Preventing the Next Collapse:
The Rise of Behavioral EconomicsBy Dan Ariely, Duke University professor
(synopsis)
Alan Greenspan, the former chairman of the U.S. Federal Reserve, made this comment to Congress when looking back on the economic collapse of the Fall:
“I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders.”
In short, he made a mistake presuming rational decision making.
We are finally beginning to understand that irrationality is the real invisible hand that drives human decision making. It has been a painful lesson, but the silver lining may be that companies now see how important it is to safeguard against bad assumptions.
The emerging field of behavioral economics offers a different view of how people and organizations operate. It is founded on the premise that, despite our best intentions, human beings are fundamentally irrational and motivated by unconscious cognitive biases.
The way to understand and navigate those biases begins with understanding how the brain functions.
Read more about behavioral economics.Return to the Report