Misbehaving

Content Warning: This guide quotes the author’s use of an offensive term about people with mental health conditions.

Thaler begins by recounting an experience from his early teaching career. He designed a challenging microeconomics exam intended to effectively differentiate students’ understanding levels. However, he faced unexpected backlash when students were upset over the average score being 72 out of 100. Thaler realized that despite explaining how these scores would translate into higher grades, the students’ dissatisfaction was unaffected. Their reaction was not in line with the rational behavior expected in economic models.

Thaler then decided to adjust his approach without simplifying the exam. He increased the total points to 137, making the average score appear higher—a 96—which significantly improved the students’ perception and satisfaction, although it didn’t change their actual grades. This incident exemplified how human behavior often deviates from the rational model assumed in economics.

Thaler uses this anecdote to introduce the concept of “misbehaving” in economics; he describes it as an instance in which human behavior contradicts the idealized, rational model of decision-making. He critiques the traditional economic model, which replaces real humans with the theoretical construct of “homo economicus” or “Econs.” Thaler argues that while this model is intellectually powerful and influential in policymaking, it fails to account for the complexities and biases inherent in human nature.