from the economics man to the behavior man
HBR.ORG
SPOTLIGHT ON DECISION MAKING
MAY 2015
REPRINT R1505F
From “Economic
Man” to Behavioral
Economics
A short history of modern decision making by Justin Fox
SPOTLIGHT ON DECISION MAKING
SPOTLIGHT
FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG
ARTWORK Millo, 2014
B.ART–Arte in Barriera, Turin, Italy
Justin Fox, a former editorial director of HBR, is a columnist for Bloomberg
View. He is the author of The
Myth of the Rational Market
(HarperBusiness, 2009).
A short history of modern decision making by Justin Fox
From “Economic Man” to Behavioral Economics
W
WHEN WE MAKE DECISIONS, we make mistakes. We all know this from personal experience, of course. But just in case we didn’t, a seemingly unending stream of experimental evidence in recent years has documented the human penchant for error. This line of research—dubbed heuristics and biases, although you may be more familiar with its offshoot, behavioral economics—has become the dominant academic approach to understanding decisions. Its practitioners have had a major influence on business, government, and financial markets. Their books—Predictably Irrational; Thinking,
Fast and Slow; and Nudge, to name three of the most important— have suffused popular culture.
So far, so good. This research has been enormously informative and valuable. Our world, and our understanding of decision making, would be much poorer without it.
It is not, however, the only useful way to think about making decisions. Even if you restrict your view to the academic discussion, there are three distinct schools of thought. Although heuristics and biases is currently dominant, for the past half century it has interacted with and sometimes battled with the other two, one of which has a formal name—decision analysis—and the other of which can perhaps best be characterized as demonstrating that we humans aren’t as dumb as we look.
COPYRIGHT © 2015 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS
SPOTLIGHT ON DECISION MAKING
MAY 2015
REPRINT R1505F
From “Economic
Man” to Behavioral
Economics
A short history of modern decision making by Justin Fox
SPOTLIGHT ON DECISION MAKING
SPOTLIGHT
FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG
ARTWORK Millo, 2014
B.ART–Arte in Barriera, Turin, Italy
Justin Fox, a former editorial director of HBR, is a columnist for Bloomberg
View. He is the author of The
Myth of the Rational Market
(HarperBusiness, 2009).
A short history of modern decision making by Justin Fox
From “Economic Man” to Behavioral Economics
W
WHEN WE MAKE DECISIONS, we make mistakes. We all know this from personal experience, of course. But just in case we didn’t, a seemingly unending stream of experimental evidence in recent years has documented the human penchant for error. This line of research—dubbed heuristics and biases, although you may be more familiar with its offshoot, behavioral economics—has become the dominant academic approach to understanding decisions. Its practitioners have had a major influence on business, government, and financial markets. Their books—Predictably Irrational; Thinking,
Fast and Slow; and Nudge, to name three of the most important— have suffused popular culture.
So far, so good. This research has been enormously informative and valuable. Our world, and our understanding of decision making, would be much poorer without it.
It is not, however, the only useful way to think about making decisions. Even if you restrict your view to the academic discussion, there are three distinct schools of thought. Although heuristics and biases is currently dominant, for the past half century it has interacted with and sometimes battled with the other two, one of which has a formal name—decision analysis—and the other of which can perhaps best be characterized as demonstrating that we humans aren’t as dumb as we look.
COPYRIGHT © 2015 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS