On Anomalies

Yesterday, I had written this:

“Trivia question for econ nerds: what long running series in an academic journal are you reminded of when you read this [Anomalies and Thomas Kuhn]? I’ll answer the question in tomorrow’s post.”

“Sometime after returning to Ithaca from my year in Vancouver, I was at a conference sitting next to the economist Hal Varian, then a well-known theorist who later went on to become the chief economist at Google. Hal was telling me about a new journal that the American Economic Association was starting called the Journal of Economic Perspectives. Hal was an advisory editor. The editorial board was thinking about commissioning regular features for the journal. The clever Barry Nalebuff would write one on economics-based brainteasers and puzzles. Hal and I came up with an idea for a feature that I might write on anomalies.”

That is from Section V of Thaler’s autobiography (an intellectual autobiography, in the sense that it is a book about his career), and the chapter itself is titled (what else) “Anomalies”.

The Anomalies “column” first appeared in the Summer issue of the Journal of Economic Perspectives – Volume 1, Number 1. This was in 1987, and if memory serves me right, it ran for the next three to four years at least.

This feature will report successful searches for disconfirming evidence — economic anomalies. As suggested by Thomas Kuhn, an economic anomaly is a result inconsistent with the present economics paradigm. Economics is distinguished from other social sciences by the belief that most (all?) behavior can be explained by assuming that agents have stable, well-defined preferences and make rational choices consistent with those preferences in markets that (eventually) clear. An empirical result is anomalous if it is difficult to “rationalize,” or if implausible assumptions are necessary to explain it within the paradigm. The first anomaly we will discuss is the “January effect.” Stock prices tend to rise in January, particularly the prices of small firms and firms whose stock price has declined substantially over the past few years. Also, risky stocks earn most of their risk premiums in January.


I’m happy to report that the Journal of Economic Perspectives is freely available online. You can (and if you are a student of economics, you absolutely should) read all of the issues. But the Anomalies column is that rarest of rare things – a fun column that makes you think about fascinating problems and anomalies in economics. And even rarer still is the fact that a “fun” column was at least partially responsible for a Nobel Prize in economics!

Thaler’s vision for incorporating insights from psychology into economics was first laid out in his 1980 article “Toward a positive theory of consumer choice.” In his well-known “Anomalies” series in the Journal of Economic Perspectives, as well as in many other articles, comments, and books, he continued to document and analyze how economic decisions are influenced by three aspects of human psychology: cognitive limitations (or bounded rationality), self-control problems, and social preferences.


There’s a lotto like about Richard Thaler’s work in economics, but one very important reason to learn more about him and his ideas is that he has fun doing what he does, and it shows. A lot of economic research, even when it is fascinating, is written in dull, stodgy fashion. Now, you can disagree with Thaler’s work (and that is a cottage industry in and of itself), but you can’t accuse him of being a boring writer.

And a wonderful place to begin is with that most anomalous of things: a fun column about economics in a top econ journal.


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