Those short bios we need to write for our social media profiles is hard work. Mainly because writing about ourselves is quite a task. Also, we have to be witty and funny, at the same time the bio should reflect what we think people should feel about us when they read it. Some bios are definitions of what pop-culture calls ‘cringe’- from the infamous little princesses of daddys to the boos who call their baes with lame names. But some of them are actually funny and creative. Some have their favourite quotes of famous people or from their favourite shows. And some label themselves so as to affiliate themselves to a political(or religious) tribe- femminist, socialist, liberal, libertarian, conservative, Hindu, Christian, Muslim and so on.

I had something similar. I labeled myself ‘Rationalist’. I think it is pretty common for a guy in Tamilnadu who has read a few Periyar and a little about the Dravidian movement. But it is important to look beyond the dravidian movement, because politics and economics is much more than that. Mind you, it is very difficult to come out of that dravidian bubble and even if you did, chances are that you will drive yourself more Left than you already are. Now, I do not claim to know better than the dravidian ideologues and all the left-leaning intellectuals (who grossly outnumber their political counterparts). All I’m saying is that there is more to the political economy than mere leaders. Okay, this is a digression. This post is not to comment on Tamil politics, we will save that for some other day; now we will try to get back to the topic in hand.

Rationalist. I have always taken pride in calling myself that- being rational, being better than those god-fearing irrationals. But what is being rationalist? Am I rational at all times? These fundamental questions popped up when I started to hear about behavioral economics. This stream of economics is entirely predicated on the fact that humans, at most times, are not rational. 

Conventional economics postulates many theories assuming that humans act always to maximise their utility, i.e, as rational actors. But behavioural economics critiques this idea and proposes that human beings are not ‘econs’(who behave like economists want them to behave-rational) and that there are many anomalies that can be found in real life which stray away from accepted theories, to say the least. 

The basic premise of the subject seemed very interesting to me. As a person who aspires to write and analyse public policy which impacts daily life of humans, it made sense to me that I try to learn about it. But the lack of an economics background was an obstacle. After all, this stream tries to critique existing economic theories and models. 

After deliberation, I decided to start with the basics and figure out as I go on. This is when I came across the book “Misbehaving- The making of Behavioural Economics” by Richard Thaler (whom I had previously seen in the movie Big Short- I recommend you watch the movie). 

In the first chapter of the book, Richard gives an advice to his readers “My only advice for reading the book is stop reading when it is no longer fun. To do otherwise, well, that would be just misbehaving”. I can assure you, the book is fun and interesting till the end. 

He traces the history of the stream through five decades since the 70s while illustrating key concepts with real life examples. He explains how certain factors which were deemed supposedly irrelevant by economists play a big role in human decision making. Throughout the book, we get the feeling that this stream is entirely focussed on human decision making and how to influence them without coercion. 

Many examples and experiments illustrated by Thaler seemed like common sense hiding in plain sight but being ignored for some reason or the other. For example, to explain the endowment effect, he illustrates how his colleague (Rosett) was apprehensive about selling his wine but would drink from it. Rosett had bought wine for $10 years ago but they were worth $100 now. When a wine merchant approached him to buy some of them at current prices, Rosett did not sell them. Also Rosett confessed to Thaler that although he drank his wine at some times, he would never buy a bottle for $100. This was not rational according to economics. “Whether Rosett drank his own bottle or bought one, the opportunity cost of drinking it remains the same”- he is losing $100. People irrationally value their own stuff (their endowments) more than what they are worth. 

There are many other interesting insights in the book, for example how losses have more impact than gains on decision making, the effect of sunk costs, the problem of self control, the diminishing value of wealth for humans and so on.

To be honest, while reading through a few chapters, the lack of economics training was stark. A few insights on stock markets and insurance policies went straight over my head. But the parts about how these supposedly small changes in policies have a large impact on the outcome were interesting. 

Thaler gives us the story of how the English government set up the Behavioural Insights Team to help draft policies which would use findings from behavioural economics. This was the first of its kind in the world. 

There is however a concern of being paternalistic. A group of people taking decisions for everyone- it could be seen closer to the totalitarian state which knew what is good for the people more than the people themselves (we know what happened then). But Thaler argues that although it seems paternalistic, through behavioural economics, they are only ‘trying to help people achieve their own goals’ by making it easier for them. Therefore they named this idea ‘Libertarian Paternalism’- which makes perfect sense of what it tries to do. But because it is long and mouthful, they changed it to “nudge”. Since then, nudging has got a great many audiences in governments (also in other sectors) and its insights are used to make people’s lives easier.  

I know better than to say that I know everything about behavioural science after reading one book. All I’m trying to say is that I liked what I read and that if you are interested in understanding humans, this book should be on your to-read list. 

[Book] Go buy the book and read- it is informative, easy to read and even funny at times. 

[Movie] The Big Short is a real life adaptation of how a group of people predicted and thereby gained from the 2008 global financial crisis.