Chapter 10 — Further Reading

Foundational works

Daniel Kahneman, Thinking, Fast and Slow, Farrar, Straus and Giroux, 2011 Kahneman's account of his decades of work with Amos Tversky on cognitive biases. The single best book on behavioral economics for a general audience. Long (about 500 pages) but accessible. The chapters on prospect theory, anchoring, and the two-systems model of cognition are particularly relevant. The single most important book to read after Chapter 10.

Daniel Kahneman and Amos Tversky, "Prospect Theory: An Analysis of Decision Under Risk," Econometrica, 1979 The original prospect theory paper. Technical but foundational. One of the most-cited papers in social science.

Richard Thaler, Misbehaving: The Making of Behavioral Economics, W. W. Norton, 2015 Thaler's account of how behavioral economics emerged from a fringe specialty to a Nobel-winning core area of mainstream economics. Combines memoir, history of ideas, and substantive economics. Highly recommended.

Richard Thaler and Cass Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness, Yale University Press, 2008 (revised 2021) The book that introduced "nudge" and "choice architecture" to the public. Influenced policy in dozens of countries. Worth reading both for the substantive arguments and for the practical examples.

On bounded rationality

Herbert Simon, Administrative Behavior, Macmillan, 1947 (4th edition 1997) Simon's foundational work on bounded rationality. He argued that humans are "satisficers" rather than "maximizers" — they find decisions that are good enough rather than computing the optimal one.

Gerd Gigerenzer, Risk Savvy: How to Make Good Decisions, Viking, 2014 A more skeptical view of behavioral economics. Gigerenzer argues that "biases" are often actually well-adapted heuristics that produce good decisions in the environments humans evolved to handle. A useful counterpoint to the Kahneman-Tversky framing.

On retirement savings (case study 2)

Brigitte Madrian and Dennis Shea, "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," Quarterly Journal of Economics, 2001 The original empirical paper on 401(k) auto-enrollment. The findings transformed retirement plan design in the U.S.

Richard Thaler and Shlomo Benartzi, "Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, 2004 The paper that introduced the Save More Tomorrow concept — the use of present bias to commit people to higher savings rates in the future. A model of how behavioral insights can be applied to policy.

Cass Sunstein, Why Nudge?, Yale University Press, 2014 A defense of nudges as a form of policy intervention. Sunstein addresses the ethical objections more carefully than the original Nudge book.

On COVID savings (case study 1)

Jonathan Parker, Jake Schild, Laura Erhard, and David Johnson, "Economic Impact Payments and Household Spending During the Pandemic," Brookings Papers on Economic Activity, 2022 The most comprehensive study of how the CARES Act stimulus checks affected household spending. Findings: a substantial fraction was saved, particularly by higher-income households.

Federal Reserve Bank of San Francisco, Excess Savings During the Pandemic, ongoing economic letters The San Francisco Fed has been the most active research source for tracking the COVID savings accumulation and the subsequent unwinding. Multiple papers and data series.

On the Behavioral Insights Team and policy applications

Owain Service et al., EAST: Four Simple Ways to Apply Behavioural Insights, Behavioural Insights Team, 2014 The U.K. Nudge Unit's framework for applying behavioral insights to policy. EAST stands for Easy, Attractive, Social, Timely. Practical and concise.

OECD, Behavioural Insights and Public Policy: Lessons from Around the World, OECD Publishing, 2017 A comprehensive review of how behavioral insights have been applied to policy in many countries.

Critical perspectives

Daniel Kahneman, "Reflections on the Replication Crisis," in Behavioral and Brain Sciences, multiple papers Even Kahneman has acknowledged that some of the foundational behavioral economics findings have not replicated as well as expected. The "replication crisis" in psychology has affected behavioral economics. Reading Kahneman on this is illuminating.

Daniel Hausman, "Mistakes About Preferences in the Social Sciences," Philosophy of the Social Sciences, 2011 A philosophical critique of the assumption that behavioral economists know what people "really" prefer. Hausman argues that the field's normative claims (people are making mistakes, we should help them) often rest on questionable assumptions about what people's "true" preferences are.

Mark Egan, Tom Davidoff, and others, "Heterogeneous Effects of Behavioral Interventions," various papers A growing empirical literature on how behavioral interventions work very differently for different populations. The "average effect" of a nudge can hide enormous variation.

Modern applications

Jeffrey Liebman et al., Behavioral Economics and the Earned Income Tax Credit, NBER, 2017 A study of how behavioral insights can be used to improve EITC take-up rates among eligible workers.

Eldar Shafir and Sendhil Mullainathan, Scarcity: Why Having Too Little Means So Much, Times Books, 2013 A book on how poverty itself produces cognitive biases — people facing scarcity have less mental bandwidth for other decisions. An important and underappreciated contribution to behavioral economics.

Esther Duflo, Economist as Plumber, Yale University Press, 2017 The 2019 Nobel laureate's short essay on how applied economics should think about itself. Includes discussion of how behavioral insights inform field experiments in development economics.

A reading order recommendation

If you have time for one of the books above, read Kahneman's Thinking, Fast and Slow. It is the most comprehensive and accessible single book on behavioral economics, written by the field's most influential figure.

If you want to understand the practical policy applications, read Thaler and Sunstein's Nudge or its 2021 revision.

If you want a critical perspective, read Gigerenzer's Risk Savvy alongside Kahneman.

For the COVID-era applications, read the Parker et al. paper on stimulus checks for the empirical record.

You have now completed Part II of Introductory Economics. The full microeconomic toolkit — supply and demand (Ch 5), elasticity (Ch 6), government intervention (Ch 7), surplus and welfare (Ch 8), international trade (Ch 9), and behavioral economics (Ch 10) — is now in your hands. Part III will apply these tools to the markets that fail in important ways: externalities, public goods, inequality, healthcare, climate, and information asymmetries. Chapter 11 — Externalities — is next.