Misbehaving: The Making of Behavioral Economics
Page 44
American Economic Association (AEA), 170, 173, 323, 347
American Finance Association (AFA), 223–24, 240
American Red Cross, 137
Ames, Ruth, 145
Andreoni, James, 145–46
animal spirits, 209, 233, 242
Animal Spirits (Akerlof and Shiller), 233
“Anomalies” column, 170–75, 176, 195
“anomaly mining,” 178
anti-antipaternalism, 269, 323
anti-gouging laws, 129, 137
AOL, 245
Apple, 135–36
arbitrage, 237–38
limits of, 249, 288, 349
Palm and, 244–48, 246, 249, 250, 348
Arkes, Hal, 67
Arrow, Kenneth, 44, 181
in behavioral economics debate, 159, 160–62
financial economics work of, 208
Ashenfelter, Orley, 68, 70, 257
Asian disease problem, 159–60
“as if” critique of behavioral economics, 44–47
ATMs, 133–34
automatic enrollment, 313–22, 318
vs. negative election, 313
automobile loans, 77, 78, 120–24
discounted, 121–23, 363
rebates in, 121–22
Babcock, Linda, 184, 199–200
Baltussen, Guido, 296, 300
bank tellers, 133–34, 136
Banz, Rolf, 221, 228
Barberis, Nicholas, 206n, 353
Bar-Hillel, Maya, 36, 194n
quilt purchased by, 57, 59, 61, 65
Barro, Robert, 96–97, 98
baseball, 282
base rates, 187
Basu, Sanjoy, 221, 224, 225
Baumol, William, 30, 178
Beautiful Mind, A (Nasar), 212
beauty contests (Keynesian), 210–11, 212, 214
Becker, Gary, 277–78, 293–94
Becker conjecture, 277–78, 293–94
beer on the beach, 59–61
“Behavioral Approach to Law and Economics, A” (Jolls, Sunstein, and Thaler), 258–59
behavioral bureaucrats, 269
Behavioral Economics Roundtable, 181, 183, 185
behavioral life-cycle hypothesis, 98
behavioral macroeconomics, 349–52
Behavioural Insights Team (BIT), 11, 334, 336–45
creation of, 10, 334
mantras of, 337–38, 339
Benartzi, Shlomo:
equity premium puzzle studied by, 191, 192, 194–95, 198, 203, 217
savings studied by, 313, 314, 317, 318, 321
Berkeley, Calif., 181–82, 185
Berlin Wall, 350n
Bernheim, Douglas, 310
Bernoulli, Daniel, 27–28, 30
Bernoulli, Nicolas, 27
beta (in beta–delta model), 110
beta (risk measurement), 226–27, 228, 229, 348
biases, 6, 23, 24, 25, 35, 46
confirmation bias, 172, 355
in financial markets, 203, 251n
hindsight bias, 21–22, 190
status quo bias, 154
timid choices and bold forecasts, 186–87
“big peanuts” hypothesis, 303, 341
Binmore, Ken, 50
“Binmore continuum,” 50–51
Black, Fischer, 224, 240, 251, 252
Black-Scholes option pricing model, 208, 224
Blair, Tony, 333
Blinder, Alan, 181
blizzards, 20, 64–65, 128–29, 136, 137
Blumer, Catherine, 67
bonds, stocks vs., 191–92, 195–98, 196
bounded rationality, 23–24, 29, 162, 258, 269
bounded self-control, 269
bounded self-interest, 258
bounded willpower, 258
break-even effect, 80–81, 83, 84
British Airways, 212
British Columbia, University of, 125–26, 140–43, 185
Brown, E. Carey, 193, 194
Brumberg, Richard, 95
budgeting, 74–79
Buffett, Warren, 134, 219
Burke, Brian, 292
Cabbage Patch Dolls, 129
cabin, 106–7
Cabinet Office, U.K., 343
calendar effects, 174
Camerer, Colin, 176–77, 181, 182, 183, 185
effort project of, 199–201
narrow framing work of, 185
paternalism and, 323
Cameron, David, 331–32, 333, 334
Cameron, Lisa, 143
Campbell, John, 234
“Can the Market Add and Subtract?” (Lamont and Thaler), 250
capital asset pricing model (CAPM), 226–29, 348
“CAPM is Wanted, Dead or Alive, The” (Fama and French), 228
