You and your friend each have flights to catch at 8 p.m. and your destination cities are different. You decide to share a cab, but get caught in a rare traffic jam lasting several hours. You end up at the airport around midnight, and surely enough, both of you miss your flights. All quantifiable consequences of missing the flights-cost of tickets cancellation, paying for a new ticket, taking a cab back to the city, overnight stay, taking a cab back to the airport next morning, etc.-are expectedly identical for both. Now suppose the airline assistant tells you, 'Sorry, your flight left as scheduled at 8 p.m. sharp.' But your friend is told, 'Oh, how very unfortunate. Your flight was almost four hours late and only just departed!' Who feels the greater disappointment? You or your friend?
Neoclassical economics tells us that because both individuals are assumed rational, their regret levels ought to be identical since their economic consequences are identical. Behavioural economists, however, combine psychology with economics, and focus on how real people, with their cognitive biases, actually behave. The friend who just missed the flight does indeed experience greater disappointment than the one who missed the flight by a margin of four hours. Does that make one or the other irrational?
Irrationally Rational takes you through the journey of such rationality-irrationality arguments, showing why economics shorn of psychology may be incomplete. It is the first book of its kind, collating the works of ten Nobel Laureates largely responsible for the rise of behavioural economics, that makes understanding behavioural economics more fun and accessible.
The choices we make are driven not by cold, rational calculation but by our emotions such as for example love, compassion, anger, ego and altruism. Raghunathan tells the fascinating story of how this profound understanding is reshaping economics. -- Duvvuri Subbarao, Former Governor, Reserve Bank of India
The distinctive feature of the book is the manner Raghu has woven the decisions we make every day with the ideas and frameworks proposed by a galaxy of Nobel laureates. The book is an excellent read to persuade us that the foibles in our repertoire of behaviour have rational explanations after all! -- Samir Barua, former Director & Professor, IIM, Ahmedabad
Behavioral economics is appealing because it is not esoteric: it's not about an academic dispute but a set of lessons about how we - all of us - make decisions. A book like this adds value by making those ideas easy to understand. -- Sendhil Mullainathan, Roman Family University Professor of Computation and Behavioural Science, Chicago Booth School of Business
Raghunathan explores in this book the new insights that hit us, if economists move away from the traditional assumption of "rational" man. He does so by analysing ten Nobel laureates whose writings have resulted in the emergence of "Behavioral Economics". How much of the traditional theory needs to be modified in this context is what this book compels us to introspect. Well-written and cogently argued, this book should find a place in the library of every serious economist. -- C. Rangarajan, former Governor, RBI, and former Chairman, Economic Advisory Council to the PM
This is, as the author himself says in the preface, a very unusual book - neither a text book, nor a bed side read, nor a "unifying theory". It is a collection of learned essays on the works of twelve Nobel Laureates that gives the reader an excellent starting point to develop an understanding of Behavioural Economics. This is not a unputdownable book. This book has to be savoured by each chapter, and reflected upon. It will make you understand how you, and others around you actually make decisions. Rationally or irrationally, I learnt a lot about my own decision making in the process. -- Ajit Rangnekar, former Dean, Indian School of Business, Hyderabad
Raghu has long known and taught that finance and economics is not the solving of a sum but the painting of a picture. This book is a wonderful manual for anybody struggling with the recent struggles of economics. -- Manish Sabharwal, Vice Chair and co-founder, TeamLease Services Ltd and Managing Trustee New India Foundation
Irrationally Rational makes for an excellent read, including for policy professionals, who can use the principles of behavioural economics-say in designing "nudging" policies. Presenting the works of ten different Nobel laureates and their vast body of work in a mid-sized book is a difficult challenge, accomplished competently by the author. -- Rajiv Kumar, Vice Chairman, NITI Aayog
Behaviour of economists and non-economists alike, is to use the buzzword of behavioural economics indiscriminately. With his years of experience in communicating what is often abstract, esoteric and incommunicable-in comprehensible terms, Professor Raghunathan has written an engaging book. It reads almost like a textbook, directed at the general reader, explaining insights of Nobel laureates who have probed such irrational behaviour. A rational decision is to read this wonderful book. -- Bibek Debroy, Chairman, PM’s Economic Advisory Council
Irrationally Rational is a tour de force introduction to the vast field of behavioral economics, a phrase that has become so ubiquitous that even dinner parties have not escaped from it. I found traditional economic explanations nicely intermingled with the recent behavioral explanations for a myriad phenomenon-marriage, stock market and competitive behavior. A must-read for those who wish to elevate their game from superficial to a reasoned understanding of behavioral economics. -- S.P. Kothari, Gordon Y. Billard Professor of Accounting and Finance at the MIT Sloan School of Management, MIT
A wonderful introduction to economics as a social science. Prof. Raghunathan brings alive the fundamentals of theory of choice and behaviour through delightfully simple and accessible language and anecdotes that will be hugely enjoyable to casual and discerning readers alike. -- Sahil Barua, CEO and co-promoter, Delhivery
About the Author
V. RAGHUNATHAN is an academic, author, corporate executive, columnist and a hobbyist.
He is currently an adjunct professor at the Schulich School of Business, York University, Toronto, Canada. He was a professor of finance at Indian Institute of Management Ahmedabad for nearly two decades. He was also the president of a large private bank, first Vysya Bank and then ING Vysya Bank, Bangalore. For the next fourteen years, he headed GMR Varalakshmi Foundation-a large corporate foundation-as their CEO, and also served as the director of the India campus of Schulich School of Business for five years. He has served on many boards of corporates, banks, educational institutions, hospitals, regulators and stock exchanges.
He has written over 500 articles as a columnist and has one of the largest collections of old and ancient Indian padlocks in India.
Raghunathan has a PhD in finance from Indian Institute of Management Calcutta.
His previous books include: Games Indians Play (2019, revised edition); Return to Jammu (2018); The Good Indian's Guide to Queue Jumping (2016); Beyond the Call of Duty (2015); Duryodhana (2014); Locks, Mahabharata and Mathematics (2013); Ganesha on the Dashboard (2012); The Corruption Conundrum (2010); Don't Sprint the Marathon (2010); Stock Exchanges, Investments and Derivatives-Straight Answers to 250 Nagging Questions (2007).