How We Misunderstand Economics and Why it Matters: The Psychology of Bias, Distortion and Conspiracy
by David Leiser  (Author), Yhonatan Shemesh (Author)

About the Author
David Leiser is Full Professor of Economic and Social Psychology at Ben-Gurion University of the Negev, Israel. He is Past President of the International Association for Research in Economic Psychology, and President of the Economic Psychology Division of the International Association of Applied Psychology. He studies lay conceptions, especially in the economic domain.
Yhonatan Shemesh holds a BA and MA in cognitive science from Ben-Gurion University of the Negev. His research focuses on the ways the human evolutionary cognitive endowment affects how people think and act in the modern world.

About this book
This is the first book to explain why people misunderstand economics. From the cognitive shortcuts we use to make sense of complex information, to the metaphors we rely on and their effect on our thinking, this important book lays bare not only the psychological traits that distort our ability to understand such a vital topic, but also what this means for policy makers and civil society more widely.
Accessibly written, the book explores the mismatch between the complexities of economics and the constraints of human cognition that lie at the root of our misconceptions. The authors document and explain the gamut of cognitive strategies laypeople employ as they grapple with such complex topics as inflation, unemployment, economic crises, finance, and money in the modern economy. The book examines sources of misconceptions ranging from the intentionality fallacy, whereby economic phenomena are assumed to have been caused deliberately rather than to have come about by an interplay of many agents and causal factors, to the role of ideology in framing economic thinking.
Exposing the underlying biases and assumptions that undermine financial and economic literacy, and concluding with recommendations for how policies and ideas should be framed to enable a clearer understanding, this will be essential reading not only for students and researchers across psychology and economics, but also anyone interested in progressive public policy.

Table of contents
1 Introduction: folk- economic beliefs 1
    How to understand what you cannot? 5
2 Why is economics so hard? 10
    Econo-mists focus on the aggregate; non- econo-mists think of individuals 11
    Direct and indirect effects 15
    Equilibrium as an explanation 17
    Morality 20
3 Cognitive hurdles 23
    Cognitive structure: a flash-light in the basement 26   
        WM – short range 26
        LTM – narrow scope 27
    Thinking, fast and slow 30
    The intentionality bias 30
    Consequences 31
        Opportunity cost neglect 33
        Aggregate effects 34
        Ignoring the equilibrium 34
        Uni- dimensionality and the halo effect 35
        The denial of tradeoffs 37
4 Unemployment and inflation 40
    Unemployment 41
        Three causes for individual unemployment 43
    Inflation 47
        The central psychological core of “inflation” 49
5 The “good begets good” heuristic: the relations between macroeconomic variables 52
    The “good begets good” heuristic 53
    Macroeconomic consequences of the GBG heuristic 57
6 What is the economy like? How metaphors shape our understanding of economics 60
    Metaphors as structure mapping 63
        When are metaphors most influential? 65
    Metaphors in problem solving and decision making 65
    Economic metaphors in the media 67
        The economy is an organism 68
        The economy is a machine 68
        The most common economic metaphors 70
    Intuitive theories: the source of metaphorical sources 70
        Intuitive theories at work: folk-psychology 72
    Concluding remarks 75
7 Ideology: lay understanding of capitalism 77
    Contrasting views of capitalism 79
    Moral- psychological roots of lay views of capitalism 83
        Self- interest 83
        Fairness 86
        Ideology and personality 90
    Concluding remarks 93
8 Money and wealth 96
    Supply and demand – money as tool 96
    Money supply 98
    Fiat money 101
    Emotional value of money – money as drug 102
    Emotions are extended to fiat money 103
    Fungibility 104
    Real money vs. money on paper 106
9 Financial and economic literacy 109
    Financial literacy and education 109
        How much financial literacy does the public possess? 110
        Consequences of deficient financial knowledge 111
        The promise of financial literacy training 112
        Financial training is mostly disappointing 112
        Correlation is not causation 114
    Economic literacy to fight simplistic policies 115
        Reforms and economic knowledge: Elsa Fornero 116
        Literacy and public policy 118
        In praise of informed skepticism: Peter Davies 119
    Final words 121
10 Public policy consequences 122
    The mismatch 122
    Consequences 126
    Recommendations 129
        Personal finances 131
        Governance 134
References 137
Index 160

Length: 178 pages
Publisher: Routledge; 1 edition (May 24, 2018)
Language: English
ISBN-10: 1138938939
ISBN-13: 978-1138938939