Car Talk, 32
Case, Chip, 235
Case-Shiller Home Price Index, 235
cashews, 21, 24, 42, 85–86, 92, 100, 102–3, 107n
casinos, 49n
cautious paternalism, 323
Census Bureau, 47
Center for Research in Security Prices (CRSP), 208, 221
charity, 66, 129
cheap stocks, 219–21
Checklist Manifesto, The (Gawande), 356
Chen, Nai-fu, 243
Chetty, Raj, 320, 357–58
Chicago, University of, 255–56
behavioral economics conference at, 159–64, 167–68, 169, 170, 205
conference on 1987 crash at, 237
debate on behavioral economics at, 159–63, 167–68, 169, 170, 205
finance studied at, 208
offices at, 270–76, 278
Chicago Bulls, 19
Chicago police department, 260
chicken (game of), 183
choice:
number of, 21, 85, 99–103
preferences revealed by, 86
choice architecture, 276, 326–27, 357
Choices, Values, and Frames, xiv
Chrysler, 121, 123, 363
Cialdini, Robert, 180, 335, 336
Clegg, Nick, 333
Clinton, Hillary, 22
closed-end funds, 238–39, 239, 240
puzzles of, 240–43, 244, 250
coaches, 292–93
Coase, Ronald, 261
Coase theorem, 261–62, 264–65, 264, 267–68
Cobb, David, 115
Cobb, Michael, 115, 116, 117, 118n, 119, 120, 123
Coca-Cola, 134–35
cognitive dissonance, 178
commitment strategies, 100, 102–3, 106–7
compliance (medical), 189–90
COMPUSTAT, 221
computing power, 208
concert tickets, 18–19, 66
conditional cooperators, 146, 182, 335n
“Conference Handbook, The” (Stigler), 162–63
confirmation bias, 171–72
Conservative Party, U.K., 330–33
constrained optimization, 5–6, 8, 27, 43, 161, 207, 365
“Consumer Choice: A Theory of Economists’ Behavior” (Thaler), 35
consumers, optimization problem faced by, 5–6, 8, 27, 43, 161, 207, 365
consumer sovereignty, 268–69
consumer surplus, 59
consumption function, 94–98, 106, 309
“Contrarian Investment, Extrapolation, and Risk” (Lakonishok, Shleifer and Vishny), 228
cooperation, 143–47
conditional, 146, 182, 335n
Prisoner’s Dilemma and, 143–44, 145, 301–5, 302
Copernican revolution, 169
Cornell University, 42, 43, 115, 140–43, 153–55, 157
Costco, 63, 71–72
Council of Economic Advisors, 352
coupons, 62, 63, 67–68, 120
credit cards, 18, 74, 76–77
late fees for, 360
crime, 265
Daily Mail, 135
Daily Show, The, 352
Dallas Cowboys, 281
data:
financial, 208
collection and recording of, 355–56
Dawes, Robyn, 146
Deal or No Deal, 296–301, 297, 303
path dependence on, 298–300
deals, 61–62
De Bondt, Werner, 216–18, 221, 222–24, 226n, 233, 278
debt, 78
default investment portfolio, 316
default option, 313–16, 327
default saving rate, 312, 316, 319, 357
delayed gratification, 100–102
De Long, Brad, 240
Demos, 330
Denmark, 320, 357–58
descriptive, 25, 30, 45, 89
Design of Everyday Things, The (Norman), 326
Diamond, Doug, 273, 276
Diamond, Peter, 323
Dictator Game, 140–41, 142, 160, 182, 301
diets, 342
diminishing marginal utility, 106
of wealth, 28, 30
diminishing sensitivity, 30–34
discount, surcharge vs., 18
discounts, returns and, 242–43
discounted utility model, 89–94, 99, 110, 362
discretion, 106
Ditka, Mike, 279, 280
dividends, 164–67, 365
present value of, 231–33, 231, 237
Dodd, David, 219
doers, planners vs., 104–9
Donoghue, John, 265n
“Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?” (Shiller), 232–33
Dow Jones Industrial Average, 220, 221
Down, Nick, 334, 335, 336, 337
