Misbehaving

Behavioral economics is an interdisciplinary field combining insights from the psychology of judgment and decision-making with traditional economic principles to understand human behavior in economic contexts. Thaler’s work in Misbehaving demonstrates how human decisions often diverge from the predictions of traditional economic models. He highlights the importance of psychological factors and irrational behaviors in shaping economic outcomes.

“Econs” is a term Thaler uses to describe the hypothetical, perfectly rational agents in traditional economic models. These agents are characterized by their ability to make optimal decisions that maximize utility. Thaler contrasts Econs with real humans, who often exhibit biases and irrational behaviors, challenging the traditional economic assumption of rational decision-making.

The Endowment Effect is a psychological phenomenon where individuals ascribe more value to things simply because they own them. Thaler explores this concept in Misbehaving, illustrating how it contradicts the traditional economic notion of consistent valuation. This effect is a critical example of how human emotions and psychological ownership influence economic decisions.