People often make irrational decisions from "summary" of Misbehaving by Richard H Thaler
The idea that people often make irrational decisions is a central theme in my work. I have spent decades studying the ways in which people deviate from the rational behavior predicted by classical economic theory. What I have found is that these deviations are not random or haphazard, but rather systematic and predictable. One of the key reasons for these deviations is the presence of cognitive biases. These biases are mental shortcuts that our brains use to simplify the complex world around us. While these shortcuts are often useful, they can also lead us astray. For example, we tend to overvalue immediate rewards and discount future ones, a phenomenon known as hyperbolic discounting. This can lead us to make decisions that we later regret, such as choosing to eat a donut now rather than lose weight in the future. Another reason for irrational behavior is the influence of social norms and peer pressure. We are social animals, and we care deeply about what others think of us. This can lead us to conform to the behavior of those around us, even if it is not in our best interest. For example, we may overspend on a fancy dinner with friends to avoid looking cheap, even if it means going into debt. Finally, our emotions play a crucial role in decision-making. When we are emotional, our ability to think rationally is compromised. This can lead us to make impulsive decisions that we later regret. For example, we may sell a stock in a panic during a market downturn, even though we know that it is not a rational decision.- The idea that people often make irrational decisions is a complex phenomenon that is influenced by a variety of factors, including cognitive biases, social norms, and emotions. By understanding these factors, we can begin to make better decisions and improve our overall well-being.
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