Books
Tim Harford: A rational man
26.10.07 Neill Denny
It is no great surprise that Tim Harford, "the undercover economist", is back with a second book, The Logic of Life (Little, Brown, February), particularly when you consider that his first work has sold around 90,000 copies in the UK alone. That is the kind of incentive that appeals to a rational economist.
Harford's The Undercover Economist and the even bigger-selling Freakonomics by Steven D Levitt and Stephen J Dubner took dry economic theory and applied it winningly to everyday life. Harford says this trend reflects the way economics as an
academic discipline has changed.
"It's much more interesting to the man in the street to say: 'The boffins went off and they found this, and it's true, and here it is', rather than to explain a form of argument or a way of looking at things [i.e. dry economic theory],"he says. "That is what's been coming through in economics in the last 10 or 15 years, and it's starting to emerge in the books—and there are more books coming that are using actual discoveries."
In The Logic of Life, Harford pulls together plenty of diverse academic research to explore his basic premise that we all behave rationally, and he illustrates it with some fairly eye-catching research into areas such as how marriage markets operate, why prostitutes still on occasion eschew condoms, why your boss is grotesquely but rationally overpaid, and how to win at poker.
"Rational choice theory is the way most economists see the world; the interesting bit is when they use that and they say: ‘Let's talk about drugs, let's talk about marriage', in the same way that they would talk about buying a cup of coffee,"he says.
The chapters have alluring titles such as "The Dangers of Rational Racism"and "Is Divorce Under-rated?"Each is pretty self-contained, stuffed full of some big ideas, but they link together to form an overall whole. "There is a clear, logical structure,"Harford says, "from personal decisions we make to the way we interact with other people; to how a neighbourhood works, a city works, a country's politics work; to how the last million years have worked."
Why are there so many single women in New York or London—in fact, in most big cities? Harford answers the "Sex and the City"dilemma purely through the prism of economics. The short answer is that women are attracted to wealth in a marriage partner, so they are to be found in cities, where rich men congregate. Conversely, men, who are less interested in a wealthy partner, tend to outnumber women in rural areas. Hence the oversupply of young women in New York, and their comparative scarcity in Alaska. And what about here? The Scilly Isles are apparently the place with the highest number of single men. "The Scilly Isles have the demographic desirability of an oil rig,"Harford says. "Young men outnumber young women by 3:1—for women, the odds are good but the goods are odd."It is perhaps worth pointing out at this point that Harford writes a column for the Financial Times answering readers' problems—he is "the only economist in the world to run a problem page".
Theory of the workplace
Most of the book is put together by collating research from academic economists who are unknown to the wider public, yet whose work can be of great interest. Harford's exploration of the inequalities of the office is a case in point.
Two economists, Alexandre Mas and Enrico Moretti, tracked how efficient supermarket checkout operators were by measuring every beep. They proved that if you sat next to someone more efficient than you, you raised your game. However, the supermarket management didn't use this data to rearrange the seating or weed out poor performers: they decided that if you just paid checkout operators for speed, accuracy would suffer and staff would rationally refuse to spend time dealing with customer complaints.
Harford then analyses the so-called tournament theory of the workplace: whereby people are paid more or promoted faster on the basis of how they perform relative to their peers. This creates an office where it is perfectly rational for colleagues to stab each other in the back. And the higher up you get in a company, the rewards need to be higher because you have fewer levels left to go. The chief executive's salary is not to motivate him—he has no next job to go to—but to motivate his number two.
Drug addiction is another area explored by Harford—do addicts remain addicted because the rewards outweigh the problems? He doesn't have definitive answers, but says: "Someone who starts smoking at 15 and plans to quit at 25—it is not at all clear that that's a terrible idea because smoking is a very cool thing for those years. You are taking a health risk, but not a big one; it's not a crazy plan, but you have to be able to execute the quit in your mid-20s."
But does he apply any of this to his own life? He admits that when he considered proposing to his girlfriend, he used something called option valuation theory to choose the right moment. "This tells you to wait as long as you are gathering important new information, then jump in." Reader, she married him.
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