achieve some measure of success. But there have also been problems, and in the case of the UK a sensible-looking approach to getting people to insulate their lofts by offering a parallel loft clearance service (all that clutter being a serious barrier to loft insulation in the first place) appears to have been abandoned.
Nevertheless, economics is marching forwards with its incorporation of behavioural science. Thaler’s account of how this has come about, and the results so far, is both informative and entertaining.
Top reviews from other countries
- DisappointedReviewed in Singapore on 1 September 2022
1.0 out of 5 stars Horrible print quality and book is damaged. Doesn't look authentic.
DisappointedHorrible print quality and book is damaged. Doesn't look authentic.
Reviewed in Singapore on 1 September 2022
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- Amazon CustomerReviewed in Australia on 3 March 2019
5.0 out of 5 stars Superb storytelling
A wonderful biography of an academic theory, written with love by its founder. Just as Mr Thaler has made this science more Human, so he also writes for Humans, making something so complex and sophisticated seem simple, relevant, and easy to understand - even for beginners like me. Thank you!
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Miriam MReviewed in Italy on 23 April 2019
5.0 out of 5 stars Capolavoro
Davvero splendido libro, Thaler riesce a spiegare concetti complessi con metafore semplicissime! Ottima lettura per chiunque, non eccessivamente matematico ma allo stesso tempo approfondito nei punti giusti. Splendida lettura, dovrebbe essere inserito in qualsiasi corso universitario di economia.
- ErikReviewed in Germany on 30 December 2024
5.0 out of 5 stars Great read
Great summary of the field. Slowly bringing one into the whole idea of putting Humans back where they belong in the field of economics : the centre.
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Carlos SReviewed in Spain on 13 April 2025
5.0 out of 5 stars Diferente y bueno
Un libro bastante diferente en su enfoque lo recomiendo para ver otro punto de vista