“MISBEHAVING”—FAILING TO ACT WITH ECONOMIC RATIONALITY. The concept of the test with a maximum score of 137 was not the only idea that Thaler got from his experience with that first test. Thaler explains the title of his book by saying: “In the eyes of an economist, my students were “misbehaving”. By that I mean that their behavior was inconsistent with the idealized model of behavior that is at the heart of what we call economic theory.” Traditional economic theory assumes that people make economic decisions rationally. If the consequences of a score of 72 on a scale of 100 are the same as a score of 98 on a scale of 137, a rational student should be indifferent between the two scores. But students don’t behave that way.

Thaler took a lesson from the students and developed an entire field of economic theory—behavioral economics, which attempts to analyze the behavior of people who are not perfectly rational. I have posted on some of the research in behavioral economics. I posted a number of times, including here, about the marshmallow experiment for testing the will power of four year olds and a number of times, including here, on the argument that giving gifts at Christmas is not something a rational economist would do (“Scroogeonomics”).

This entry was posted in Economics. Bookmark the permalink.

Leave a Reply

Your email address will not be published.