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The Winner's Curse: Paradoxes and Anomalies of Economic Life

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Richard Thaler challenges the received economic wisdom by revealing many of the paradoxes that abound even in the most painstakingly constructed transactions. He presents literate, challenging, and often funny examples of such anomalies as why the winners at auctions are often the real losers--they pay too much and suffer the "winner's curse"-- why gamblers bet on long sho Richard Thaler challenges the received economic wisdom by revealing many of the paradoxes that abound even in the most painstakingly constructed transactions. He presents literate, challenging, and often funny examples of such anomalies as why the winners at auctions are often the real losers--they pay too much and suffer the "winner's curse"-- why gamblers bet on long shots at the end of a losing day, why shoppers will save on one appliance only to pass up the identical savings on another, and why sports fans who wouldn't pay more than $200 for a Super Bowl ticket wouldn't sell one they own for less than $400. He also demonstrates that markets do not always operate with the traplike efficiency we impute to them.


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Richard Thaler challenges the received economic wisdom by revealing many of the paradoxes that abound even in the most painstakingly constructed transactions. He presents literate, challenging, and often funny examples of such anomalies as why the winners at auctions are often the real losers--they pay too much and suffer the "winner's curse"-- why gamblers bet on long sho Richard Thaler challenges the received economic wisdom by revealing many of the paradoxes that abound even in the most painstakingly constructed transactions. He presents literate, challenging, and often funny examples of such anomalies as why the winners at auctions are often the real losers--they pay too much and suffer the "winner's curse"-- why gamblers bet on long shots at the end of a losing day, why shoppers will save on one appliance only to pass up the identical savings on another, and why sports fans who wouldn't pay more than $200 for a Super Bowl ticket wouldn't sell one they own for less than $400. He also demonstrates that markets do not always operate with the traplike efficiency we impute to them.

30 review for The Winner's Curse: Paradoxes and Anomalies of Economic Life

  1. 5 out of 5

    E

    A bit disappointing. Thaler discusses economic "anomalies," aka patterns discerned that would not have been predicted by rational economic theory--why different industries pay different wages for the same jobs, why people prefer unrealized gains to paper losses, choices over time that disregard interest and inflation, treating money in savings accounts as more valuable than the same amount in checking accounts, etc. etc. However, instead of trying to get at the root of why these anomalies exist, A bit disappointing. Thaler discusses economic "anomalies," aka patterns discerned that would not have been predicted by rational economic theory--why different industries pay different wages for the same jobs, why people prefer unrealized gains to paper losses, choices over time that disregard interest and inflation, treating money in savings accounts as more valuable than the same amount in checking accounts, etc. etc. However, instead of trying to get at the root of why these anomalies exist, Thaler just cites study after study after study after study that usually provide contradictory evidence. Then he closes each chapter with a 1-2 page "commentary" that provides little insight. I'd skip this book and read Thinking Fast and Slow instead.

  2. 5 out of 5

    Ami Iida

    He's the forerunner of the behavioral economics. it's to unravel human economic irrationally.

  3. 4 out of 5

    Novem

    I have to admit that I didn't fully understand every last technical detail, but it was great to think about the general ideas Thaler covered in each chapter. (My favorite was the chapter on preference reversals, where option A is preferred over option B, but option B is priced more than option A.) His overall message was that there are persistent economic anomalies that challenge certain economic theories, and it's because people are more complicated (or perhaps less rational) than economic mode I have to admit that I didn't fully understand every last technical detail, but it was great to think about the general ideas Thaler covered in each chapter. (My favorite was the chapter on preference reversals, where option A is preferred over option B, but option B is priced more than option A.) His overall message was that there are persistent economic anomalies that challenge certain economic theories, and it's because people are more complicated (or perhaps less rational) than economic models assume. Every chapter is really well organized: he starts every chapter with an anecdote illustrating the idea, he goes through some actual experiments that have found that people consistently deviate from what economic theory would predict, then he goes through reasons why people may be systematically acting in ways that don't align with theory, and finally he ends with some ideas on how we could refine economic models and what to do with the info. Some of his ending thoughts are fun, like this one: "The problem seems to be that while economists have gotten increasingly sophisticated and clever, consumers have remained decidedly human. This leaves open the question of whose behavior we are trying to model. Along these lines, at an NBER conference a couple of years ago I explained the difference between my models and Robert Barro's (a well-known rationalist) by saying that he assumes the agents in his model are as smart as he is, while I portray people as being as dumb as I am. Barro agreed with this assessment." Lots of good food for thought if you don't mind reading stuff that's more on the technical side.

