The book Misbehavior – the making of behavioral economics won the Nobel Prize in Economics and is written by economist Richard H. Thaler based on studies over several years. It required a lot of work and effort on the part of the author and is a specialist book available to all kinds of readers.
The book is about a new branch of economics – behavioral economics and its author was considered an intriguer and a rebel precisely because he sees economics with different eyes than his predecessors. From the author’s perspective we are all human and make irrational and non-rational decisions.
Thaler even separates the two theoretical categories of economists and calls them Economists (rationalists) and People. I am telling you my personal conclusion I drew after reading the book: economics must be based more on intuition and feelings than on logic (reason).
The book revolutionized economic sciences through unanimously accepted academic methods, behavioral economics being accepted but after many years of study and work, and has well-founded scientific bases. We will see at the very end of the book that behavioral economics cannot be applied at the level of macroeconomics, but it can give it nuances.
Some practical things the reader can learn from this book would be the endowment effect and how an object can become worth much more in the future than it is worth today. We can give an example of a bottle of wine; it is known that wines increase in price as their age has passed.
The book also talks about the will and we can give as an example an object whose value reaches its maximum value in a certain period, sample: 3 years. The one who will have the necessary patience, 3 years, until that object reaches the maximum possible price, is the winner.
Also, in this book I learn about the fungible budget, which can also be applied to a family. No matter how much you divide the money for different types of expenses, in the end you arrive at a common budget, called a fungible budget.
Econ means a purely theoretical economist and it is a notion. The Economist is different from the Common Man. Theoretically these two are two completely different beings. One rational, another that acts on the basis of feelings, irrational. Thaler succeeds academically, through his book, to demonstrate that we live in a world of people and not of economic machines.
One of his many studies in the book is about predictions based on inconsistent data (I think this can apply to sports betting as well) and how predictions based on inconsistent data are extreme but also identical to most predictors.
If I had to mention one more idea from the book, it would be sunk costs. Take as an example food left over from a dinner plate. An Econ will throw away what he cannot eat. A Man wouldn’t do that. From this point of view Econs are cooler, and think more pragmatically.
Final conclusions after reading the book
-Behavioral (intuitive) economics is winning nowadays, classical economics is no longer valid but not at the level of macroeconomics, which sometimes, however, can acquire small nuances of behavioral economics.
-Eventually you arrive at the same budget, a common budget (in families for example) regardless of how you distribute it among expenses (utilities, trips, education, etc.). The practical budget is fungible.
-Based on inconsistent data, predictions are exaggerated and roughly identical to most predictors.
-An object can acquire a much higher value than the initial one if we have enough patience for the value of that object to increase (e.g. a bottle of wine).
-You fight most of the time in vain for the first place in an auction. Most of the time we are wrong about what is best and we tend to want the best result to be as soon as possible, without thinking long term. This is a bad thing.
Practice and experiments have shown that the first place and the money spent on it can mean after several years: loss.