Tim does it again!
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Tim Harford has again managed to write a book on Economics that I read in a weekend (well Thursday to Saturday, but weekends are stretchy!). Give that I've tried and failed to finish the Black Swan and wasn't really all that impressed with Freakonomics that's a pretty big recommendation.
In this book Harford dwells more on how cities can be more amenable to live in, rational prostitutes and race and sex roles. You can tell he's started a family since the last book as a lot of the topics focus on 'quality of life' issues.
Again underlying the book is that we make rational choices within our limitations and that we respond to incentives with surprising deftness. Other reviewers have been quite critical of this thesis but Harford defends it really well. He explains why if I go to a playgroup with my son why I'm likely to be one of the only men there, why cities end up segregated because of relatively mild preferences and why it's rational under certain circumstance for a prostitute not to use a condom (no really!).
I really enjoy these books, it's just a shame he doesn't write for the Independent (as I'd get to read his weekly column).
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Dr Pangloss rides again
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Hmmm... The whole edifice of classical economics is baed on the premise that individuals will always make rational choices based on their self-interest, to the ultimate benefit of society as a whole. Of course, anyone who takes the odd glance outside the study at the real world will be a bit nonplussed by this contention, because it appears as if many people make rather irrational choices, with some difficult implications for a theory that assumes the optimum allocation of resources.
It's the kind of 'heads I win, tails you lose' defence of market fundamentalism that looks increasinlgy threadbare in the post-LTCM, sub-prime world of market failure, as central bankers desperately try to shore up the capital markets in the wake of an excess of rationality. However, if you can show that all those 'irrational' choices are, in fact, perfectly rational, then the edifice survives intact and there is no need for reform - all is for the best in the best of possible worlds.
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Dissaponting, but makes a good door stopper
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I have not read The Undercover Economist, and I certainly don't plan to after I've read this book, that is if it's as bland and obvious as the logic of life. I stuck with the book after 150pages then put it down feeling disappointed and conned after reading some of the reviews. I imagined that I'd be intellectually inspired or intrigued by some of the theories Harford postulates. Ocassionally, i let out a tiny grubble at some mildly interesting anecdotes. Overall, a book wholly committed to rationalising pretty much everything is fraile with limited attributes.
Boring !!
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Math Applied to Common Decisions
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Many of the popular books about economics seek to convince you that human beings are wildly illogical. Why? Because the dollars and sense of what people say and do don't always match up well. Tim Harford gets past that problem by mostly ignoring the academic studies that seem far removed from reality by emphasizing what people do when they are new to something.
The book is at its best when he's explaining how systemic biases can create large shifts in human behavior. For instance, a slight preference for having neighbors who are like oneself can lead to quite substantial segregation along race, religion, education, and economic lines.
For me, the book lacked any big "gotcha" like the finding that abortions may have contributed to lowering crime.
In almost every section, I thought that Mr. Harford was arguing (or at least haranguing) beyond the limits of his evidence.
When he moves beyond being an observer into someone trying to convince you what people are like, I found he was often offensive. There's a section about how those who aren't native to Africa "solved" the problem of dying from malaria by transferring slaves from Africa to milder climates that's insensitive at best.
To Mr. Harford's eye, we are so much creatures of economics, comfort, and the pursuit of gain that there's no role for any other human motives. That's a too limited view of people . . . and hardly an uplifting one.
Unless you are addicted to Mr. Harford's writing, skip this book. It won't tell you much that you need to know.
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Hmmm....
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I quite enjoyed the Undercover Economist, but I was less impressed by Tim Harford's second book The Logic of Life. I guess it's primarily about asserting rational choice as a (the?) major force in human history and society. This comes at a time when behavioural economics is on the rise and challenging (successfully or otherwise) economic assumptions about rationality.
I think Harford does quite a good job at arguing back against the behavioural approach (though this isn't a stated objective). He makes the point early on that much of the research that suggests we make 'irrational' decisions comes from labatory experiments utilising more abstract ideas. However when we are in the real world (or in our comfort zone as Harford puts it) we are more likely to act rationally. Experience makes us more able to make the rational choice. In contrast when we are in a new and unusual situation - interestingly he uses the example of deciding how much to save for a pension - we find it much harder to act rationally.
He then goes on to apply the rational choice perspective to various different issues. The section on bosses' pay is interesting, and presents a fairly convincing argument both for why management pay is probably undeserved and why shareholders in companies with high pay may not bother to challenge it. I liked the comparison to splitting the bill at a meal. (He could have added the principal-agent problem of the investors not typically investing their own money).
I found the section on 'rational' racism particularly interesting/depressing. It describes how the impact of racism can become a vicious circle - if black kids don't see an advantage in education (because employers don't take them on anyway) they won't bother, and in turn that will reinforce employer prejudices about the educational standards of black kids. There's also some interesting stuff about how neighbourhoods end up very segregated because of a relatively mild preference to not live in an area where people of your ethic group are a small minority. This actually looked familiar to me - I think Paul Ormerod covered similar ground in Why Most Things Fail.
Sometimes I think he overplays it. At one point he asserts in passing that obesity in wealthy societies might be a 'rational' response to the ease of getting food, and time required to undertake exercise. Maybe, and maybe it's much more complicated than that. Why are some people obese and others not? Is it just because those people who are obese are responsing to different incentives - or are other factors at play?
And its little examples like this that bother me about the book. They remind me that as seductive as rational choice is as a perspective for explaining what is going on it has its limitations. Though I finished the book more convinced by some ideas (the stuff about unreliable political regimes and their impact on economies can surely be applied to places like Zimbabwe) I didn't find it anything like as illuminating as I thought I would.
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