Richard H Thaler - Misbehaving- The Making of Behavioral Economics (epub)

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who didn’t thought iPhone ownership uncommon. Likewise in the draft, when a team falls in love with a certain player they are just sure that every other team shares their view. They try to jump to the head of the line before another team steals their guy. 5. Present bias. Team owners, coaches, and general managers all want to win now. For the players selected at the top of the draft, there is always the possibility, often illusory, as in the case of Ricky Williams, that the player will immediately turn a losing team into a winner or a winning team into a Super Bowl champion. Teams want to win now! So our basic hypothesis was that early picks were overvalued, meaning that the market for draft picks did not satisfy the efficient market hypothesis. Fortunately, we were able to get all the data we needed to rigorously test this hypothesis. The first step in our analysis was just to estimate the market value of picks. Since picks are often traded, we could use the historical trade data to estimate the relative value of picks. If you want to get the fifth pick and you have the twelfth pick, as Ditka did, how much do you normally have to throw in to make that trade? The outcome of that analysis is shown in figure 18 below. The dots are specific trades that we used to estimate the curve. There are two things that jump out from this figure. The first is that it is very steep: the first pick is worth about five times as much as the thirty-third pick, the first one taken in the second round. In principle, a team with the first pick could make a series of trades and end up with five early picks in the second round. FIGURE 18
The other thing to notice about this figure is how well the curve fits the data. The individual trades, represented by the dots, lie very close to the estimated line. In empirical work you almost never get such orderly data. How could this happen? It turns out the data line up so well because everyone relies on something called the Chart, a table that lists the relative value of picks. Mike McCoy, a minority owner of the Dallas Cowboys who was an engineer by training, originally estimated the Chart. The coach at the time, Jimmy Johnson, had asked him for help in deciding how to value potential trades, and McCoy eyeballed the historical trade data and came up with the Chart. Although the Chart was originally proprietary information only known by the Cowboys, eventually it spread around the league, and now everyone uses it. Figure 19 shows how highly the chart values first-round picks. FIGURE 19
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To: Victor Fuchs who gave me a year
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15. Fairness Games 16. Mugs V. ENGA
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PREFACE Before we get started, here
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had written plenty of other strong
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1 Supposedly Irrelevant Factors Ear
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advice. Until very recently, other
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Humans. The good news is that we do
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now other countries around the worl
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2 The Endowment Effect I began to h
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y Schelling’s analysis, without a
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one. He also did not sell any of hi
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some modest health benefit but is e
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seen the sweater in the store and d
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efore Kahneman and Tversky came alo
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4 Value Theory After my day in the
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conceptual breakthrough offered by
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The way that von Neumann and Morgen
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The same is true in financial matte
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losses, as illustrated by the exper
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5 California Dreamin’ Sherwin Ros
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had not bothered to invent Hebrew e
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14. When I was not wandering the hi
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† There are, of course, exception
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One of the most prominent of the pu
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accordance with the rational econom
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more to give up the $ bet than the
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Jensen about his students, and Mike
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At some point I had to get this pap
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7 Bargains and Rip-Offs My friend M
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the object gained and then subtract
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always a sale going on. Most of us
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8 Sunk Costs Vince paid $1,000 to a
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you are keeping. Going to the event
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Suppose you bought a case of good B
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Strongly Strongly Mean: 2.88 Agree
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what I do “wackonomics,” a term
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on how much slack is in the budget.
