Is it really that obvious?

I am often asked for recommendations of books relating to Economics. (Shocking, I know.) Well, I now have one I can recommend lightly. Dan Ariely's Predictably Irrational is a nice introduction to behavioral economics, the branch of economics which takes seriously the study of how real people (as opposed to those mathematical people who inhabit models) act. The book is in the Freakonomics genre--summary of an author's work which oversells how different the work is from what all sorts of economists are doing. (Seriously, Steven Levitt's work is fun and interesting, but is is straightforward Economics--there is nothing Freaky about it.)

Ariely reports on a wide array of experiments he and his co-authors have done--they run experiments on people--well, most of them are undergrads, but we like to pretend that undergrads act like regular people. The research is fun; the experiments are interesting (particularly when you get to just read about them and think, "I wouldn't act as irrational as those people in the study.")

Ariely wants to argue that behavioral economics is somehow a radical break from conventional economics, but I suspect it would be hard to find any regular economists who aren't at least interested in the behavioral economists' approach. The problem with behavioral economics is not what they are doing or finding, but that they want to overturn conventional wisdom on this or that matter on the basis of two or three tests on undergrads. The behavioral economists like to pretend that their tests have some sort of scientific rigor akin to an experiment in a Physics lab, but their results are a bit too messy. In time, if we keep finding results like these, then there would be good reason to completely believe them, but it will take more than one paper to convince anyone of something.

The problem really shows up in Ariely's afterword explaining the Financial Crisis to all of us--it is a mixture of some interesting ideas and some painfully slapdash remarks.

On the whole though, the book is worth reading. (I assigned this book in my introduction to microeconomics class this semester, but I haven't heard any feedback about it yet.) If you liked Freakonomics, Predictably Irrational is along the same lines. (By the way Levitt has a new book coming out, with the groan-inducing title SuperFreakonomics.)