From a behavioral economics point of view, the field of financial advice is quite strange and not very useful. For the most part, professional financial services rely on clients answers to two questions: How much of your current salary will you need in retirement? What is your risk attitude on a seven-point scale? From my perspective, these are remarkably useless questions but first, lets think about the advisors business model. An advisor will optimize your portfolio based on the answers to these two questions. Not to be offensive, but I think that a simple algorithm can do this.

A new paper by Mike Norton and his collaborators sheds a very interesting light on the ways that organizations should use money to motivate their employees, boost morale and improve performance. The researchers looks at a few ways that money can be spent and how that affects outcomes such as employee wellbeing, job satisfaction and actual job performance. Specifically, they examine the effect of prosocial incentives, where people spend money on others rather than themselves, and they find that there are many benefits to spending money on others.

While it may seem like good news that fewer students cheat than they suspect, in fact such an overestimation of the real amount of cheating can become an incredibly damaging social norm. The trouble with this kind of inflated perception is that when students think that all of their peers are cheating, they feel that it is socially acceptable to cheat and feel pressured to order to stay on top. In fact, a few students have come to my office complaining that they were penalized because they decided not to cheat and what was amazing was that they felt that there was injustice done to them.

When it comes to sterilization, Denmark has had a rather turbulent history. In 1929, in the midst of rising social concerns regarding an increase in sex crimes and general degeneracy, the Danish government passed legislation bordering on eugenics, requiring sterilization in some men and women. Between 1929 and 1967, while the legislation was active, approximately 11,000 people were sterilized roughly half of them against their will.

In recent years there seems to have been a surge in academic dishonesty across many high schools (a lot of it has been showing up in the last few weeks). No doubt this can be explained in part by 1) increased vigilance and reporting, 2) greater pressure on students to succeed, and 3) the communicable nature of dishonest behavior (when people see others do something, whether its tweaking a resume or parking illegally, theyre more likely to do the same). But, I also think that a fourth, and significant, cause in this worrisome trend has to do with the way we measure and reward teachers.

Sometimes (perhaps even very often) we don?t make choices based on our internal preferences. Instead we have a gut feeling about what we want, and we go through a process of mental gymnastics and rationalization in order to manipulate our choices so that at the end we can get what we really want but at the same time keep the appearance (to ourselves and to others) that we are acting according to our preferences.

It turns out that being tired isn?t just detrimental to exam performance. One theory in decision making that we are beginning to understand better, Depletion Theory, holds that our ability to make any type of difficult decisions are also adversely affected by fatigue. In most of our day to day lives, being tired at the end of a long work day doesn?t lead to too many terrible decisions sometimes, however, the effects are more significant. Consider the dramatic results of a recent study investigating a large set of parole rulings of judges in Israeli courts. Their conclusion is striking.

The scientific community is increasingly coming to realize how central self-control is to many important life outcomes. We have always known about the impact of socioeconomic status and IQ, but these are factors that are highly resistant to interventions. In contrast, self-control may be something that we can tap into to make sweeping improvements life outcomes. If you think about the environment we live in, you will notice how it is essentially designed to challenge every grain of our self-control.

There?s been plenty of talk lately ?in these pages and elsewhere? about a new kind of capitalism. About creating things because they?re good for society. About understanding, as Michael Porter and Mark Kramer suggest (?Creating Shared Value,? HBR January-February 2011), that not all profits are created equal: Profits derived from making the world better are superior to those derived from the consumption of useless, or even harmful, junk. At the risk of touching the third rail, I propose that getting people to want things they don?t really need may be far more valuable to society than we think

April 15th ? Tax day is upon us, so it?s a perfect time to contemplate a few aspects of taxes. In the past I?ve written about how I used to think that tax day was a wonderful day of civic engagement. Of course, over the years, as my taxes have become more complex, this task becomes one that is less about civic engagement and thoughtfulness, and more about annoyance and frustration. But that?s for another time. The US tax system makes it very difficult for us to understand how much money we make and how this may actually lead us to spend more money than we really have.

The publisher for Michael Connelly?s latest thriller it decided to charge $14.99 for the Kindle version and $14.28 for the hardback version. While standard economics tells us that consumers will be willing to pay more for items they derive more utility (pleasure and usefulness) from, in practice, factors such as fairness and manufacturing costs play a role into our decisions of what to buy and how much to pay. It is not easy to focus on what we really care about (the quality of the time we spend) rather than the price. On top of that the unfairness of the differences in price can make us mad.

