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The Winner's Curse: Paradoxes and Anomalies of Economic Life
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.
240 pages, Paperback
First published January 1, 1991
About the author
Richard H. Thaler
18 books1,815 followersRichard H. Thaler is an American economist who was awarded the 2017 Nobel Prize in Economics.
He is the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago’s Booth School of Business, where he is the director of the Center for Decision Research. He is also the co-director (with Robert Shiller) of the Behavioral Economics Project at the National Bureau of Economic Research and in 2015 was the president of the American Economic Association. He has been published in several prominent journals and is the author of a number of books, including Misbehaving: The Making of Behavioral Economics.
He is the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago’s Booth School of Business, where he is the director of the Center for Decision Research. He is also the co-director (with Robert Shiller) of the Behavioral Economics Project at the National Bureau of Economic Research and in 2015 was the president of the American Economic Association. He has been published in several prominent journals and is the author of a number of books, including Misbehaving: The Making of Behavioral Economics.
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Displaying 1 - 30 of 38 reviews
November 1, 2014
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.
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.
October 10, 2017
He's the forerunner of the behavioral economics. it's to unravel human economic irrationally.
January 31, 2018
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.
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.
August 1, 2019
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.
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.
February 27, 2011
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.
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.
November 11, 2022
I loved Nudge and Misbehaving from the same author, and I gave both the 5-stars. But this, this one was highly uninteresting. Examples have been heard of numerous other times (repeated to oblivion by many other works). I don't think I've learned anything, it was so utterly forgettable, unfortunately. Also this is more of an economics book than a behavioral economics one, or at least the writing is too technical/advanced. I better enjoy reading thedecisionlab, but that's not a book. At first I didn't believe the low rating here, now I understand. To make things worse the narration sounded like he had something in his mouth, this Morey character. Overall: a disappointment.
November 19, 2019
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.
August 1, 2021
Don't expect a popular science book in the style of "Thinking Fast and Slow" or Thaler's "Nudge" or "Misbehaving". "The Winner's Curse" is, if my understanding is correct, a collection of columns that Thaler wrote in academic journals and that have been edited for a non-expert public. While I can certainly appreciate that Thaler's columns formed the basis of what we now call behavioural economics (he even alludes to "a new science" in the introduction, one that is no built on the assumption of rationality), and that therefore the columns were front-running organized theory, this grouping of writings is at times all over the place and lacks coherence. Some of the observations are also superficial: Thaler explores phenomenons but devotes relatively little to theorizing why they occur. I'd suggest reading if you are already familiar with the core concepts of behavioural economics, as an historical artifact to see how the discipline evolved. But it's certainly not a book for novices.
February 4, 2020
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.
October 23, 2023
I have rated this lower than because many of the aspects in this book are known through other works and I have read a lot of them. It had a more investing bent with equations which this reader does not have the knowledge to understand but I understood the main points as described. I think behavioural finance so better describes the markets than traditional economic theory because of the blind spots occurring in the "rational" man. Maybe women are more rational. Research would suggest that is the case. Good enough read, a little more detail to FX but apart from that, very little I hadn't read before in other literature.
Read
April 25, 2020Four 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.
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.
November 1, 2019
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.
April 25, 2019
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.
July 31, 2021
Good but dense reading
Good book but it is somewhat dense for an interested reader that’s not an economist. I think there are better Thaler books out there that provide similar learning
Good book but it is somewhat dense for an interested reader that’s not an economist. I think there are better Thaler books out there that provide similar learning
September 22, 2018
Good information, just not as well put together as Thaler's later books or Thinking, Fast and Slow
November 20, 2019
Interesting topics, but often really dry and dull writing--Misbehaving is a much better book by the same author on largely the same subjects.
December 25, 2019
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.
June 16, 2020
Could've done with some graphics.
November 28, 2020
Interesting topics but the book somewhat disappoints. Many references to studies followed by a short end-of-chapter summary.
January 15, 2021
Terribly outdated by now. But still a worthwhile read to see one of the sources in behavioral economics.
August 4, 2021
I need to read this book again and perhaps again in order to absorve.
December 29, 2022
Not as good as his book Nudge. Kahneman also does a better job covering the same topics in Thinking, Fast and Slow.
February 9, 2019
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
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
June 23, 2012
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.
February 14, 2008
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.
January 2, 2014
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.
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.
November 9, 2016
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.
March 20, 2007
Have to plug your own teacher.
October 23, 2008
This book made me want to get a PhD in economics.
June 4, 2008
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.
Displaying 1 - 30 of 38 reviews