What I've Been Reading

And we have to start paying attention to those supposedly irrelevant factors, what I will call SIFs for short.

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler. Wonderful auto-biography of behavioral economics;  I was laughing so hard at times that Max was jealous and started jumping on me. I have learned so much from Thaler and co., over the years;  they helped me understand human nature better. Thank you for nudging the world towards a better place.

Having read Tetlock's Superforecasting last week; I am going to make two bold predictions (with a time frame of-course):

• Thaler's will be receiving his long over due Nobel within next five years. 
• Sapiens will screw up behavioral economics within next fifteen years that it will look paternalist rather than libertarian paternalism.  

Here's economist John Lott defending (read sunk cost) Coarse theorem:

Couldn't the low trading of the mugs be explained by transaction cost? I explained that the tokens experiment had ruled out this explanation - after all, the tokens had the same transaction cost as the mugs, and the tokens did trade as much as the theory predicted. She (Lott's wife) seemed satisfied, but then Lott jumped in to "help". "Well," he asked, "couldn't we just call the endowment effect itself a transaction cost?". I was shocked by this comment; transaction cost are supposed to cost of doing transaction - not a desire to do a transaction. If we are free to relabel preferences as "costs" at will so that behavior appears to be consistent with the standard theory, then the theory is both untestable and worthless. So instead of trying to reason with Lott, I turned to Posner and asked him whether he would now concede that I am not the least scientific person in the room. Posner smiled, nodded his agreement, and everyone in the room who could see him laughed.