  4. 5 out of 5

    Joseph Carrabis

    The first third to half of this book is must reading for social marketers. Must reading. I was familiar with these concepts from other disciplines and it was refreshing to see economists coming on board. That noted, this is not a casual read (unless you’re an economist, perhaps). There’s a good deal of jargon in the book - mostly explained - and readers unfamiliar with economics may slow down encountering econospeak - they use the same words we use but differently. Still, an enjoyable read.

  5. 4 out of 5

    Andy

    Offers a lot of food for thought, although sometimes a bit dry. Thaler is better known now as the co-author of Nudge, but back in 1992 he compiled this book reviewing the current (at the time) economic literature regarding consistently reproducible examples of non-rational human behavior. It's not quite a popular economics book, as there are many passages where he simply details the findings of various economics papers, but it's also much more engagingly written than your standard academic treat Offers a lot of food for thought, although sometimes a bit dry. Thaler is better known now as the co-author of Nudge, but back in 1992 he compiled this book reviewing the current (at the time) economic literature regarding consistently reproducible examples of non-rational human behavior. It's not quite a popular economics book, as there are many passages where he simply details the findings of various economics papers, but it's also much more engagingly written than your standard academic treatise. And the anomalies are for the most part very interesting. I think the ultimatum game is the simplest, most succinct example of the type of irrationality that Thaler is looking at. To give away a small bit of the book, the ultimatum game is a two player game where one offers the other some fraction of a dollar (or $100, $1000, whatever). If the other person agrees they both get their respective fractions, but if the other person refuses then no one gets anything. A mechanically rational second player will take any offer, as it's better than nothing, but that's not what people do in reality, nor do real human first players usually offer the lowest possible amount. Many of the anomalies run along this line: mechanically rational model predicts one thing, experiments and empirical data predict another, what kind of model of human deviation from rationality would produce such a result? The book is split into several chapters, each of which explores a different anomaly. Some of the chapters are co-authored, and between them and the papers cited, you'll find a lot of famous names in this book, some of whom have grown in fame since this book's publication (to name a few: Larry Summers, Janet Yellen, Brad DeLong, and now-Nobel laureates Daniel Kahneman and George Akerlof). The chapters I enjoyed the most covered intertemporal choice (people discount the value of having or losing something in the future in inconsistent ways) and status quo bias (people tend to prefer the status quo and will show an irrational preference for maintaining it). I think this stuff is pretty fascinating. The main drawback of the book is that this fascinating stuff is sometimes presented dryly, at times reading like a laundry list of economic papers. I suppose this was sometimes deliberate because neither he nor the field of economics at large had a good answer to explain the irrationalities being discusses, and so he simply tried to present as much about it as possible. But deliberate or not, the book suffers a bit for these tendencies. When Thaler breaks out of academician mode and writes "for" the reader he becomes much more enjoyable, but there is a bit of legwork to do when reading this book. If you're willing to do this legwork you'll be rewarded with a nice, if slightly dated (surely there have been many advances since 1992?) survey of economic modeling of human behavior beyond simple rationality.

