This article was first published in the July 2009 issue of Harvard Business Review.
©2009 by the President and Fellows of Harvard College, All Rights Reserved; (P)2009 Audible Inc.
I like the presentation of behavioral economics, because that is an important part of understanding how people respond to new products, employment, or other markets. However even though this essay questions the notion that people behave rationally, their examples demonstrate that people respond to incentives. For example people have a high propensity to cheat in experiments for a small amount of money when the chance of getting caught seemed slim. Is that irrational? Maybe not ethical but these findings actually support the notion that people operate in their own self interest, which is a form of rational behavior.
I was hoping for more of an evaluation the incentives people react to and why. The essay hinted at the notion that people irrationally make choices often to their detriment, but did not elaborate beyond the examples in experiments. I was hoping for more discussion about actual irrational behavior, like why people might rack up credit card debt instead of saving for retirement or how life impacting decisions are often made with little evidence of thought. Also I had a sense that the author is concluding that people in general need a lot more supervision, but, especially in light of the reference to the 2008 Financial Crisis, this begs the question: how do we know that the supervision will be any more rational?
Dan Ariely is a professor of Behavioral Economics at Duke University. Ariely's a lively writer, and "The End of Rational Economics" is a quick but informative piece from 'The Harvard Business Review' (2008).
The piece has several good ideas. The one I liked best was a discussion about angry customers who might exact revenge with a bad review, and how to defuse them. That alone was worth the download and the listen time.
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As freshman student of economics, I listened to this HBR. I was opened up to the field of behavioral economics this HBR helped me understand its purpose. It is a speculative review - not definitive. More like an observation piece than anything.
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