Thursday, December 12, 2013

The Winner's Curse

I also recently read "The Winner's Curse", a 1992 book by Richard Thaler.  Like Ariely's "Predictably Irrational" it discusses situations in which people don't behave as some economic theory predicts they should.  My evaluation is similar, the book while not totally devoid of interest is not worth recommending.

This book largely consists of revised versions of a series of articles Thaler (often with coauthors) published in the Journal of Economic Perspectives between 1987 and 1991 on the general theme of economic anomalies, situations where people behave contrary to theory.  These articles summarized academic research on each topic.  I found this preferable to Ariely's book which in my view unduly emphasized his own research.  However the articles are now over 20 years old and so potentially dated.  And they are written in a style which I didn't find particularly engaging. 

But my main objection is the same as to Ariely's book, it is not clear how significant these anomalies are.  I think most people understand that economic models are approximations which are not exactly correct.  So finding a few cases where their predictions are off doesn't by itself mean too much.  As Thaler concedes near the end of this book, what is really needed are models (or theories) that predict better. 

So in summary I don't think this book offers a lot to the lay reader. There were a few points of interest but in general it isn't going to be of much help in understanding current economic issues or in making better personal finance decisions.

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