Research shows that people are more likely to stick to the default choice. For example, in countries where the default is for people to not be organ donors only 15% of people opt in. When the default is for people to be organ donors only 10% of people opt out.

Power of defaults

People have a strong tendency to maintain the current state of affairs. For example, many drivers stick with their current car insurers as they are already familiar with the service despite other providers offering better products and/or prices.

Status quo bias

The same choice framed in different ways results in different decisions. For example, “If you have the operation you have a 90% chance of surviving 5 years” results in more people opting for procedures than when the framing is, “You have a 10% chance of passing away within 5 years.”

Framing

When asked to make an estimate, we start with a number we know and adjust up or down from there. For example, someone from Chicago may guess the population of Milwaukee by starting with that of Chicago (~3m) and adjusting down to, say 1m. Someone from Green Bay may adjust up from their population (100k) to, say, 300k.

Anchoring and adjustment

In low-stakes decision making, many people will choose whatever option is presented to them. For example, a TV viewer who starts the evening watching NBC is likely to stay there despite the switching cost being only one button click.

Whatever heuristic

In a group context, our decisions are influenced by those that others make. For example, in a meeting if the majority of people express a certain opinion, the remaining attendees have an increased likelihood of following suit.

Conformity

The combination of loss aversion with mindless choosing implies that if an option is designated as the “default,” it will attract a large market share. Default options thus act as powerful nudges.”

People asked what they intend to do become more likely to act in accordance with their answers. For example, if people are asked whether they intend to eat certain foods, to diet, or to exercise, their answers to the questions will affect their behavior.

Mere-measurement effect

In the language of economics, the group is said to display behavior that is dynamically inconsistent. Initially people prefer A to B, but they later choose B over A. We can see dynamic inconsistency in many places. On Saturday morning people might say that they prefer exercising to watching television, but once the afternoon comes, they are on the couch at home watching the football game. How can such behavior be understood? Two factors must be introduced in order to understand the cashew phenomenon: temptation and mindlessness.

Dynamic Inconsistencies

We can see here why many groups fall prey to what is known as collective conservatism: the tendency of groups to stick to established patterns even as new needs arise. Once a practice (like wearing ties) has become established, it is likely to be perpetuated, even if there is no particular basis for it.

Collective Conservatism

Pluralistic ignorance causes groups to publicly appear to believe something that privately each person may not actually agree with. This is primarily because few to no group members are willing to share their views, leading each person to believe that they are in the minority. Perhaps the clearest example of this cognitive bias comes from Hans Christian Andersen’s fairy tale “The Emperor’s New Clothes”.

Pluraristic Ignorance

This is something the behavioural economist George Loewenstein calls the “hot- cold empathy gap”, a concept whose main insight is that even if people realize that they behave differently when aroused, they underestimate the strength of the effect. When in a cold state, we do not appreciate the extent to which our desires and our behaviour will be altered when we are “under the influence” of arousal.

The Hot/Cold Empathy Gap

The book introduces “nudge theory”, a system for influencing decision making without restricting options.In order to nudge people towards making certain decisions, the authors advocate for “choice architecture”. Choice Architecture is the practice of influencing choices by organising the context in which they are made. The irony is that behavioral economics, having attacked Homo Economicus as an empirically false description of human choice, now proposes, in the name of paternalism, to enshrine the very same fellow as the image of what people should want to be. Read It with a grain of salt

Nudgeis the book that changes the way we think about choice, showing how we can influence people, improving decisions about health, wealth and happiness. Using eye-opening real life examples, Richard H. Thaler and Cass R Sunstein show that no choice is ever presented in a neutral way. The question is- when do we need a nudge in the right direction? SOME NUDGES-'I love this book. It is one of the few books I've read recently that fundamentally changes the way I think about the world. Just as surprising, it is fun to read, drawing on examples as far afield as urinals, organ donations and marriage' Steven D. Levitt, co-author of Freakonomics'This book is terrific. It will change the way you think, not only about the world around you and some of its bigger problems, but also about yourself' Michael Lewis author of Liar's Poker'Nudge won't nudge you - it will knock you off your feet' Daniel Gilbert, author of Stumbling on Happiness 'Hot stuff . . . an idea whose time seems to have come' Bryan Appleyard, Sunday Times'Hugely influential . . . choice architects are everywhere' Andrew Sparrow, Guardian'All the rage . . . the issue is not 'to nudge or not to nudge'; it is how to nudge well' Matthew Taylor, Daily Telegraph

Understand yourself and those around you.

psychology

Psychology

Discover the world of business and economics.

economics

Economics

books

Books

humanresources

Human Resources

Cass R. Sunstein

Richard H. Thaler

Nudge

Pirsig's main concept is "Quality," an intuitive value that guides our actions and forms reality. It bridges the subjective and objective worlds.

Quality

The author differentiates between rational, analytical classical understanding and intuitive, artistic romantic understanding. Both are needed for a full grasp of the world.

Classical and Romantic Understanding

The book introduces a new philosophy where Quality is the fundamental reality, and everything else, including subjects and objects, stem from it.

Metaphysics of Quality

The need for care in all our actions Is essential, as it leads to better outcomes.

Importance of Care

Western culture's dualistic thinking, which divides the world into opposites. The author advocates for a holistic understanding that goes beyond these divisions.

Destructiveness of Dualistic Thinking

The book delves into the protagonist's past and his philosophical ideas, which challenge the dichotomy between the romantic and classical understanding of the world.

THE CLASSIC BOOK THAT HAS INSPIRED MILLIONSA penetrating examination of how we live and how to live betterFew books transform a generation and then establish themselves as touchstones for the generations that follow. Zen and the Art of Motorcycle Maintenance is one such book. This modern epic of a man’s search for meaning became an instant bestseller on publication in 1974, acclaimed as one of the most exciting books in the history of American letters. It continues to inspire millions.  A narration of a summer motorcycle trip undertaken by a father and his son, Zen and the Art of Motorcycle Maintenance becomes a personal and philosophical odyssey into fundamental questions on how to live. The narrator's relationship with his son leads to a powerful self-reckoning; the craft of motorcycle maintenance leads to an austerely beautiful process for reconciling science, religion, and humanism. Resonant with the confusions of existence, this classic is a touching and transcendent book of life.This new edition contains an interview with Pirsig and letters and documents detailing how this extraordinary book came to be.

philosophy

Philosophy

history

History

mindfulness

Mindfulness

education

Learning & Education

Robert Pirsig is an accomplished writer whose work has resonated with readers around the world. Robert Pirsig has published several books that explore a range of topics, from fiction to nonfiction, and has received critical acclaim for the ability to weave compelling narratives. Robert Pirsig's writing style is known for its depth and authenticity, and has earned quite a loyal following of readers.

Robert Pirsig

Zen and the Art of Motorcycle Maintenance

The world needs economic literacy! I highly recommend it for anyone looking to get into or better their understanding of economics.

How to think about the Economy

We simply cannot rely on observation and measurement to gain understanding of social phenomena, and we also cannot rely on static analysis or aggregates. It is necessary to view the economy as a process, an evolving complex adaptive system. Looking at a snapshot of the economy tells us very little about how it works but can instead mislead us and allow us to jump to conclusions. Without recognizing the process, it can be easy to conclude that a specific situation is inefficient, wrong, or unfair and also to think that it is easy to improve upon it, right the wrong, or calculate an outcome.

Economy as a process

Competition is not merely the rivalry between two or more businesses producing and selling similar things, but the constant pressure to serve consumers better--both present and future. History is full of successful and influential businesses, many of them considered too big and "powerful” to compete with. Most of them are long gone and forgotten because someone figured out how to produce more value for consumers.

Competition

It is easy to jump to conclusions and assume that the bread is valued more than the ingredients because additional resources were used to make it. This is false. It is the other way around: we choose to invest the resources—ingredients, manpower, time—because we expect the bread to give us greater satisfaction. It is the expected value of the bread that makes the investment worth pursuing. If it were the case that something is worth more because we use more resources to produce it, then we are not actually economizing. We economize because using more resources than necessary is wasteful.

Value

This means that a premium or luxury product is not more expensive to buy because it is produced using rare, expensive materials—it was produced using rare, expensive materials because the good is more expensive to buy. Value determines cost, not the other way around

Value determines cost

Most currencies today are government monopoly monies, but that is not how money was invented or accepted as a medium of exchange--it is only how it ended up. The economic function of money cannot simply be created from the top down.

Fiat money

Purchasing power—and therefore consumption power—the extent to which people are able to satisfy their wants through goods—is consequently a reflection of one's contribution to the economy (as a producer). Simply put, what we supply constitutes our ability to demand.

