📚 "Misconduct" - Richard H. Thaler detailed introduction

Hello everyone! Today, I'm sharing a rigorous and engaging classic in behavioral economics: Richard H. Thaler 's masterpiece , Misbehaving: The Making of Behavioral Economics . Published in 2015, Misbehaving is the culmination of years of research and a must-read for seamlessly integrating academic and practical life. Thaler, who won the Nobel Prize in Economics in 2017 for his contributions to behavioral economics, received this book.

The title, "Misbehavior," doesn't refer to bad things, but rather to the "irrational" behavior of humans within economic models. Traditional economics assumes that humans are always rational, "homo economicus," but Thaler uses numerous experiments and case studies to demonstrate that real people have emotions and biases, often making seemingly irrational decisions .

👤 About the Author: Who is Richard H. Thaler?

• 🎓 Professor at the University of Chicago Booth School of Business
• 🧠 One of the founders of the field of behavioral economics
• 📖 Co-authored Nudge with Cass Sunstein, influencing global public policy
• 🏆Won the Nobel Prize in Economics in 2017
• 🎬 He also made a cameo appearance in the movie "The Big Short" to explain to the audience the human nature behind the financial crisis.

👉 Editor's take: Thaler is not as serious as traditional scholars. His writing is humorous and witty, making difficult economics as easy to understand as everyday conversation.

📖 The core theme of this book

The core of "Misconduct" is that humans are not as rational as traditional economics assumes .

• The "economic man" in traditional economics: calm, rational, and precise in calculations
• Real-life “people”: emotional, lazy, and biased

Through a large number of experiments, cases and life stories, Thaler tells us that these "irrationalities" are actually regularities that can be studied, predicted and even applied .

📌 Important content and theories in the book

🎲 Behavioral Biases

Common human biases include:

• Loss Aversion : Losing $100 is more painful than earning $100
• Mental Accounting : We organize our money into different mental categories rather than looking at it holistically.
• Sunk Cost Fallacy : Knowing it is not worth it, but continuing to do it because you have already invested
• Overconfidence : Overestimating one's own ability to judge and control

👉 Editor's Note: We actually make these mistakes every day, for example, we spend red envelope money more casually than our salary.

🛒 Interesting case study of mental accounting

Saylor gives an example:

• People think it’s normal to spend their lottery winnings on a lavish meal, but feel guilty if they spend their salary on extravagance.
• Investors divide stocks into different "mental accounts", leading to irrational operations

👉 Editor's comment: Although mental accounting helps us simplify our thinking, it also causes us to make irrational money decisions.

⚖️ Sense of Fairness and Market Behavior

Thaler found that humans care a lot about fairness in economic decision-making:

• If businesses raise prices significantly after a snowstorm, people will feel it's "unfair"
• Even if this is the logic of supply and demand, human emotions will resist

👉 Editor’s take: This also explains why many policies need to take “emotions” into account rather than just looking at numbers.

📉 The Sunk Cost Trap

• I watched a boring movie halfway through, but I forced myself to finish it because I bought the ticket.
• Continue to add to bad investments just because you have already invested a lot

👉 Editor’s thoughts: Thaler reminds us that rationality should focus on future opportunities rather than past investments.

🧠 The birth of behavioral economics

Thaler reviewed his collaboration with Tversky and Kahneman and how they challenged the "rational assumption" of traditional economics.

• They presented evidence after evidence of "improper conduct"
• Eventually, behavioral economics was formed, influencing finance, investment, and public policy.

👉 Editor's Note: This period of history reads more like an adventure to "overthrow the old world" than just an academic story.

📚 Book Structure (Chapter Outlines)

Misconduct is divided into eight parts:

1. Human Assumptions : Economic Man vs. Real Man
2. Mental Accounting : How We Categorize Money
3. Fairness and Cooperation : How Emotions Influence Markets
4. Irrationality in Financial Markets : Bubbles and Investment Mistakes
5. Games and experiments : A scientific approach to proving human irrationality
6. Policy Applications : How to Use Behavioral Economics to Improve Public Decision-Making
7. Debate with Traditional Economics : Challenges and Breakthroughs in Academia
8. The future of behavioral economics : How it can change the world

👉 Editor's take: The structure of this book is like a "history of the birth of behavioral economics." Readers not only learn knowledge, but also see how a discipline takes shape step by step.

💡 Inspiration from this book

For individuals

• Recognize your own biases and avoid falling into traps in investment and consumption
• Learn to "let go of sunk costs" and make more rational decisions
• Understand "loss aversion" and avoid missing out on opportunities due to fear

For enterprises

• Consider customers’ mental accounting and sense of fairness when designing products or pricing
• Use nudges to make it easier for customers to make the right choice

For policymakers

• Behavioral economics can improve pension systems, health policies, and tax design
• Policies should not only be based on numerical models, but also take human nature into consideration.

👉 Editor's Thoughts: The value of behavioral economics is to help us acknowledge that "people are not rational machines" and use this fact to design systems that are closer to reality.

🌟 Editor's summary

Misconduct is a rigorous yet lighthearted work on economics:

• It allows us to see the "irrational laws" of human behavior 🎲
• It records the struggle of behavioral economics from the fringe to the mainstream📖
• It reminds us: the economy is not just about numbers, it is about humanity💡

📌 Editor's summary: After reading this book, you will find that "making mistakes" is actually human nature, but as long as we understand these mistakes, we can live, invest and formulate policies more intelligently.