Misbehaving Book — Interesting point
Misbehaving book is written by Richard H. Thaler, famous American economist. He won a nobel prize in 2017 for his research and also contribution in behavioral economic. In this book, he write his journey and become one of founder of Behavioral Economic as a branch of Economy.
For me, that doesn’t know many economic theory (beside Law of Supply & Demand). This book is really interesting. Because he researches many things about economy in psychology perspective.
In ideal economic world (according to economic theory), there shouldn’t have many behavioral deviations, and all economic transaction should done effectively. But in this book he write many things that he found ‘not normal’:
People don’t like lost
There’s survey in that book, to ask 2 question, and the result:
- Let’s say you’re getting $300 more than today, and you can choose this option
a. Definitely got $100 (72% people choose this)
b. Bet, with 50% chance get $200, 50% change get $0 (28% people choose this)
2. Let’s say you’re getting $500 more than today, and you can choose this option
a. Definitely lost $100 (36% people choose this)
b. Bet, with 50% chance lost $200, 50% change lost $0 (64% people choose this)
The ideal thing, both of the question should get similar percentage (because the money that you got is same). And maybe you also realize this is also part of some marketing technique, like letting other use the product first, and choose to buy later.
Recession and Layoff
When Recession happened, Company must facing falling demand product & they must save their financial condition. In ideal economic world, when demand of workers low, the company should reduce their employee’s salary, until the price and demand became equal, without doing layoff (that will make recession worse).
But, why the company choose to layoff some of their employees, and letting other salary remain same? Because, the idea of reduce salary will make employees’ bad reaction, and actually, thanks to the inflation, the company can “lower” the real price of salary, with less reaction from the employees.
Present Bias
Present Bias is inclination to prefer smaller reward now, and throw away bigger reward in the future.
In that book, there’s the case, when one of NFL (National Footbal League) team coach bet really high for one junior football player . The price for that player is not extreme (because there’s highest price limit), but that team give the opportunity to choose player in the future for other team. The result is not really good, because that player is injured. Although he played well, but he can’t help his team to won. And that coach being fired for that.
Actually, if the coach can choose wisely, and not letting opportunity to choose in the future to other team, there’s bigger chance to make team’s performance better.
3Com and Palm stock
One of the most ilogical things is happened in 3Com company’s stock. (3Com best known for its computer network products, and it also has Palm company, that produce kind of mini computer at that time). To raise 3Com stock price, 3Com management try to divestate Palm stock, and sell Palm stock to public. And, this is the mechanism:
1 share stock of 3Com also include 1.5 Palm stock.
at peak moment , 1 share stock of Palm cost $95. So how much money, that you guess, for the 3Com stock price? The ideal price should be no less than ($95 x 1.5 = $143) right? Because 3Com itself should have their own value, 3Com also provitable business.
But, what happened is the 3Com price became $82. So, you can choose, just buying 1 Palm stock (for $95) or buy 1 3Com stock for $82, and you’ll get 1.5 Palm stock free. It doesn’t make sense right? No wonder, some people can get easy money, just by buying many 3Com stock, and immediately sell the free Palm stock. (One student can buy sport car just by doing this).
Maybe you feel that this book is similar with Thinking Fast and Slow, and it’s happened because the author also collaborated with Daniel Kahneman in some research.
Reference:
https://www.nobelprize.org/prizes/economic-sciences/2017/thaler/facts/
Misbehaving book.
