The Upside of Irrationality

I have just finished reading and greatly enjoyed Dan Ariely’s new book “The Upside of Irrationality” published by Harper Collins and available in paperback in the UK. As a fan of his earlier work (Predictably Irrational) together with his numerous blogs and podcasts (Arming the Donkeys is available for free download from iTunes), I wondered whether this second book would have much in the way of fresh insights and ideas.

Indeed I put off getting stuck into this book for some months despite placing it immediately on my recommended reading list for students. I shouldn’t have been surprised that Dan’s opening remarks were about procrastination! The remaining eleven chapters generated some terrifically entertaining and many thought-provoking insights. This is a splendid work that is both deeply personal and moving whilst offering revealing insights into the experimental work of some of our leading behavioural economists.

No published work on behavioural traits is complete without a stage by stage attack on the idea of cold, calculating, self-interested maximising agents that have dominated the microeconomics textbooks for generations. Dan’s preferred distinction is between the approaches of the rational and wise realist that was Dr Spock from Star Trek with the flawed and emotional cartoon character Homer Simpson. I’ll be delving into You Tube clips from both TV series in the future when introducing behavioural economics to my students!

Many of the cognitive biases introduced to us in Predictably Irrational make a reappearance this time around - for example the sunk cost fallacy, loss aversion, the endowment effect and herding behaviour.

Dan’s work in this book ranges far and wide - from lessons about what drives genuine meaning in the world of work and the endowment bias of the things that we create (think IKEA furniture and Sunday mornings baking cup cakes) to the power of humans to adapt to changing circumstances and the long-term effects of emotions when decisions and choices are being made. Dan makes a powerful case for investing time and money in experiments ahead of major public policy changes.

Fans of behavioural economics will find this an enthralling read - it is a hard book to put down on a long train journey or flight!

As a rider to this blog post here is a piece from the New York Times on the limitations of behavioural economics. Read: Economics Behaving Badly