How We Decide

During the peak of the housing boom, 55 percent of all 2/28 mortgages were sold to homeowners who could have gotten prime mortgages.

If people were perfectly rational—if they made decisions solely by crunching the numbers—then subjects would always choose to invest, since the expected overall value on each round is higher if one invests ($1.25, or $2.50 multiplied by the 50 percent chance of getting tails on the coin toss) than if one does not ($1). In fact, if a person invests

According to Slovic, the problem with statistics is that they don't activate our moral emotions. The depressing numbers leave us cold: our minds can't comprehend suffering on such a massive scale. This is why we are riveted when one child falls down a well but turn a blind eye to the millions of people who die every year for lack of clean water. An

(Herbert Simon said it best: "A wealth of information creates a poverty of attention.")

Mischel's results were very surprising, at least to him. There was a strong correlation between the behavior of the four-year-old waiting for a marshmallow and that child's future behavior as a young adult. The children who rang the bell within a minute were much more likely to have behavioral problems later on. They got worse grades and were more

For example, when Thaler asked people whether they would drive twenty minutes out of their way to save five dollars on a fifteen-dollar calculator, 68 percent of respondents said yes. However, when he asked people whether they would drive twenty minutes out of their way to save five dollars on a $125 leather jacket, only 29 percent said they would.

This developmental process holds the key to understanding the behavior of adolescents, who are much more likely than adults to engage in risky, impulsive behavior. More than 50 percent of U.S. high school students have experimented with illicit drugs. Half of all reported cases of sexually transmitted diseases occur in teenagers. Car accidents are

Imagine that you have decided to see a movie and have paid the admission price of $10 per ticket. As you enter the theater, you discover that you have lost the ticket. The seat was not marked, and the ticket cannot be recovered. Would you pay $10 for another ticket? When Thaler conducted this survey, he found that only 46 percent of people would bu

George Loewenstein, the neuroeconomist, thinks that understanding the errors of the emotional brain will help policymakers develop plans that encourage people to make better decisions: "Our emotions are like software programs that evolved to solve important and recurring problems in our distant past," he says. "They are not always we