Ten Decision-Making Lessons from Behavioral Economics
In This Chapter
Applying lessons from behavioral economics in your own life
Making decisions you won’t regret
Conventional economics pays little attention to errors in decision making. Conventional economists tend to focus on a lack of willpower and misguided decisions fueled by emotions. On the other hand, much of contemporary behavioral economics pays special attention to errors and biases in decision making. They pay more heed to decision making gone awry because of lack of information, misguided advice, inadequate education, and bad incentives.
In this chapter, I cover ten lessons from behavioral economics on how decision making can be improved or, on the flip side of the coin, how disastrous decisions can be avoided.
Be Wary of Overconfidence
Many behavioral economists believe that overconfidence bias is a major source of significant errors in decision making. Overconfidence is typically defined as believing that you’ll do better (or much better than average) without much in the way of empirical evidence to back up that belief. Most people believe that they’re doing better than average — but, obviously, most people can’t be doing better than average. That’s mathematically impossible.
It appears that people are ...