Well, that is because most economic theory is based upon a model of human decision-making that is structured around rationality, and it turns out that humans by design don’t work that way.
We are not rational, at least as most decisions go. In fact most decisions are made unknowingly by the two parts of our brain, ingeniously named System I and System II.
Oh, and you’ll learn all about the experiencing self, and the remembering self, both of which reside inside your head, although they seldom meet.
It turns out that our primitive brains still are largely in charge as the first on the scene of any event. They are part of system 1, that part of us that views, listens, touches, smells what’s out there, and a whole system retrieves memories and tries to match it all up. The point is friend or foe? Danger or benign? That goes on without you even realizing it.
System II is the thinker, who has to do the math. System I can do 5+5 easily enough, but System II is required for 749 x 32. System II is lazy. It has to be called in, and once employed will often defer to a System I answer and go back to bed before actually going through the facts and being sure.
The book goes on and on with a variety of surprises like this. We are more loss adverse than we are win hopeful. We will gamble bigger and bigger sums to save us from medium or large losses. We become illogical. We will vote in two different directions when the question asks the same exact thing, just words it differently.
We remember the peaks of experiences and the ends of experiences. We tend to judge a whole episode on those two things. Think of it like this. You listen to a beautiful symphony for 20 minutes. At the last 60 seconds, the needle hits a scratch and an awful screech lasts for 15 seconds and then the record is over. We will tend to say, we were listening to a beautiful symphony that was “ruined” at the end by a scratch. In reality we listened to 20 minutes of blissful music which should be way more “good” than the 30 seconds of “bad”.
System I also likes to create stories to explain stuff. Trouble is it doesn’t fact check any of its memories, and just shoves them together into a believable scenario. System II is too lazy to care. That becomes our script for the future. A whole story is now ours. It’s not too far from, disliking the color of the shirt a man wears, to being slightly put off from men with black hair.
You can see what goes on with the economics connection. Corporate decision-making in the guise of the individuals who sit on boards or who are part of the executive leadership are all simply people who are using these “systems” and these “selves” themselves and they as every bit as bad at making decision correcting and with the correct information as the rest of us.
The book is utterly fascinating with so many examples to prove that you too (me in my case) suffer from the same pitfalls that system I leads us to. It gives you tools to help a bit catching your propensities for faulty reasoning and at least consciously bring system II to play to double-check one’s “intuition” (which is just System I after all).
Knowing yourself better, makes for a more conscious choice.