Q6 Fall 2009

What are you thinking?

Online Features

The global nature of environmental issues demands collaboration across borders and across sectors. Mark Tercek became the President and CEO of the Nature Conservancy in 2008 after 24 years at Goldman Sachs. He discusses how finding business solutions to environmental problems is essential.

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Dialogs

What are you thinking?

Robert J. Shiller
Decades of economic research have assumed people pursue their goals in a rational manner, discounting the effects of emotion, bias, error, and other irrational forces. Robert Shiller argues that economists need to take a closer look at how people make decisions.

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What is behavioral?

Nicholas C. Barberis, Ulrike M. Malmendier, Shane Frederick, and Andrew J. Redleaf
A host of studies and academic theories that apply psychological insights to economic behavior have been grouped under the label "behavioral." Is this growing field changing how the economy is studied — and how it functions?

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Do you need a nudge?

Richard H.Thaler
Richard Thaler outlines how principles from behavioral economics can help policymakers — and managers — achieve better outcomes.

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Economics has long been used to evaluate the law. But what happens when economics gets things wrong? Law professor Christine Jolls describes the role behavioral economics can play.

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Are we good at making choices?

James Choi, M. Keith Chen, and Judith A. Chevalier
Do the choices we make as consumers serve our economic interests? Do they even reflect our real preferences? Three Yale scholars discuss research — their own and others' — that sheds light on these questions.

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You encounter it every day. You might count it or spend it or wish you had more of it. But can just thinking about money affect your behavior?

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Is risk rational?

Andrew W. Lo
Misunderstanding of risk was a major factor in the subprime crisis and ensuing recession. Andrew Lo argues that one has to look at both logical and emotional parts of the brain to grasp how people respond to financial risk.

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Vignettes

Polaroid went from ubiquity to obsolescence as digital photography replaced the print. But as early as the 1960s, Polaroid had been doing research into digital imaging. Did mistaken assumptions keep the company from making the transition to the digital world?

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A number of economists, psychologists, and neuroscientists are using imaging studies to peek at the brain in action — trying to better understand why we make some of the choices we do.

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Noteworthy

Healthcare reform is often described as squeezing a balloon, solve one problem only to make another one worse. Taking efforts to reform the system in Maine as a cautionary tale, the New York Times looks at the challenges that might await the nation.

Q3 looked at the role of business in solving healthcare problems. Some of the perspectives offered include models from other countries, the role of process improvement in medical facilities, and HBS professor Michael Porter on value-based medicine.

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Recent comments from the Q6 community

Comment from Do you need a nudge?

I have just finished reading Thaler interview and am impressed with how he can make it
so understandable for the everyday economist like me.

I have an interest in savings and investment and after reading the answer he gave to giving an example of how nudges work. I recognized myself when he said many people
just go with the flow and take whatever the default is.

I love the answer to politicians when he said If we don't like the way government is doing it then throw the bums out and elect who will do a better job.

Posted by James Hall
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Comment from What is behavioral?

Tyler Cowen, economist and a blogger at Marginal Revolution has a new book, Create Your Own Economy. A review by the Enlightened Economist blog expounds on ideas raised by the book, including “people have extremely different modes of cognition and behavior, which behavioural economics entirely ignores. The limitations of behavioral economics stem from its lack of universality….There is, I think, good experimental evidence that some people do respond more like 'rational economic man' than others - and indeed that economists are more likely to fall into that category themselves.”

Posted by Qn Editorial Staff
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Comment from Does money change your thinking?

GDP growth in the third quarter signaled an end to the recession. The fact that little has changed for many struggling Americans is evidence for some that GDP has outlived its use as a key economic indicator. The World radio program has coverage of the debate among economists on alternative measures.

Posted by Qn Editorial Staff
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Comment from Do you need a nudge?

NPR has a story on the origins of behavioral economics with a look at the work of Thaler and Nobel laureate Daniel Kahneman among others.

Posted by Qn Editorial Staff
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Comment from Do you need a nudge?

The FinanceProfessor blog has a video of a short talk by behavioral finance expert Shlomo Benartzi hitting a number of the key areas where people tend to make irrational economic choices. Richard Thaler is Benartzi’s partner in the Save More Tomorrow program.

Posted by Qn Editorial Staff
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Comment from Do you need a nudge?

Good

Posted by kuntal shah
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Comment from Do you need a nudge?

For more about Richard Thaler and Cass Sunstein's book Nudge visit the book's website or regularly-updated blog.

Posted by Qn Editorial Staff
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Comment from What is behavioral?

Strategy and Business looks at managing with the brain in mind.

Posted by Qn Editorial Staff
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Comment from Do you need a nudge?

The IMF's Finance and Development magazine has a profile of another of the founders of behavioral economics, Daniel Kahneman.

Posted by Qn Editorial Staff
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Comment from Do you need a nudge?

A long article in Prospect covers the role that behavioral research is playing the British politics.

Posted by Qn Editorial Staff
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Comment from Are we good at making choices?

For more on the SOM faculty involved in this discussion, you can visit their faculty web pages.
James Choi
M. Keith Chen
Judith A. Chevalier

Posted by Qn Editorial Staff
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Comment from What is behavioral?

Watch Andrew Redleaf’s guest lecture on the efficiency of markets presented in Robert Shiller’s Financial Markets class at Yale University.

Posted by Qn Editorial Staff
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Comment from What are you thinking?

For more on Robert Shiller see his SOM faculty page.

In addition, his Financial Markets class taught at Yale is available in its entirety online through Open Yale Courses. It includes a guest lecture by another Q6 contributor, Andrew Redleaf, talking about the efficiency of markets.

Posted by Qn Editorial Staff
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