Misbehaving: The Making of Behavioral Economics
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Ibrahim (game show contestant), 304–5
ice companies, 210
ideas42, 184, 344, 345
identified lives, 13
Illinois, 328
impartial spectator, 88, 103
incentive compatible situations, 60
incentives, 47–49, 50, 52
monetary, 353
incentives critique of behavioral economics, 47–49, 50, 52
India, 364
individual investment behavior, 184
Individual Retirement Accounts (IRAs), 310–11, 370
induced value methodology, 40–41, 149–53, 151
inertia, in savings plan, 313
inflation, “real” wages reduced by, 131–32
Influence (Cialdini), 335, 336
Innovations for Poverty Action, 342
inside view, 191
outside view vs., 186–87
instant endowment effect, 154
Intelligent Investor, The (Graham), 219, 220
interest rates, 77–78, 79, 350
intertemporal choice, 88–99
Into Thin Air (Krakauer), 356–57
intrauterine device (IUD), 342
“Invest Now, Drink Later, Spend Never” (Shafir and Thaler), 71
invisible hand, 52, 87
invisible handwave critique of behavioral economics, 51–53, 149, 209
iPhone, 280, 326
Iran, 130
Irrational Exuberance (Shiller), 234
irrelevance theorem and behavioral economics, 164–67
IRS, 314–15
iTunes, 135–36
Ivester, Douglas, 134–35
Iwry, Mark, 314–15, 316
Jameel Poverty Action Lab (J-PAL), 344
JC Penney, 62–63
Jensen, Michael, 51–52, 53, 105
and efficient market hypothesis, 205, 207, 208
Jevons, William Stanley, 88, 90
Joey (doll), 129
Johnson, Eric, xv, 82, 180n, 299, 300
on default organ donations, 327–28
Johnson, Ron, 62
Johnson, Steven, 39–40
Jolls, Christine, 184, 257, 258, 260, 269
Jordan, Michael, 19
Journal of Economic Behavior and Organization, 53–54
Journal of Economic Perspectives, 170–75
Journal of Finance, 243
Journal of Financial Economics, 208
judgment, 179n–80n
“Judgment Under Uncertainty: Heuristics and Biases” (Kahneman and Tversky), 22–23, 24
just noticeable difference (JND), 32–33
Kahneman, Daniel, 21, 22–23, 24, 29, 36, 103n, 104, 125, 126, 140, 148, 157, 162, 176, 221, 335, 338, 353, 357
and “as if” critique of behavioral economics, 46
in behavioral economics debate, 159, 160
in Behavioral Economics Roundtable, 181, 183, 185
book edited by, 187
on changes in wealth, 30–31
endowment effect studied by, 149–55
equity premium puzzle studied by, 197–98
on extreme forecasts with flimsy data, 218, 219, 223
framing studied by, 18
hypothetical choices defended by, 38, 82
lack of incentives in experiments of, 47–48
and “learning” critique of behavioral economics, 49
on long-shot odds, 80–81
narrow framing work of, 186–87, 191
Sunstein’s collaboration with, 258
Thaler’s first meeting with, 36–37
Thaler’s laziness praised by, xv–xvi
on theory-induced blindness, 93
and Tversky’s cancer, xiii–xiv
two-system view of mind, 103, 109
and Ultimatum Game, 140, 141, 267
unambiguous questions studied by, 295–96
Wanner given advice by, 177
Kan, Raymond, 243
Karlan, Dean, 19
Kashyap, Anil, 272, 273
Katrina, Hurricane, 133, 327
Keynes, John Maynard, 94–95, 96
beauty contest analogy of, 210–11, 212, 214
and behavioral macroeconomics, 349
on conventional wisdom, 210, 292
decline of interest in ideas of, 209
as forerunner of behavioral finance, 209
as investor, 209, 219
on market anomalies, 209–10, 219
kidneys, auctions for, 130
Kitchen Safe, 107n
