Behavioral economics in the smallest nutshell

In James March’s book of very good Cornell Lectures, The Ambiguities of Experience (2010), I stumbled on the best and most concise summary of behavioral econ that I’ve read.

Some features of human cognitive abilities and styles affect the ways stories and models are created from ambiguous and complex experience. Humans have limited capabilities to store and recall history. They are sensitive to reconstructed memories that serve current beliefs and desires. They have limited capabilities for analysis, a limitation that makes them sensitive to the framing that is given to experience. They conserve belief by being less critical of evidence that seems to confirm prior beliefs than of evidence that seems to disconfirm them. They distort both observations and beliefs in order to make them consistent. They prefer simple causalities, ideas that place causes and effects close to one another and that match big effects with big causes. They prefer heurisitics that involve limited information and simple calculations to more complex analyses. This general picture of human interpretations of experience is well documented and well known (Camerer, Loewenstein, and Rabin 2004, Kosnick 2008).

He goes on to add that

These elements of individual storytelling are embedded in the interconnected, coevolutionary feature of social interpretation. An individual learns from many others who are simultaneously learning from him or her and from each other. The stories and theories that one individual embraces are not independent of the stories and theories held by others. Since learning responds as a result to echoes of echoes, ordinary life almost certainly provides greater consistency of observations and interpretations of them than is justified by the underlying reality. In particular, ordinary life seems to lead to greater confirmation of prior understandings than is probably warranted.

Overall, the book is very good. Thoughtful and thorough while staying concise. Crisp without being too pithy. I’m thinking of assigning parts.