Purchasing power

Thus, market production is empathic—your ability to provide value for others ultimately determines the value you get in return for your efforts... The economy and society are two sides of the same coin. It is not possible to separate the market process from society and civilization. As with so many things in the economy, observable phenomena emerge from people's actions but are not created by any one person. Instead, they are patterns (order) that emerge from people's actions.

The economy and society are one

Looking only at the status quo—the economy that we can observe in the present—or the changes that have happened in the recent past, we could easily conclude that the economy is a fairly static system that is far from maximizing the use of resources. It would be easy to find inefficiencies and come up with other potential solutions. But this would be an enormous mistake. The market process is primarily about figuring out how to create new value for consumers—it is not about maximizing output in current production. It is an entrepreneurial process.

The market is an entrepreneurial process

The status quo is merely the most recent expression of the process—it's yesterday's winners before they are replaced by tomorrow's. The market process is in constant flux and is characterized by renewal and progress. The market process goes well beyond simple production management. We should want businesses to have good management that streamline production, cut costs, and tweak and improve the goods they produce. But management is what takes place in production after the entrepreneur has been proven right.

The market as a constant flux

As Mises put it, the manager is the "junior partner" of the entrepreneur. Simply put, management solves an entirely different problem than entrepreneurship. It is about maximizing the outcome of a production process (typically in terms of profit). It is a fundamental error to misconstrue the market process as mere production management.

Entrepreneurship vs Management

In a world in which a newly imposed regulation is the only change that takes place, we could easily compare the state of the economy before and after and thereby assess its effect. However, as the market is a process that is in constant flux, the regulation is decidedly not the only change—it is an imposition on the market's ongoing unfolding and evolution.

Regulations

This is one of those books that everyone ought to read in order to better understand how the world works and the how society and economy are the same thing.

This little book was written to accomplish something big: economic literacy. It is intentionally kept very short to be inviting rather than intimidating. You will gain life-changing understanding of how the economy works in practically no time. Per Bylund will make you excited about what economics has to offer. Economic literacy is mind-opening. Sound economic reasoning is an enormously powerful tool for understanding both the economy and society. Economic literacy uncovers what is going on under the surface and why things work out as they do. There is no magic to it. In fact, economic literacy is necessary to properly understand the world. A simplified Austrian school version of Henry Hazlitt’s great Economics in One Lesson!

Per Bylund

How to Think about the Economy: A Primer

People don’t judge prices in absolute terms but relative to their context. This book goes on to explain the many ways that our perceptions of value are not fixed.

Value is subjective

Attraction Effects: Professors at Duke University offered 2 beers at $1.80 & $2.60. 33% chose the cheaper product. A 2nd group was also offered a $1.60 beer. 0% chose it, but 47% now chose the $1.80 beer. Products priced at extremes can change the demand for other products.Extremeness Aversion: Research by Tversky & Simonson across 6 categories found that consumers tend to shy away from the most expensive & least expensive options. In conditions of uncertainty, most consumers will opt for something in the middle.

Charm Pricing: Anderson (University of Chicago) & Simester (MIT) worked with a mail order firm to print different versions of its catalogue. They found an item sold 30% more when priced at $39 than $34. Buyers deem prices ending in a 9 as better value than those that don’t.Loss Aversion: Losing money hurts more than gaining the same sum delights. Imagine betting on a coin toss. If it’s tails you lose $100. The average person requires heads to pay out £200 to take on the bet. Money we have is around twice as valuable as money we don’t have.

Anchoring & Adjustment: Malouff & Schutte had groups read a personal injury case. When the defence lawyer requested $100k the “jurors” awarded $90,333. A group with a £700k demand awarded $421,538. The original prices acted as anchors from which the groups adjusted down.Ultimatum Game: Imagine you’re given £10 & asked to offer a 2nd person a split. If they accept, you both get your share. If not, neither do. Research by Werner Güth found most recipients reject offers of £2 or less. We’re willing to forgo gains if we think they’re unfair.

Wealth Effects: If you received $10 you’d be happy. How much would you need to be twice as happy? The rational answer is $20. But research by S. S. Stevens found people require $40 to double the joy of receiving $10. The relationship between money & happiness is not linear.

William Poundstone offers many examples of how our perceptions of prices vary depending on cues, context and contrast.