I am a fairly avid squash player. One of my favorite aspects of squash is the strategic thinking required. The other day while playing, I had a slight itch to change strategies. It wasn?t a conscious process, and it was more like a kind of the desire to pick a scab. Like picking a scab, my better judgment told me that making this switch would be a bad idea, but the urge was too great, and I switched my playing style. And it worked! After the game I wondered, where does this itch come from? Is it part of our creative instinct for exploring and trying out new strategies?

The organization that funded science in the UK decided that instead of asking people to submit grants by 2 specific dates each year (which is that the US funding agencies do), and get people all stressed over the deadlines ? they will let people submit grant at any time that they want and they will review the grants that have arrived using the same 2 times a year. What happened? Fewer grants were submitted and eventually the Brits changed back to the twice a year setup. All this is to show us, how useful deadlines can be.

You are shopping for a car, find a seller, and agree to purchase his car in a couple of days. The day before the sale, you find a better deal. Under what conditions would you renege on your original agreement? Would it be easier if your original agreement was made over the phone? Or over coffee? Last week we put out a survey to find out, and here are the results:People have the hardest time reneging on deals made in person (compared with phone and email), and we have much less of a problem reneging deals made via a car dealer relative to one that was mediated by a mutual friend.

One of the main difficulties I face on a daily basis is an inability to say ?no.? I have always had this problem, but it used to be that nobody really asked much from me, so this weakness didn?t pose a real problem. But now that behavioral economics has become more popular, I receive invitations to speak almost every day. Accordingly, my inability to say ?no? has turned into a real challenge. So why do I, and many others, suffer from this problem? I think it is because of three different reasons: 1) Avoidance of regret 2) The curse of familiarity and 3) The future is always greener.

Imagine we meet at a party, and I tell you about my research on behavioral economics. You see opportunities to use the principles to improve your business and think we could work together. You have two options: You can ask me to collaborate, with a handshake promise that if things work out, you?ll make it worth my while. Or you can prepare a contract that details my obligations and compensation, specifies who will own the resulting intellectual property, and so on. For most of you, the decision is obvious. The second approach, the complete contract, is the way to go. But should it be?

Tip #1: Go for the chocolate and flowers. Tip #2: Be careful. Kids are expensive. Tip #3: Don?t let your expectations run away.

Recently I decided to come up with a rough measure of generosity across different communities. Which communities have a culture of giving away unused items as opposed to trying to sell them? And why?

The CEO of a software company cancels a project that was developed by a group of highly motivated employees, who believed their work would have been the best new idea in the computer world. The group was demoralized and the key people ultimately quit. How could the CEO have better handled the situation?

Is there symbolism of the choice of art at the world economic forum? Maybe. On the surface the world economic forum and the attendees are trying to maintain the feeling that we are over the recession and that the economic life is more or less back to what it used to be. But maybe the unconscious thoughts of the people at the world economic forum feel somewhat different ? and maybe this is the reason for this particular piece of art?

I am deeply attracted to the process of hacking ? perhaps because I taught at MIT for a long time, or maybe because I tend to approach life with a similar problem-solving mindset. think social scientists often work in an analogous way, though (of course) with nobler intentions.

It is often hard to remember to take medication, especially when you hardly feel the severity of the illness or the relief of the medication. On the other hand, no one forgets to take heartburn medication ? you?ll probably sprint for it as soon as heartburn begins to set in.

I value standard economics. It provides important and useful insights into human endeavors. But I also think that it is incomplete, and that accepting all economic principles on faith is ill-advised. If we?re going to try to understand human behavior and use this knowledge to design the world around us?including institutions such as taxes, education systems, and financial markets?we need to use additional tools and other disciplines, including psychology, sociology, and philosophy. Rational economics is useful, but relying on it alone is unlikely to help us maximize our long- term welfare.

A fascinating new study just came out, showing that tears that were produced by women under negative emotions reduce the sex drive of men! This gives a men yet another reason not to upset women.

Considering Michael Jackson and his doctor Conrad Murray, I won?t argue for the physician?s innocence, but I do think we should ask ? how common is the tendency to prescribe patients what they want? Is this a singular incident, a case of a drug-pushing ?bad apple,? or could there be more general forces at play?