Dreman, David, 221–22, 225, 227
drug companies, 189–90
“dumb principal” problem, 190–91, 291
DuPont, 248
eBay, 245
economics, economic theory:
core premises of, 5–6, 44, 48
powerful reputation of, 5
Economic and Social Research Council, 344
“Economic Theory of Self-Control, An” (Thaler), 53
“Economists Free Ride: Does Anyone Else?” (Marwell and Ames), 145
Econs (homo economicus), 4–5, 6–7, 9, 23–24
evolution of, 94–98
poor people as, 58n
sunk costs ignored by, 65
transaction utility not experienced by, 61
education, 27
field experiments in, 353–54
efficient market hypothesis (EMH), 159–63, 167–68, 348–49
“cheap” stocks vs., 220–21
closed-end fund shares price and, 239, 250
coining of term, 205
as descriptive model, 251
Keynes’s disagreement with, 209–10
and mean reversion, 222–23
no-free-lunch principle of, 206, 207, 222, 225, 226n, 227, 230, 233–36, 234, 236, 251
as normative benchmark, 250–51
overreaction vs., 222–24, 225–29
prices as “right” in, 206, 222, 230–33, 231, 237, 251–52
and splitting off of Palm, 245–48, 249, 250, 348
effort project, 199–201
Einhorn, Hillel, 162
El Bulli, 138–39
Elster, Jon, 178, 181
employment contracts, as gift exchange, 182
Endemol, 296, 301
endowment effect, 12–19, 57, 149–55, 261
fairness related to, 131
instant, 154
and losses, 58–59
lottery tickets and, 148–49
as “transaction cost,” 266
Energy and Climate Change Department, U.K., 338
energy bars, 106–7
entrepreneurs, 351–52
epicycles, 170
equilibrium, 44, 131, 150, 207
equity premium puzzle, 191–98, 196, 203, 217
Erasmus University, 296
error term, 23–24
escalation of commitment, 65
“Ethics of Nudging, The” (Sunstein), 337n
everyday low pricing, 62
evidence-based:
economics, 348, 353, 355
models of consumer behavior, 351
policy, 338
evolution, 261
exams, based on scores of 137, 3–4, 6, 7
expected utility theory, 29, 295, 353
prospect theory vs., 29, 298
experimental economics, 40–41, 182
bubbles created in, 40n, 206n
with drug compliance, 190
in education, 353–54
for endowment effect, 148–55
on equity premium puzzle, 195–98, 196, 217
learning in, 153
experiments:
naturally occurring, 8
randomized control trial, 8, 338–41, 371
exponential discounting, 91–94, 99
fairness, 119, 127–39, 149, 182
endowment effect related to, 131
in games, 140–47, 160, 182–83
gouging and, 127–29, 137–39
fake prices, 62–63
false consensus effect, and NFL draft, 280
Fama, Eugene, 159, 167, 177, 208, 221, 348
background of, 205–6
on crash of 1987, 237
“efficient market hypothesis” studied and defended by, 27–29, 205, 208, 237, 250
on risk measurement, 225
and Thaler’s hiring at University of Chicago, 256
on value stocks, 227–29
Fama-French Three Factor Model, 228
Farnsworth, Ward, 268
Faulkner, William, 72
Federal Reserve Board, 234
Fehr, Ernst, 146, 181–82, 183
fertilizer, 8
Festinger, Leon, 178
Fidelity, 313
field of decision-making, 179n–80n
financial bubbles, 7, 9
and efficient market hypothesis, 206
in experiments, 40n, 206n
financial markets:
behavioral economics and, 203–4, 205, 209–53, 349–50
high trading volume in, 217–18
invisible handwave critique and, 209
overreaction in, 219–20, 222–24, 225–29
Financial Times, 212–14, 213
firm(s):
and consumer biases, 360
fairness and, 132–33
large vs. small, 221, 228, 242, 243
