Weekly Book Reviews - Behavioral Economics

So I've decided to start a bunch of weekly book reviews. They'll all be tagged so you can access them in the future when you are out of classes and are wondering what to read in all that free time. To lead it off, I thought I would riff a little on the Paradox of Choice. The Paradox of Choice basically covers the area where psychology intersects with economics: decision theory. This is an extremely hot area right now, filled with books such as Dan Ariely's Predictably Irrational, and its sequel, The Upside of Irrationality. We also have such clever new one word titles (trying to take advantage of the Malcolm Gladwell effect) as Sway and Nudge. I thought I would approach this from the economic side this week and give you three of the older titles that I think are pretty interesting and still hold up rather well (OK to be honest, one of these titles is really, really, new). Don't worry - I have way more than enough of recommendations that have a more psychological bent coming in the future.

The Art of Choosing - Sheena Iyengar
OK, so this was written in the past year. But it does have the distinction of being written by the person who actually conducted the jam study! I actually think this book is an uneven read. The beginning is a fascinating personal history about Dr. Iyengar's life (she lost her vision during childhood) and this is followed by a great analysis of macro cultural differences in choice behavior. Then there are some uneven chapters, but the chapter on the jam study is well written and a great read. The beginning and the end definitely justify this book!








The Winner's Curse - Richard Thaler
This is a classic: one of the early popular attacks on rational economic choice theory by one of the heavyweights in the field. Thaler is the rare behavioral economist at the University of Chicago (the school famed for it's rational, free-market economists). This book is a collection of short essays that describes a bunch of times when people don't act "rationally" and explains what is really going on in these situations (or what the consequences are for their "irrational" actions). It's from a series of articles he wrote for the Journal of Economic Perspectives, but they have been slightly reworked to make them easier for the reader. There are some interesting points in here - like why auction winners almost always overpay for an item, why you shouldn't bet longshots at the racetrack at the end of the day (and why you should be the exacta), and, of course, a couple on how the stock market isn't always that efficient (and common errors investors make). I won't kid you, this can be a dense read at times, but it is rewarding. And it is a book that anyone who has an interest in finance (as well as marketing) should read!

Against the Gods - Peter L. Bernstein
This is the history of humans mathematical understanding of risk. It's an intimidating subject. And it's a long book. But it is a cracking good read (this probably oversells it, but I really recall enjoying this). It's a history book and a lesson on probability rolled up into one; what could be more desirable than that? I'd say that if you read this and A Random Walk Down Wall Street you'd be all set to hold your own in most financial conversations (and be much better off when managing your personal investments). You'll probably have much more interesting financial cocktail conversational nuggets than any of those finance gurus as well!