In Priceless, bestselling author William Poundstone reveals the hidden psychology of value and explores how we react to the most pervasive persuader of all: price. Charting the burgeoning growth of price-consultants who advise retailers from Nike to Nokia, Poundstone shows how behavioural decision theory has revolutionised the pricing strategies of major corporations. Informed by fascinating behavioural experiments and packed with real-life examples, Priceless explains why prices are so important, and the tricks that companies use to sell their goods. It will prove indispensable to anyone who buys, sells, or negotiates.

business

Business

Why do text messages cost money while e-mails are free? How does Apple persuade people to pay for music instead of downloading it for nothing? In Priceless, bestselling author William Poundstone reveals how we perceive value and why businesses set the prices we pay. Rooted in the emerging field of behavioural decision theory, Poundstone reveals the secrets that multinationals - including Microsoft, Coca-Cola, Nestle, Nokia and Mercedes - are willing to pay millions for from so-called price consultants. Revealing how conventional economics gets it all wrong, this is a stunning expose of how irrational we all are and how global businesses are taking advantage.

William Poundstone

Priceless

Summary the basic principles of economics and sound economic policy.

Economics in one page

The desire of bettering our condition comes with us from the womb and never leaves till we go into the grave (Adam Smith). No one spends someone else’s money as carefully as he spends his own.

Self-interest

The key to a higher standard of living is to expand savings, capital formation, education, and technology.

Economic growth

In all voluntary exchanges, where accurate information is known, both the buyer and seller gain; therefore, an increase in trade between individuals, groups, or nations benefits both parties.

Trade

Given the universal existence of limited resources and unlimited wants, competition exists in all societies and cannot be abolished by government edict.

Since most individuals are not self-sufficient, and almost all natural resources must be transformed in order to become usable, individuals—laborers, landlords, capitalists, and entrepreneurs—must work together to produce valuable goods and services.

Cooperation

Differences in talents, intelligence, knowledge, and property lead to specialization and comparative advantage by each individual, firm, and nation.

Division of labor and comparative advantage

Information about market behavior is so diverse and ubiquitous that it cannot be captured and calculated by a central authority.

Dispersion of knowledge

Profit and loss are the market mechanisms that guide what should and should not be produced over the long run.

Profit and loss

Given the limitations of time and resources, there are always trade-offs in life. If you want to do something, you must give up other things you may wish to do. The price you pay to engage in one activity is equal to the cost of other activities you have forgone.

Opportunity cost

Prices are determined by the subjective valuations of buyers (demand) and sellers (supply), not by any objective cost of production; the higher the price, the smaller the quantity purchasers will be willing to buy and the larger the quantity sellers will be willing to offer for sale.

Price theory

For every cause there is an effect. Actions taken by individuals, firms, and governments have an impact on other actors in the economy that may be predictable, although the level of predictability depends on the complexity of the actions involved.

Causality

There is always a degree of risk and uncertainty about the future because people are often reevaluating, learning from their mistakes, and changing their minds, thus making it difficult to predict their behavior in the future.

Uncertainty

Higher wages can only be achieved in the long run by greater productivity, i.e., applying more capital investment per worker; chronic unemployment is caused by government fixing wage rates above equilibrium market levels.

Higher wages

Price-rent-wage controls may benefit some individuals and groups, but not society as a whole; ultimately, they create shortages, black markets, and a deterioration of quality and services. There is no such thing as a free lunch.

Government controls

Deliberate attempts to depreciate the nation’s currency, artificially lower interest rates, and engage in easy money policies inevitably lead to inflation, boom-bust cycles, and economic crisis. The market, not the state, should determine money and credit.

Money

In all public enterprises, in order to maintain a high degree of efficiency and good management, market principles should be adopted whenever possible: (1) Government should try to do only what private enterprise cannot do; government should not engage in businesses that private enterprise can do better; (2) government should live within its means; (3) cost-benefit analysis: marginal benefits should exceed marginal costs; and (4) the accountability principle: those who benefit from a service should pay for the service.

Public finance

What makes it [economics] most fascinating is that its fundamental principles are so simple that they can be written on one page, that anyone can understand them, and yet very few do. — Milton Friedman

Nudge

Zen and the Art of Motorcycle Maintenance

How to Think about the Economy: A Primer

Priceless

Economics in one page

Claudiu Florea