theory of, 27, 30, 44–45, 52–53
First Chicago, 133–34, 136
Fischhoff, Baruch, 21–22, 25, 36
Fisher, Irving, 88–89, 95
Fisher, Scott, 356–57
five-factor model, 229
football, see National Football League
Ford, 121, 123
forecasts, 233–36
in NFL draft, 280
rational, 230–31
“Foundations of Economic Analysis” (Samuelson), 89
Foundations of Human Society, The (McIntosh), 103
401(k) plans, 77, 195, 311, 312, 315
framing, 18
narrow framing, 185–91
of teacher bonuses, 354
Frank, Bob, 97
Frank (game show contestant), 299, 300, 303
free riders, 145–47
French, Kenneth, 227–29
Freud, Sigmund, 103, 181
Friedman, Milton, 45–46, 51
consumption function of, 94, 95, 96, 309
Fryer, Roland, 353–54
Fuchs, Victor, 35
Fuller and Thaler Asset Management, 251n
fungibility:
of money, 74, 76, 82, 109, 164, 320, 353
of wealth, 98, 193n
gambling, 80–84
Samuelson rationality of repeat, 192–95, 197
game shows, 11, 34
Deal or No Deal, 296–301, 297, 303
Golden Balls, 301–5, 302
game theory, 104–5, 176–77
Keynes’s beauty contest and, 210–11, 212, 214
; and number game, 211–14, 213
Prisoner’s Dilemma, 143–44, 145, 301–5, 302
gasoline prices, 75–76, 79
Gauntlet, 43–53, 163
Gawande, Atul, 356
generalized overreaction, 223–24
General Motors, 52–53, 120–24, 248, 363
General Theory of Employment, Interest and Money, The (Keynes), 94–95, 209
Ghana, 342
gift exchange, employment contracts as, 182
gifts, 6, 20–21
Gilovich, Tom, 97n
Ginzel, Linda, 356
Glaeser, Edward, 372
global financial crisis, 7, 53, 76, 350
central banks’ fighting of, 253
economists’ failure to foresee, 4–5
Golden Balls, 301–5, 302
Goldstein, Daniel, 327–28
Google, 170
Goolsbee, Austan, 352
gouging, 127–29, 137–39
Gourville, John, 66–67
grade point average (GPA), 218–19, 219, 223
Graham, Benjamin:
closed-end funds criticized by, 241
discounts recommended by, 242
DuPont/GM investments of, 248
profitability in firms sought by, 229
value investing pioneered by, 219–20, 221, 225, 227
Great Depression, 165
Greek Peak, 115–20, 123
Green, Bill, 82n
Greenspan, Alan, 234
mistakes admitted by, 9
Grether, David, 48, 49
Griffen, Robert, III, 289
Griffen (African gray parrot), 102n
Groucho Marx theorem, 217
Groundhog Day (film), 49–50
growth managers, growth stocks, 214–15, 222, 227, 228
Guardian, 135
Güth, Werner, 141
gym memberships, 66–67, 360
habits, theory based on, 161
Hall, Rob, 356–57
Hallsworth, Michael, 336
Halpern, David, 333, 334
Hastings, Justine, 75–76, 357
health care, 329n
health care, as right, 130
Heath, Chip, 75, 184
Heath, Dan, 184
Her Majesty’s Revenue and Customs (HMRC), 334–35, 337n
heuristics, 22–23, 25, 35, 46
Heywood, Jeremy, 332
Hicks, John, 44
Hilton, Steve, 331, 332–34
hindsight bias, 21–22, 190
Hogarth, Robin, 159, 162
Home Depot, 133
home equity, 77–79
Homer, 99–100
homo economicus, see Econs
Hong Kong, 232
horse racing, 80–81, 174–75
hot-cold empathy gaps, 111
hotels, 138, 360
house money effect, 81–82, 83–84, 193n, 296
House of Debt (Mian and Sufi), 78
housing bubble, 7, 78, 83–84, 252
housing prices, 235–36, 236
Houston, Whitney, 135–36
Huizinga, John, 271–73, 274, 275
human capital, theory of, 27
Humans vs. Econs, see also Econs
hyperbolic discounting, see present bias (hyperbolic discounting)
hypothetical questions, 38–39, 82