Misbehaving: The Making of Behavioral Economics

“the three bounds”: bounded rationality, bounded willpower, and bounded self-interest.

beta (β) and delta (δ). The subtleties of the model are difficult to explain without going into some detail, but references to the key papers are provided in the endnotes. The crucial advantage that the beta–delta model has over the planner and the doer is mathematical simplicity. It is the smallest possible modification of Samuelson’s basic model

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.

Optimization + Equilibrium = Economics.

Roughly speaking, losses hurt about twice as much as gains make you feel good.

To write these questions, I first had to decide which of two ways to ask the question: either in terms of “willingness to pay” or “willingness to accept.” The first asks how much you would pay to reduce your probability of dying next year by some amount, say by one chance in a thousand.

As we have seen throughout this book, treating all money as the same, and also as the primary driver of human motivation, is not a good description of reality.

In order to get managers to be willing to take risks, it is necessary to create an environment in which those managers will be rewarded for decisions that were value-maximizing ex ante, that is, with information available at the time they were made, even if they turn out to lose money ex post.

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