A behavioural economics primer

There are so many books about behavioural economics, including bestsellers like Kahneman’s Thinking Fast and Slow, Thaler’s Misbehaving, Ariely’s Predictably Irrational, and the original Sunstein and Thaler Nudge, you might wonder if we need another. It turns out the answer is yes. Behavioral Economics: Moving Forward by Fabrizio Ghisellini and Beryl Chang is aimed at students rather than a more general audience – it even has a few equations. Its real contribution though is to explain the distinction between the ‘American’ approach, which lists many psychological ‘biases’ and frames them as deviations from the standard rational model, and the ‘German’ approach (ie. Gerd Gigerenzer) which accounts for the well-known ‘behavioural’ behaviours as rational satisficing given a limited attention and brain energy budget.

The first half of the book discusses the shortcomings of the standard rational maximising approach (a bit overdone for my tastes), and explains the behavioural alternative, especially the ‘German’ version, which is presented here in the light of Herbert Simon’s work on satisficing and attention. The second half consists of seven open questions for behavioural research, including how to make sense of the proliferation of apparent ‘biases’, how to deal with time preference, the tensions in ‘libertarian paternalism’ and biased nudgers, and the formation of expectations.

So having started with the same question the authors use to open the book – do we really need another one – I’d agree with them that there is a gap to fill. This is a really useful book for introducing students to behavioural economics and the key research questions in the field, far more so than the pop behavioural literature, excellent as some of it is. Unfortunately, it won’t get widely used given the shocking pricing by the publisher (Palgrave Macmillan) – it must be so frustrating for authors to have a publisher who sets prices only libraries will ever pay (and decreasingly often at that).

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