  6. 5 out of 5

    Chris Esposo

    An insightful collection of articles contributed by various authors in the behavioural economics domain, with a unified theme that each article is demonstrating a counterexample to some facet of neoclassical economics. These include empirical evidence against models of repeated prisoner-dilemma or other games showing a marked propensity to cooperate, results demonstrating the endowment effect, or the disutility to sell vs buy fixing price -demonstrating an asymmetry in clearing, calendar effects An insightful collection of articles contributed by various authors in the behavioural economics domain, with a unified theme that each article is demonstrating a counterexample to some facet of neoclassical economics. These include empirical evidence against models of repeated prisoner-dilemma or other games showing a marked propensity to cooperate, results demonstrating the endowment effect, or the disutility to sell vs buy fixing price -demonstrating an asymmetry in clearing, calendar effects for small firms trading in the equities market, mean reversion phenomena, and inefficiencies in the foreign exchange markets, most evidencing against strong/weak versions of EMH, as well as a few other topics. A little over half the topics are on finance. The book is old (the mid-80s), so probably of little use to anyone in the field. Also, the character of the articles is a summary of the research results, so be prepared to think about sampling, hypothesis of slow/fast learning, etc., which are all used to help demonstrate that the results displayed here are truly counterexamples to rational expectations and not just misunderstandings of the phenomena/experiment in question. The book is best used by an outsider in economics/finance who wants the lay of the land and wants to know where to start. These articles will point the way towards which articles to pull as background research in this capacity. It's also useful for people who are dabbling in investing and want some understanding of practical phenomena they may have to take into account when analyzing/crafting their strategy. Lastly, could also be useful for someone who read Thalers more recent books on the history of behavioural economics, and wants some original source material to ruminate over. Overall the book was clear, though readers will need to be acclimated with economic research jargon at the undergrad level to grok it well. Recommend

  7. 5 out of 5

    Terry Koressel

    The Winner's Curse is written by Richard Thaler, a Nobel Prize winner who understands the paradoxes and anomalies of economic assumptions as well as anyone. There are certain economic principles or theories or transactions whose empirical results do not match the accepted "laws". The cause of these anomalies is patterned human behavior which differs from predicted or theorized behavior. The Winner's Curse is brilliantly researched, organized and detailed. So why only 3 stars? The book is dry.... The Winner's Curse is written by Richard Thaler, a Nobel Prize winner who understands the paradoxes and anomalies of economic assumptions as well as anyone. There are certain economic principles or theories or transactions whose empirical results do not match the accepted "laws". The cause of these anomalies is patterned human behavior which differs from predicted or theorized behavior. The Winner's Curse is brilliantly researched, organized and detailed. So why only 3 stars? The book is dry....very hard to get through unless you are a serious student of economics and behavioral finance (which I am not). The book is written in the style of a college textbook. I don't want to criticize the book just because it did not suit my style (or possibly intellect). I learned a great deal from The Winner's Curse. Sincere kudos to Mr. Thaler and his deserved Nobel Prize. I am only saying that a more engaging writing style would have improved my enjoyment of the book. I recommend The Winner's Curse highly with a cautionary note about the writing style.

  8. 4 out of 5

    Reza

    From one of the founders (or the founder?) of the behavioral economy, the book presents examples of where traditional economic theories fail to describe inefficiencies in decision making. Not every case ends with a definite explanation using behavioral methods. Some of the chapters are practical like "winner's curse" for those in business, "Savings, Fungibility, and Mental Accounts" for all of us making savings and borrowing decisions, and "Pari-mutuel Betting Markets" for the horse racing and b From one of the founders (or the founder?) of the behavioral economy, the book presents examples of where traditional economic theories fail to describe inefficiencies in decision making. Not every case ends with a definite explanation using behavioral methods. Some of the chapters are practical like "winner's curse" for those in business, "Savings, Fungibility, and Mental Accounts" for all of us making savings and borrowing decisions, and "Pari-mutuel Betting Markets" for the horse racing and betting kind... It is a collection of research papers written over time - so it is more academic in nature than I expected. Some chapters are easier than others to follow for non-technical folks like myself. The final chapter went way over my head - with discussion of foreign exchange rates and explanations of inefficiencies.

  9. 5 out of 5

    Jens Cheung

    Four proofs to argue classical economics: 1. Bitting for an unreasonable price 2. Overestimated judgement on market value 3. Emotional response for unfair situations 4. Sequences of monetary evaluation for different outcome All reflected rationality is not the case in economic assumptions. Yet, it might be more interesting not to re-frame economic studies, but providing a solid ground for empirical assumptions. What classical economic can't do is crossing fields of studies in the past, but now we can Four proofs to argue classical economics: 1. Bitting for an unreasonable price 2. Overestimated judgement on market value 3. Emotional response for unfair situations 4. Sequences of monetary evaluation for different outcome All reflected rationality is not the case in economic assumptions. Yet, it might be more interesting not to re-frame economic studies, but providing a solid ground for empirical assumptions. What classical economic can't do is crossing fields of studies in the past, but now we can redefine pragmaticism through neuro-sociology.

