This book is an intellectual autobiography written by Nobel laureate Richard Thaler. The book provides a glimpse at one of the most interesting intellectual battles within the field of economics: a battle between the reductionist and rationalist camp (which has confounded the normative and the descriptive value of its theories), and the empiricist and skeptical camp (which parted away with parsimony and formal elegance in the pursuit of realism).
I won't summarize the wealth of evidence presented (with clarity and grace) in the book. Rather, I will make five general points that will suffice, I think, to entice the undecided reader to take up this good book.
1. This is Kuhnian book. It tells a story of a paradigm shift in the field of economics, from the initial hostility to the reticent acceptance and later to the widespread celebration of behavioral economics (more than ten of its main exponents have been awarded with the Nobel prize).
2. Behavioral economics is already making a dent in public policy. In England and elsewhere, policy makers have embraced some of its prescriptions to tackle various social problems, ranging from obesity to tax evasion. There is a perverse side of behavioral economics though. There are good nudges and bad nudges. Thaler himself sometimes sounds as an expert and unrepentant manipulator (see chapter 13 for example).
3. Economists can no longer ignore the (empirical) relevance of a set of behavioral ideas: loss aversion, the endowment effect, mental accounting, hyperbolic discounting, fairness preferences and narrow framing. "Humans do not have the brains of Einstein (or Barro), nor do they have the self-control of an ascetic Buddhist monk. Rather, they have passions, faulty telescopes, treat various pots of wealth quite differently, and can be influenced by short-run returns in the stock market."
4. William Baumol's early critique of behavioral economics in the sense that it should move beyond the discovery of anomalies to a more constructive agenda is still relevant. Some parts of the book are just anomaly-mining followed by ex post theorizing.
5. While reading the book, I often remembered a famous dictum by novelist (and also Nobel laurate) Elias Canetti: "there aren't the most profound ideas which have often the greatest influence." This book shows that simple ideas can indeed be quite influential.
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