Just finished reading Misbehaving: The Making of Behavioral Economics by Richard H. Thaler
I never thought I’d say that about economics but it’s actually quite interesting and even funny – yes, funny – at times. This book focuses on the history of the slow development of this new field of economics. It’s based the fact that people don’t always (mostly never) behave rationally (they’re full of biases and prejudices) and logical (some would say cold) systems do a poor job at predicting the behavior a people inside a social context; be it a company, a government or a country.
The book is certainly not perfect. I strongly disagree with any argument made based on the premise that there is such a thing as “intrinsic value.” I consider this one of the biggest fraud in today’s economics. Turns out, there’s no such thing as “value” in nature. “Value” is a man-made idea. It represent an estimate of the desire of both parties involved in a trade to actually validate the trade. In essence; there’s no such thing as “value” outside the context of a trade; only estimated value. The action of trading is what validates the value.
Also the author bases his critic of the pricing of the stock market on the fact that the total shares of a company should always represent the actual value of that company at any given time. This is utterly ridiculous and borderline a straw man argument. At best they represent the average value of millions of estimates, forecasts and projections made over several years by investors with different goals, means and aversion to risk.
A few quotes from the book:
– “Giving up the opportunity to sell something does not hurt as much as taking the money out of your wallet to pay for it. Opportunity costs are vague and abstract when compared to handing over actual cash.”
– “The fact that a loss hurts more than an equivalent gain gives pleasure is called loss aversion. It has become the single most powerful tool in the behavioral economist’s arsenal.”
http://www.amazon.com/dp/B00NUB4GFQ/ref=cm_sw_r_fa_dp_Qmtaxb1XMQFQC