Misbehaving: The Making of Behavioral Economics

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

Unlike the sick girl, the typical domestic public policy decision is abstract. It lacks emotional impact.

Humans have limited time and brainpower. As a result, they use simple rules of thumb—heuristics—to help them make judgments. An example would be “availability.” Suppose I ask you if Dhruv is a common name.

even economists have trouble equating opportunity costs with out-of-pocket costs.

One example that has been used for decades is announcing a largely fictional “suggested retail price,” which actually just serves as a misleading suggested reference price. In America, some products always seem to be on sale, such as rugs and mattresses, and at some retailers, men’s suits. Goods that are marketed this way share two characteristics:

I think there is a long Jewish tradition that history and wisdom are being transmitted from one generation to another not through lectures and history books, but through anecdotes, funny stories, and appropriate jokes.

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

Businesses are catching on as well, realizing that a deeper understanding of human behavior is every bit as important to running a successful business as is an understanding of financial statements and operations management. After all, Humans run companies, and their employees and customers are also Humans.

Our premise was simple. Because people are Humans, not Econs (terms we coined for Nudge), they make predictable errors. If we can anticipate those errors, we can devise policies that will reduce the error rate.