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addressed by making the option of r
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10 At the Poker Table During my tim
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Kahneman and Tversky to run experim
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noticed that when a certain colleag
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ECON: In that case, you prefer to e
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he portrayed the topic as a struggl
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earlier economists such as Jevons a
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Yorker, March 29, 1976 © The Saul
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time, economists had been moving aw
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years and plans to leave no bequest
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much higher than a similar increase
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He devised a two-part plan to succe
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write a large check to someone you
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University of Rochester Graduate Sc
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less pleasurable. The only way to m
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the key papers are provided in the
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INTERLUDE
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Vermont or New Hampshire. Operation
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idea of committing to ski more ofte
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hundred dollars. A rebate seems to
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what I thought they should do. Firs
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14 What Seems Fair? Danny and Jack
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Jessie and her ever-present doll Jo
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for something falls, in this case l
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1990s. And what is it the bank thin
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My takeaway from these examples is
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price, for Saturday night at eight,
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Proposers would offer half, which w
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There is another class of games tha
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were due to some confusion on the p
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16 Mugs At some point during the Va
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a series of simple questions. Those
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subjects how much they like the goo
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The endowment effect experiments sh
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V. ENGAGING WITH THE ECONOMICS PROF
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offered to the first group are: Pol
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league crowd without seeming presum
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would no longer be irrelevant if di
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home field advantage. Shiller was t
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around the Earth. At the Chicago co
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articles were about ten to twelve p
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19 Forming a Team The “Anomalies
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invited three groups of people: dis
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Freud; Sigmund was his great-grandf
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would want to come. Fortunately, ov
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20 Narrow Framing on the Upper East
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short life expectancy, Amos and Dan
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one of the goals being to improve
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actually is. It is one of the few t
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accepting this parlay, and the chan
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Schwartz, now a professor of medica
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econometrics skills, to join us. Th
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VI. FINANCE: 1983-2003 Aside from t
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The EMH has two components, which a
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special issue of the Journal of Fin
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Make a guess before continuing. Rea
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guesses of 99 or 100; what were tho
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22 Does the Stock Market Overreact?
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percentile), and so forth. The othe
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whether a stock was cheap or expens
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etter the next game. Children of se
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Page 225 and 226: Owen and I wrote an academic paper
Page 227 and 228: these warning signals and realized
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Page 231 and 232: this point I had adopted the pedago
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Page 235: says: “This is, of course, a very
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Page 244 and 245: had the duty of negotiating with ne
Page 246 and 247: About a day after the draft order w
Page 248 and 249: I also put a bit of the blame on th
Page 250 and 251: MBA student, during my first year a
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Page 258 and 259: If this market were efficient, then
Page 260 and 261: How could the decision-makers in th
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Page 264 and 265: managerial ladder. All economists a
Page 266 and 267: 30 Game Shows With all the research
Page 268 and 269: continuing to play, the contestant
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Page 272 and 273: undertake more risk, when choosing
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Page 276 and 277: Nick has made a nice sideline caree
Page 278 and 279: VIII. HELPING OUT: 2004-PRESENT By
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Page 294 and 295: Econs are already doing the right t
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experiment used a letter with simil
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locally known as lofts. In a world
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Tempering expectations about the ma
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mandate or budget to run randomized
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For example, to my knowledge there
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financial markets were the most eff
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cannot be profitably applied to big
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theory has now been repeatedly and
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don’t know that gets you into tro
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stubbornly clinging to an imaginary
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27 the theory of human capital form
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89 “This is illustrated by the st
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146 conditional cooperators: Fehr a
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210 “Worldly wisdom teaches . . .
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Chapter 29: Football 277 “Divisio
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342 it was the reminder . . . which
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the Economics of Finance, vol. 1B,
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Cooper, Arnold C., Carolyn Y. Woo,
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Rationality.” Games and Economic
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Knobe, Joshua, Wesley Buckwalter, S
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Modigliani, Franco, and Merton Mill
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Macfie. Indianapolis: LibertyClassi
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Research. Zamir, Eyal, and Doron Te
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ACKNOWLEDGMENTS A lazy man does not
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INDEX Page numbers listed correspon
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Binmore, Ken, 50 “Binmore continu
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Daily Mail, 135 Daily Show, The, 35
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ubbles created in, 40n, 206n with d
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Goolsbee, Austan, 352 gouging, 127-
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Johnson, Eric, xv, 82, 180n, 299, 3
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of managers, 187-89, 190 myopic, 19
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National Public Radio, 32, 305 natu
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presumed consent, in organ donation
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St. Louis Rams, 290 St. Petersburg
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Stigler’s Law, 296n Stiglitz, Jos
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two-system view of mind, 103, 109 U
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ALSO BY RICHARD H. THALER Quasi-Rat
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