Review

Reviewed Work(s): The Winner's Curse, Paradoxes and Anomalies of Economic Life by
Richard H. Thaler
Review by: Suzanne M. Tucker
Source: The Journal of Consumer Affairs, Vol. 29, No. 1 (Summer 1995), pp. 295-297
Published by: Wiley
Stable URL: https://www.jstor.org/stable/23859263
Accessed: 03-10-2021 04:36 UTC

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SUMMER 1995 VOLUME 29, NUMBER 1 295

This book offers potentially valuable insights. H

are not grounded on anything other than personal op
no more (or less) import than any other interpret
manufacturers target parents and children. For that
might be considered as a complement to other di
topic, but little else.

Les Carlson, Associate Profes

Department of Marketin
Clemson University
Clemson, SC

Thaler, Richard H., The Winner's Curse, Paradoxe

of Economic Life, Princeton, NJ: Princeton Unive
230 pp., $24.95.

The book is a revision of columns, many of which were co

authored, that originally appeared in the Journal of Economic Per
spectives between 1987 and 1990. The primary author is an econom
ics professor at the Johnson Graduate School of Management at
Cornell University.
The 15 readable chapters focus on economic anomalies—observa
tions that contradict economic theory. In chapter 1 two assumptions
common to applications of economic theory are mentioned: rational
ity and self-interest. The practical limitations of the assumptions are
discussed through examples of human error and cooperation, among
others. The next 13 chapters focus on systematic limitations in eco
nomic predictions. Financial markets are emphasized because,
according to the author, they have been presumed to be most effi
cient. The author's intent is to motivate improved theory that uses
human strengths and recognizes our limitations: quite a challenge.
Each of the 13 groups of anomalies contains examples that are
rich, sometimes humorous, and based on empirical research. Each
chapter starts with a brief story introducing the general contradic
tion. Research that attempts to explain the behavioral pattern is
examined from the perspective of different conceptual frameworks.
The references are extensive.
The issues are relevant to readers of this Journal: some of us were
trained in economics; all of us work to help people with messy, real

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296 THE JOURNAL OF CONSUMER AFFAIRS

problems. Most of us rely on or are directly inv

about consumer choice.
The chapter titled "Cooperation" examines the nature of human
behavior, with emphasis on altruism. The authors challenge econo
mists to reexamine the role of selfish rationality.
Chapter 3, titled the "Ultimate Game," explores limits of game
theory. The author advocates that fairness for self and others, while
less than simple, ought to be included in predictive models of eco
nomic choice.
"Interindustrial Wage Differentials" evaluates equity in wages—
comparisons across industries and different jobs within an industry.
The emphasis here is on elements that are missing and needed to test
predictive models.
"The Winners Curse" explains why winners in many kinds of auc
tions become losers—they pay too much. Systematic human errors
and suboptimal choices are described. Even those who understand
the winner's curse in one environment have problems avoiding it in a
different setting, according to the works of behavioral economists
summarized in this chapter.
The chapter called "The Endowment Effect, Loss Aversion, and
Status Quo Bias" illustrates patterns that violate the notion of a
stable preference order. The authors recommend the inclusion of a
reference level when evaluating preferences. According to conclu
sions from this chapter, inclusion of loss aversion—treating potential
losses differently than gains—and preference for the status quo could
improve the precision of economic predictions.
"Preference Reversals" are attributed to differences between
choice and pricing. In contrast to economic theory, in this chapter
Thaler and A. Tversky report experiments demonstrating that pref
ences develop during decisionmaking and that context and pro
cedures influence preferences.
"Intertemporal Choices" are discussed in chapter 8. These deci
sions include "those for which costs and benefits are spread out over
time" (92). The cited behavioral research leads to the conclusion that
people use a reference point—we tend to react to gains differently
than potential losses and that the magnitude of the anticipated
change influences choice. The authors, like many Journal readers,
wonder why consumers are not willing to pay $50 more for an effi
cient refrigerator, if that differential can be paid back with savings
for one year of utility bills.

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SUMMER 1995 VOLUME 29, NUMBER 1 297

Other chapters focus on savings/mental accoun

betting, each calendar effects and mean reversion in the stock
market, closed-end mutual funds, and foreign exchange.
While readers may have identified some of the patterns of behav
ior, it is impressive to see the collection. I was previously inclined to
discount economic theory that seemed to minimize the influence of
behavioral patterns as merely error or suboptimum decisionmaking.
Thaler takes a more constructive tact: he suggests refinement of the
theory and avenues for additional research.
In the "Epilogue," Thaler proposes two types of economic theory:
normative or optimal—how people should behave to gain economic
utility, and descriptive—how people generally behave. Although he
indicates that descriptive theory will not be as simple, he asks,
"Would you rather be elegant and precisely wrong, or messy and
vaguely right?" (198).

Suzanne M. Tucker, Executive Director

The Center for Enriched Communications
Grand Junction, CO

Walsh, John P., Supermarkets Transformed: Understanding Organi

zational and Technological Innovations, New Brunswick, NJ: Rut
gers University Press, 1993, 198 pp., $36.00.

This book is based on the author's dissertation, written as a stu

dent at Northwestern University. The central questions addressed are
what has caused the fundamental changes in supermarkets in recent
decades? and how have these changes affected the work of super
market employees? To answer these questions, the author combines
organization theory and labor process theory to develop a new model
of innovation: the politicized context model. The model emphasizes
the importance of politics (in this case union influence) and the
environment (including technological, cultural, and market changes).
Walsh also focuses attention on the web of relationships, both inside
the firm (workers and managers) and those with external actors (such
as suppliers and consumers). In fact, Walsh defines innovation as a
new set of relations that fit with the new market context, as a "new
invention is not an innovation until it has been incorporated into a
viable set of social relations" (26).

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