The Logic of Life: The Rational Economics of an Irrational World By Tim Harford Random House, 213 pages
Economist Tim Harford, in his new book, “The Logic of Life,” has greatly reinforced those who believe that rational decision-making is broadly pervasive in our daily lives.
Remember instinctively agreeing with the question in Mickey Gilley’s 1975 country song, “Don’t all the girls get prettier at closing time”?
Turns out, controlled tests show, that participants in the social meeting ritual of speed dating do indeed adjust their stated preferences for partners based on education, wealth or physical appearance, lowering their standards to the reality of who actually shows up.
If that example may seem unworthy, Harford also finds the same rationality in the choices of young black women to postpone marriage and extend their professional educations, in reaction to a reduced pool of eligible bachelors due to the incarceration rate of their male contemporaries.
In case after intriguing case – ranging from the curtailment of criminal activity by urban juvenile delinquents facing prosecution as adults, to the adoption of safe practices by Mexican prostitutes, to the reliance by over-eaters on improved availability of health care to lessen the effects of their obesity -- Harford outlines the experimental evidence that people know and act on the benefits and risks of their choices, re-calibrating as incentives, rewards and penalties may change.
Harford’s popularizing definition -- that economics amounts to the study of how decisions are made about the allocation of scarce resources – proposes that the resulting insights can support policy adjustments in pursuit of socially desirable goals – whether in the quality of urban schools or the levels of agricultural subsidies.
He brings a wide range of examples -- empirical research into such disparate and seeming irrational areas as the choice of high or low-brow movie rentals, the sexual habits of teenagers and the self-reinforcing concentration in urban centers of both wealth and innovation. From these, Harford teases out the often counter-intuitive evidence that most people, most of the time, perform some assessment of the costs and benefits of their choices.
The cases may at first glance appear to lack a basis in rational evaluation and choices: Some may seem emotional or addictive – to stay hooked on smoking, or gambling. Or selfish – disproportionate executive pay, which as it turns out is primarily motivating for subordinates, or financially effective (if socially unattractive) bigotry in hiring decisions. Or even non-human – laboratory rats quickly adapting their consumption based on the comparative “pricing” of root beer and tonic water.
Harford’s attention to the breadth of rational behavior among large groups of people, generally acting within the scope of their experience and sphere of comfort, does focus attention on the typical – to the exclusion of several important sources of influence:
• Individuals will act far outside the norms – whether Jérôme Kerviel and his rogue trading at Société Générale, or the young Saudi men whose airplane hijackings changed the world on 9/11.
• Important decisions are enforced under high stress or in unique and newly-exposed conditions – untested battle leaders and rookie athletes come to mind.
• And individually rational behaviors can lead to collectively unpleasant results – resistance to voting, if an individual ballot cannot rationally matter, or herdlike safety in numbers – perhaps including the individually rewarding but collectively unsatisfactory performance of most fee-based financial advisers.
Harford shares two themes with arch-empiricist Nassim Taleb (whose 2007 best-seller, “The Black Swan,” I reviewed -- see here ): insistence on the data, as a source of insight superior to the theorizing of cloistered academics, and the recognition that very small differences in the distribution of advantages yield widely exaggerated effects – whether in neighborhood segregation, comparative country growth rates or authors’ book sales.
A difference is in Taleb’s insistence that however interesting may be the common and every-day events by which our lives are primarily defined, it is precisely the occasional and most highly influential events -- unpredictable but far more common than recognized – that have the most dramatic effects – whether it would be Hurricane Katrina or Virginia Tech, October 1987 or the melt-down of the subprime mortgage market.
Which takes nothing away from Harford’s congenial and accessible explication of a way to rationalize and understand what may otherwise seem puzzling, exotic or intractable. Picking a better date, or renting a better movie, may not be so important. But the same learning can influence serious choices: how to affect urban traffic congestion, or control epidemic diseases, or even prevent the outbreak of warfare. And that matters.