While I was on holiday in July I read Thinking, Fast and Slow, Daniel Kahneman’s superb summary of his life’s work. I initially intended to review it as usual, but somehow it felt harsh to try to summarise a summary and so I put it to one side for a while.
For those of you who are unfamiliar, Kahneman is one of the parents of behavioural economics, a field in which people display behaviour that deviates from the model or rationality that most economic theory assumes. There are so many examples that you are forced to conclude that the econ, the hyper rational agent, does not, perhaps cannot, exist.
Which leaves an unanswered question – if the econ doesn’t exist why does so much economic theory actually work? Some of it is to do with the averaging, or the wisdom of crowds. Framing effects may affect someone going into a shop for the first time, but if they have just seen the prices of similar items next door the effect is likely to be lessened. And in financial markets some irrationality makes people bankrupt pretty quickly. But some of the gaps in our knowledge are made more transparent by this book. I just wish more people would acknowledge that.