Kleidon, Allan, 167–68, 232
KLM, 356
“Knee-Deep in the Big Muddy” (Staw), 65
Knetsch, Jack, 126, 127–28, 140, 148–49, 267
Kohl’s, 62
Kokonas, Nick, 138–39
Korobkin, Russell, 269
Krakauer, Jon, 356–57
Krueger, Alan B., 139n, 359, 372
Kuhn, Thomas, 167–68, 169, 171, 172, 349
Kunreuther, Howard, 25
Laboratory Experimentation in Economics: Six Points of View (Roth), 148
Labor Department, U.S., 316
Laibson, David, 110, 183, 315n, 353
Lamont, Owen, 244, 250
law and economics, 257–69
law of large numbers, 194–95
law of one price, 237–39, 244, 247, 248, 250, 348
learning critique of behavioral economics, 49–51, 153
Leclerc, France, 257
Lee, Charles, 239
closed-end fund paper of, 240–43, 244
Leno, Jay, 134
Lester, Richard, 44–45
Letwin, Oliver, 331
Levitt, Steven, 354
Lewin, Kurt, 338, 340
liar loans, 252
Liberal Democrats, U.K., 332
libertarian paternalism, 322, 323–25
“Libertarian Paternalism Is Not an Oxymoron” (Sunstein and Thaler), 323–25
Lichtenstein, Sarah, 36, 48
life, value of, see value of a life
life-cycle hypothesis, 95–96, 97, 98, 106, 164
“Life You Save May Be Your Own, The” (Schelling), 12–13, 14
limits of arbitrage, 249, 288, 349
Lintner, John, 166, 226, 229
Liquid Assets (Ashenfelter), 68
List, The, 10, 20–21, 24, 25, 31, 33, 36, 39, 43, 58, 68, 303, 347
List, John, 354
lives, statistical vs. identified, 13
loans, for automobiles, 121–23
Loewenstein, George, 88, 111, 176, 180–81, 362
in Behavioral Economics Roundtable, 181
effort project of, 199–201
paternalism and, 323
London, 248
Long Term Capital Management (LTCM), 249, 251
loss aversion, 33–34, 52, 58–59, 154, 261
dividends and, 166
of managers, 187–89, 190
myopic, 195, 198
Lott, John, 265–66
Lovallo, Dan, 186, 187
Lowenstein, Roger, xv–xvi, 12
LSV Asset Management, 228
Lucas, Robert, 159
Luck, Andrew, 289
MacArthur Foundation, 184
Machiguenga people, 364
Machlup, Fritz, 45
macroeconomics:
behavioral, 349–52
rational expectations in, 209
Macy’s, 62, 63
Madrian, Brigitte, 315–17
Magliozzi, Ray, 32
Magliozzi, Tom, 32–33
Major League Baseball, 282
“make it easy” mantra, 337–38, 339–40
Malkiel, Burton, 242
managers:
growth, 214–15
gut instinct and, 293
loss aversion of, 187–89, 190
risk aversion of, 190–91
value, 214–15
mandated choice, 328–29
marginal, definition of, 27
marginal analysis, 44
marginal
propensity to consume (MPC), 94–95, 98
markets, in equilibrium, 44, 131, 150, 207
Markowitz, Harry, 208
marshmallow experiment, 100–101, 102n, 178, 314
Marwell, Gerald, 145
Mas, Alexandre, 372
Massey, Cade, 194, 278–79, 282, 289
Matthew effect, 296n
McCoy, Mike, 281–82
McDonald’s, 312
McIntosh, Donald, 103
mean reversion, 222–23
Mechanical Turk (Amazon), 127
Meckling, William, 41, 105
Mehra, Raj, 191
mental accounting, 54, 55, 98, 115, 116, 118, 257
bargains and rip-offs, 57–63
budgeting, 74–79
and equity premium puzzle, 198
on game show, 296–301, 297
getting behind in, 80–84
house money effect, 81–82, 83–84, 193n
of savings, 310
sunk costs, 21, 52, 64–73
“two-pocket,” 81–82
Merton, Robert K., 296n
“Methodology of Positive Economics, The” (Friedman), 45–46
Mian, Atif, 78
Miljoenenjacht, see Deal or No Deal
Miller, Merton, 159, 167–68, 206, 208
annoyed at closed-end fund paper, 242–43, 244, 259
irrelevance theorem of, 164–65, 166–67
Nobel Prize won by, 164