If we assume that our past decisions have always been sensible and reasonable then we should not scrutinize our long-term habits. After all, if we?ve done something for five years, it must be a great decision. But if we understand that long-term, repeated behaviors might reflect our habitual decision- making in the face of complex financial decisions more than they reflect what is truly best for us, we might first examine our old habits and carefully consider whether they indeed make sense or not.

The realization of how relative happiness is became very apparent to me some years ago when I was in the burn department.

One of the challenges of human life is what?s good for us in the long term often doesn?t seem good for us right now. Dieting, for example, is not so much fun now, but good for the future; the same goes for saving money or submitting to preventive medical tests. When we face such tradeoffs, we often focus on the short term rather than our long-terms goals, and in the process we get ourselves into trouble.

I recently had an interesting meeting with a locksmith. The locksmith was penalized for getting better at his profession. He was tipped better when he was an apprentice and it took him longer to pick a lock, even though he would oftentimes break the lock! Now that it takes him only a moment, his customers complain that he is overcharging and they don?t tip him. What this tells is that consumers don?t value goods and services solely by their utility, benefit from the service, but also a sense of fairness relating to how much effort was exerted.

I think that the best gifts circumvent guilt in two key ways: by eliminating the guilt that accompanies extravagant purchases, and by reducing the guilt that comes from coupling payment with consumption. The best advice on gift-giving, therefore, is to get something that someone really wants but would feel guilty buying otherwise.

Recent research shows how physical contact can promote trust, even among complete strangers. Participants who were physically touched by a female experimenter (on the shoulder or with a handshake) made riskier financial decisions like gambling or investing money. Being physically touched, whether with a kneading massage or a comforting pat on the shoulder, seems to encourage cooperative behavior.

Rewarding and penalizing leaders based on outcomes overestimates how much variance people actually control. Here are four ways companies can create more-sound reward systems.

In many past experiments we have shown that people are often overly excited about Free (see Predictably Irrational). An interesting opportunity to further look at this behavior presented itself when a few weeks ago nightclub in New York City promoted an event with ?free tattoos,? and we just had to check it out, and see if the offer for free tattoos would tempt people to get one?

This guest post by Omar Adams discusses ethical standards in the accounting professional. For example, Adams discusses cases where accountants are torn between reporting misbehaviors or minding their own business ? should they open up a can of worms and be at the center of a controversy or just take heart in the fact that they were true to the ethics of their profession? This type of case presents the 'action inaction bias' where people view their own actions as much more important than inactions.

Many people have contributed over the years to behavioral economics. The individuals on this list have not only changed the face of economics as we know it, but they are likely to contribute a great deal more in the years to come. Each of these individuals has tremendous creativity and insight that has enabled them to capture and explain our odd, complex, and sometimes irrational human nature. Armed with this new understanding of human behavior, and taking our human weaknesses into account, behavioral economics could help us take steps toward designing a better world.

In Obion County, Tennessee, the right to a fireman is only guaranteed to those who pay an annual $75 fire protection fee before their property lights up. When one house belonging to homeowners who had not paid the fee recently caught fire, firefighters refused to come to the rescue. This problem is related to the question of bailing out people with bad mortgages. Should we help homeowners who took mortgages that they could not afford? Would it encourage them to keep on being reckless?

Research shows that being physically touched, whether with a kneading massage or a comforting pat on the shoulder, seems to encourage cooperative behavior. While cooperative decisions may benefit others more than ourselves (at least in terms of immediate monetary gain), they are not necessarily ill-advised. In fact, the decision-makers who gave money to an anonymous partner in a recent Claremont Graduate University experiment ultimately felt better about their choices.

Dan Ariely recently conducted a study in which he asked Americans to guess at the distribution of wealth in the United States, then asked them to lay out what they think would be the ideal distribution of wealth if they were to reenter society and be placed randomly in an economic class. The results suggest that Americans don't understand the true extent of disparity in the U.S., and that they want a more equitable society.

Institutionally, Chile has cracked an age-old problem with annuities. By law, 11 percent of every Chilean employee's salary is automatically transferred into a retirement account. When employees retire, their savings are converted into annuities. By pooling risk, the Chilean government makes annuities an attractive business with more competition and better prices. And since everyone is forced to annuitize, the adverse selection problem that normally afflicts insurance providers simply disappears.

