The Irrational Economist: Making Decisions in a Dangerous World
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A select group of scholars, innovators, and Nobel Laureates was asked to address challenges to rational decision making both in our day-to-day life and in the face of catastrophic threats such as climate changes, natural disasters, technological hazards, and human malevolence. At the crossroads of decision sciences, behavioral and neuro-economics, psychology, management, insurance, and finance, their contributions aim to introduce readers to the latest thinking and discoveries.
The Irrational Economist challenges the conventional wisdom about how to make the right decisions in the new era we have entered. It reveals a profound revolution in thinking as understood by some of the greatest minds in our day, and underscores the growing role and impact of economists and other social scientists as they guide our most important personal and societal decisions.
on the two major faults in the San Francisco area, namely the San Andreas Fault and the Hayward Fault. A 45-kilometer length of the San Andreas Fault was called the Loma Prieta segment. In the course of several meetings, the probability that a major earthquake would occur over the next thirty years was assessed as 0.3 for the Loma Prieta segment and as 0.2 separately for each of the other four segments. On October 17, 1989, a magnitude 7.1 earthquake on the Loma Prieta segment occurred, leading
PRACTICAL CASE FOR TEENAGERS: DECISION EDUCATION FOUNDATION The Decision Education Foundation (DEF) based in Palo Alto, California, is a philanthropic organization that aims to improve decision making among adolescents and adults (see www.decisioneducation.org). DEF was founded in 1996 by Professor Ron Howard from Stanford University with two of his former doctoral students, Eric Horvitz and David Heckerman from the Decision Theory Group at Microsoft Research, and several other decision experts
at the third stage the most often; at the second stage, the second most often; and at the first stage, the least often. Looking more and more at future stages yields offer distributions that slide from the equal split of $2.50 toward the perfect equilibrium of $1.25. Two other groups of economists have published eye-tracking results since our 2002 study.3 Nonetheless, I am a little surprised that this tool has not been used more often. Many rational choice and behavioral theories make
mandates has to do with the spillover costs that the uninsured impose on others—costs that recent research shows are much larger than those related to hospital-level charity care, but that extend to lower quality for insured people in the community, because larger fractions of the uninsured make high quality less profitable (whether they use such care or not) (Pagán and Pauly, 2006). INSURANCE AND A TRANQUIL LIFE A theme common to the cases discussed in the preceding three sections is that
action, notably with respect to the current limitations of the Kyoto Protocol to encourage all countries to seriously reduce their greenhouse gas emissions. A striking aspect of the recent debate on climate change is the transfer of the most pressing scientific challenges from the so-called hard sciences (e.g., climatology, oceanography, chemistry) to the social sciences, and more specifically to economics. Yet the economic community remains divided on the way to approach long-term environmental