Thaler’s appointment at University of Chicago, reaction to, 255, 256
Minnesota, 335
Mischel, Walter, 100–101, 102, 103, 178, 314
mispricing, 225
models:
beta–delta, 110
of homo economicus, 4–5, 6–7, 8–9, 23–24, 180
imprecision of, 23–24
optimization-based, 5–6, 8, 27, 43, 207
Modigliani, Franco:
consumption function of, 94, 95–96, 97, 98, 309
irrelevance theorem of, 164–65
Nobel Prize won by, 163–64
Moore, Michael, 122
More Guns, Less Crime (Lott), 265
Morgenstern, Oskar, 29
mortgage brokers, 77–78
mortgages, 7, 77–79, 252, 345
mugs, 153, 155, 263, 264–66, 264
Mullainathan, Sendhil, 58n, 183–84, 366
Mulligan, Casey, 321–22
Murray, Bill, 49–50
mutual fund portfolios, 84
mutual funds, 242
myopic loss aversion, 195, 198
Nagel, Rosemarie, 212
naïve agents, 110–11
Nalebuff, Barry, 170
narrow framing, 185–91
and effort project, 201
NASDAQ, 250, 252
Nash, John, 212
Nash equilibrium, 212, 213n, 367
National Bureau of Economic Research (NBER), 35, 236, 244, 349
National Football League, 139n
draft in, 11, 277–91, 281, 283, 285, 286
rookie salaries in, 283
salary cap in, 282–83
surplus value of players in, 285–86, 285, 286, 288
National Public Radio, 32, 305
naturally occurring experiments, 8
NESTA, 343
Net Asset Value (NAV) fund, 238–39, 241
Netherlands, 248, 296–301
neuro-economics, 177, 182
New Contrarian Investment Strategy, The (Dreman), 221–22
New Orleans Saints, 279
New York, 137
New Yorker, 90–91, 91, 92
New York Stock Exchange, 223, 226, 232, 248
New York Times, 292, 327, 328
New York Times Magazine, xv–xvi, 12
Next Restaurant, 138–39
NFL draft, 11, 277–91, 281, 283, 285, 286, 295
Nick (game show contestant), 304–5
Nielsen SoundScan, 135
Nixon, Richard, 363
Nobel, Alfred, 23n
Nobel Prize, 23, 40, 207
no free lunch principle, 206, 207, 222, 225, 226n, 227, 230, 233–36, 234, 236, 251, 255
noise traders, 240–42, 247, 251
nomenclature, importance of, 328–29
Norman, Don, 326
normative theories, 25–27
“Note on the Measurement of Utility, A” (Samuelson), 89–94
no trade theorem, 217
Nudge (Thaler and Sunstein), 325–26, 330, 331–32, 333, 335, 345
nudges, nudging, 325–29, 359
number game, 211–14, 213
Obama, Barack, 22
occupations, dangerous, 14–15
Odean, Terry, 184
O’Donnell, Gus, 332–33
O’Donoghue, Ted, 110, 323
Odysseus, 99–100, 101
Office of Information and Regulatory Affairs (OIRA), 343–44
Office of Management and Budget, 343
offices, 270–76, 278
“one-click” interventions, 341–42
open-end funds, 238
opportunity costs, 17, 18, 57–58, 59, 73
of poor people, 58n
optimal paternalism, 323
optimization, 5–6, 8, 27, 43, 161, 207, 365
Oreo experiment, 100–101, 102n, 178, 314
organizations, theory of, 105, 109
organs:
donations of, 327–28
markets for, 130
Osborne, George, 331
Oullier, Olivier, 333
outside view, inside view vs., 186–87
overconfidence, 6, 52, 124, 355
and high trading volume in finance markets, 217–18
in NFL draft, 280, 295
overreaction:
in financial markets, 219–20, 222–24, 225–29
generalized, 223–24
to sense of humor, 218, 219, 223
value stocks and, 225–29
Oxford Handbook of Behavioral Economics and the Law, 269
Palm and 3Com, 244–49, 246, 250, 348
paradigms, 167–68, 169–70
Pareto, Vilfredo, 93
parking tickets, 260
passions, 7, 88, 103
paternalism, 269, 322
dislike of term, 324
libertarian, 322, 323–25
path dependence, 298–300
“pay as you earn” system, 335