In a recent experiment, Dan Ariely found that when people are free to choose what type of discussions they want to have on a first date, they often gravitate toward an equilibrium that is easy to maintain but one that no one really enjoys or benefits from. The good news, however, is that if we restrict the equilibria by sticking to a predefined set of questions, we can get people to gravitate toward behaviors that are better for everyone. More generally, this suggests that some restricted marketplaces can actually yield better outcomes than unrestricted markets.

Essay mills are companies whose sole purpose is to generate essays for high school and college students in exchange for a fee. In a recent experiment, Dan Ariely ordered a typical college term paper from four different essay mills. Two weeks later, the papers he got back would best be described as gibberish. Two of the papers were 35-39 percent were even copied from existing works. Ariely's results suggest that students still have no other option but to actually work on their papers (or maybe get help in the old-fashioned way and copy from friends).

Popular online dating site OkCupid recently released some numbers users reported regarding their sex lives. One interesting correlation was between smart phone usage and number of sexual partners. Female iPhone users (at the age of 30) report having had 12.3 sexual partners, more than twice as many as women Android users. Male smart phone users show a similar jump: from 6.0 sexual partners on Android to 10 on the iPhone. A casual observer might infer a correlation between iPhone usage and sexual activity, but Ariely suggests another way to interpret the data.

One of the most general principles of human decision making is that we use relativity as a way to figure out how much we value things. Relativity is not always the right strategy for determining value, but it gives us a quick and handy tool for going about the world making decisions. Over the years the same type of relative decision making that humans demonstrate has been shown in monkeys, birds, and bees, but a recent study has shown that it take place even with very simple life forms, such as slime mould.

Email, Facebook, and Twitter have greatly enhanced the ways we communicate. These handy modes of communication allow us to stay in touch with people all over the world without the restrictions of snail mail (too slow) or the telephone (is it too late/early to call?). As great as these communication tools are, they can also be major time-sinks. And even those of us who recognize their inefficiencies still fall into their trap. Why is this? Dan Ariely thinks it has something to do with the relationships between actions and their associated rewards.

In a recent online study, Dan Ariely asked participants to view a potentially funny video involving an individual who would seem to have 'issues.' Participants who were told that the girl had suffered from OCD since childhood thought she seemed more likeable, intelligent, and creative than those who were not told. But participants who were told of the girl's illness also thought that she seemed like a bigger loner and more antisocial. What this suggests is that giving individuals a disorder-label causes others viewing them to place the blame on the disorder and not on the person.

Dan Ariely provides a video of a short talk on cheating he gave on July 7 in San Francisco. While most people think that citizens of other countries cheat more than Americans do, Ariely's research has found that people from Israel, Italy, China and the U.S. all cheat about the same amount. Ariely has also found that bankers cheat twice as often as politicians do.

'Medium maximization' is when people focus on near-term concrete goals (such as frequent flyer miles), and while trying to maximize these immediate and clear goals forget or discount the real reason for their actions, such as maximizing their financial outcomes. Why do people engage in medium maximizations? Because they are easy. They give people a clear direction for behavior. Just having something measurable within reach can redirect our motivation, while having such immediate and concrete goals give us a sense of progress.

Unlike standard economics, behavioral economics does not assume that people are rational. Instead, behavioral economists start by figuring out how people actually behave, often in a controlled lab environment, and use this as a starting point. While the Chicago economists sometimes admit that people make mistakes, they claim that people make different types of mistakes that will eventually cancel each other out in the market. Behavioral economists argue that people will often make the same mistake, and that those individual mistakes can aggregate in the market.

There are all kinds of reasons why we eat badly, but some are more fixable than others if we only look at our behavior and uncover the nuanced forces guiding our actions. Instead of throwing the bag of grapes into the dark drawer in the bottom of the fridge, for example, we can put some grapes in a tray on the top shelf with some mixed greens and pecans, ready to grab and go. The rest of the grapes can be prewashed and stamped with a homemade expiration sticker. If we make plans to eat them within a few days and mark them as such, we are more likely to stick to our goals.

'What would you think if someone told you: Do the right thing because your life may depend on it. Or more accurately, that you better start making better decisions because it is a matter of life and death. This may sound like something an over protective parent would tell their child) but in reality it?s the way most of us should start to think about our day to day decisions and their potential to lead to harmful habits and fatal consequences.' Dan Ariely argues that ?every decision counts.?