  10. 5 out of 5

    Ivan

    This book is more of a text book. If you don't have an economical background some parts will be a little complicated to understand. It is a summary of papers he published in an economics journal. The last part of the book is lighter and you can digest more. Talks about social marketing and how the anomalies (some of them not valid now) interacts with the way we think. It is a book that is getting older but still a good one to understand behavioural economics.

  11. 5 out of 5

    Andreas Riedl

    I love Thaler's thinking. Nevertheless, the book is approx. 25 years old and concepts were further developed. Also, this is an economics textbook that probably requires a certain education in the field to be able to read it. Milestone book.

  12. 4 out of 5

    Wodin

    Good information, just not as well put together as Thaler's later books or Thinking, Fast and Slow

  13. 4 out of 5

    DJ Williams

    Interesting topics, but often really dry and dull writing--Misbehaving is a much better book by the same author on largely the same subjects.

  14. 5 out of 5

    Kent Winward

    Thaler on his own isn't quite as practical as some of his counterparts. Interesting stuff, but heavy on the data, light on the implications.

  15. 4 out of 5

    Paola

    This books collects some of the papers that Richard H. Thaler authored with various colleagues in the "Anomalies" series of the Journal of Economic Perspectives over the period 1987-1990, investigating behaviours which could not be accounted for by the standard economics paradigm. In spite of the time that has gone by, many of the anomalies are still relevant today. Of the academic journals published by the American Economic Association, this is the one more oriented to a general readership, mak This books collects some of the papers that Richard H. Thaler authored with various colleagues in the "Anomalies" series of the Journal of Economic Perspectives over the period 1987-1990, investigating behaviours which could not be accounted for by the standard economics paradigm. In spite of the time that has gone by, many of the anomalies are still relevant today. Of the academic journals published by the American Economic Association, this is the one more oriented to a general readership, making this a very accessible book to non economists.

  16. 5 out of 5

    Tom

    Probably the best single source if you want to explore the hot field of behavioral economics. Not overly technical, so very readable. If you liked [i]Freakonomics[/i], for instance, this would be a good follow-up.

  17. 4 out of 5

    Yuekun Liu

    The book documents 13 economics anomalies. The author describes the detailed experiments and their results that challenge the rationally and self-interest, assumed in the normative theory. Recommend to anyone who is interested in the experimental behavioural finance.

  18. 4 out of 5

    Greg Holdsworth

    Wonderful introduction to the large gap between economic theory and how people actually interact. Richard Thaler entertains and educates - the only reason I didn't give it 5 stars is that some people to whom I recommended it found it a little technical in parts.

  19. 5 out of 5

    Alice

    An interesting tome on behavioral economics. Uses anomalies and paradoxes to argue for more nuanced models. Best of all, fairly accessible to the Economically Challenged.

  20. 4 out of 5

    Arjun

    Have to plug your own teacher.

  21. 5 out of 5

    Энэрзаяа Г.

    Fascinating but at times difficult to follow the jargon-dense language.

  22. 4 out of 5

    aarjav

    Found via investigations into Obama http://www.tnr.com/politics/story.htm... Found via investigations into Obama http://www.tnr.com/politics/story.htm...

  23. 4 out of 5

    Kyle

    This book made me want to get a PhD in economics.

  24. 5 out of 5

    Kerry

    Interesting. Very high level. Went into a lot of detail (especially about experiments) , but neglected repetitious verbiage.

  25. 5 out of 5

    Nic

    people are wierd myself included

  26. 5 out of 5

    Nitin

  27. 5 out of 5

    Antonio Villasís

  28. 5 out of 5

    Ramy

  29. 4 out of 5

    Tyler

  30. 5 out of 5

    David Monington

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