payment depreciation, 67
Pearl Harbor, Japanese bombing of, 232
P/E effect, 219–20, 222–23, 233, 235
pensions, 9, 198, 241, 320, 357–58
permanent income hypothesis, 95
Peter Principle, 293
pharmaceutical companies, 189–90
Pigou, Arthur, 88, 90
plane tickets, 138
planner-doer model, 104–10
Plott, Charlie, 40, 41, 48, 49, 148, 149, 177, 181
poker, 80, 81–82, 99
poor, 58n
Posner, Richard, 259–61, 266
Post, Thierry, 296
poverty, decision making and, 371
Power, Samantha, 330
“Power of Suggestion, The” (Madrian and Shea), 315
practice, 50
predictable errors, 23–24
preferences:
change in, 102–3
revealed, 86
well-defined, 48–49
pregnancy, teenage, 342
Prelec, Drazen, 179
Prescott, Edward, 191, 192
present bias (hyperbolic discounting), 91–92, 110, 227n
and NFL draft, 280, 287
savings and, 314
presumed consent, in organ donations, 328–29
price controls, 363
price/earnings ratio (P/E), 219–20, 222–23, 233, 235
prices:
buying vs. selling, 17, 18–19, 20, 21
rationality of, 206, 222, 230–33, 231, 237, 251–52
variability of stock, 230–33, 231, 367
&n
bsp; price-to-rental ratios, 252
principal-agent model, 105–9, 291
Prisoner’s Dilemma, 143–44, 145, 301–5, 302
“Problem of Social Cost, The” (Coase), 263–64
profit maximization, 27, 30
promotional pricing strategy, 62n
prompted choice (in organ donation), 327–29
prospect theory, 25–28, 295, 353
acceptance of, 38–39
and “as if” critique of behavioral economics, 46
and consumer choice, 55
and equity premium puzzle, 198
expected utility theory vs., 29
surveys used in experiments of, 38
psychological accounting, see mental accounting
“Psychology and Economics Conference Handbook,” 163
“Psychology and Savings Policies” (Thaler), 310–13
Ptolemaic astronomy, 169–70
public goods, 144–45
Public Goods Game, 144–46
Punishment Game, 141–43, 146
Pythagorean theorem, 25–27
qualified default investment alternatives, 316
quantitative analysis, 293
Quarterly Journal of Economics, 197, 201
quasi-hyperbolic discounting, 91–92
quilt, 57, 59, 61, 65
Rabin, Matthew, 110, 181–83, 353
paternalism and, 323
racetracks, 80–81, 174–75
Radiolab, 305
randomized control trials (RCTs), 8, 338–43, 344, 371
in education, 353–54
Random Walk Down Walk Street, A (Malkiel), 242
rational expectations, 98, 191
in macroeconomics, 209
rational forecasts, 230–31
rationality:
bounded, 23–24, 29, 162
Chicago debate on, 159–63, 167–68, 169, 170, 205
READY4K!, 343
real business cycle, 191
real estate speculation, 372
rebates, 121–22, 363
recessions, 131–32
fiscal policy in, 209
reciprocity, 182
Reder, Mel, 159
Reeves, Richard, 330, 332
reference price, 59, 61–62
regression toward the mean, 222–23
research and development, 189
reservation price, 150
retirement, savings for, see savings, for retirement
return, risk vs., 225–29
returns, discounts and, 242
revealed preferences, 86
“right to carry” law, 265n
risk:
measurement of, 225–29
return vs., 225–29
“Risk and Uncertainty: A Fallacy of Large Numbers” (Samuelson), 194
risk aversion, 28–29, 33, 83, 84
crowds and, 301, 369
on Deal or No Deal, 298–99
equity premium and, 191–92
of managers, 190–91
moderate vs. extreme, 298–99
risk premium, 14–16, 226
irrationality of, 16–17
risk-seeking behavior, 81, 83
roadside stands, 146–47
Robie House, 270
Rochester, University of, 41, 51, 205, 216