Misbehaving: The Making of Behavioral Economics

The planner has two sets of tools

rewards or penalties (financial or otherwise) that still allow them discretion, or she can impose rules, such as commitment strategies, which limit the doers’ options.

Of course, there are other techniques of control, used by both organizations and individuals, which involve keeping track of expenditures. In organizations, these techniques are called accounting. Similarly, as we saw earlier, Humans use mental accounting,

The planner, in contrast, is completely altruistic. All she¶ cares about is the utility of the series of doers.

In our intrapersonal framework, the agents are a series of short-lived doers; specifically, we assume there is a new doer each time period, say each day.

Giving up the opportunity to sell something does not hurt as much as taking the money out of your wallet to pay for it.

Narrow framing prevents the CEO from getting the twenty-three projects he would like, and instead getting only three.

People think about life in terms of changes, not levels. They can be changes from the status quo or changes from what was expected, but whatever form they take, it is changes that make us happy or miserable. That was a big idea.

The results strongly supported our hypothesis. We tested for overreaction in various ways, but as long as the period we looked back at to create the portfolios was long enough, say three years, then the Loser portfolio did better than the Winner portfolio. Much better. For example, in one test we used five years of performance to form the Winner an