I've just finished Dan Ariely's Predictably Irrational, and recommend it to anyone who wants to learn more about behavioral economics. Ariely is a leader in challenging conventional economic wisdom, and provides empirical evidence of many situations where conventional economic analysis doesn't work well.
I was going to write in this post about the similarities and dissimilarities between this book and Freakonomics, which we've discussed here in the past. But, procrastination pays once again - Ariely yesterday wrote a note on this himself (read it here).
The books are similar in many ways, but taken together they frame a multi-disciplinary debate about how far economic analysis takes us. Behavioral economists are challenging some fundamental assumptions economists like to make about human behavior. It seems to me they are winning some and losing some, depending on the situation being analyzed - reading both of these books will give you a good sense of whose model might be better in a given situation.
A nice summary of the rise of behavioral finance can be found at Robert Shiller's website.