Freakonomics: A rogue economist explores the hidden side of everything
By Steven Levitt and Stephen Dubner
It has to do with thinking sensibly about how people behave in the real world. Pg 209
In this century, Freakanomics is THE book that popularized economics. So much so that some researchers postulate that a spike in undergraduate enrolments in economics majors occurred because the book came out. This was known as the freakonomics effect. However, it’s not clear whether this increase was due to a favourable impression on the parents or the students! Either way, it made economics a hot topic of interest. It even got to the point where many university introductory economics courses had this book on the curriculum. (Actually I have a vain hope that Cocktail Party Economics will have this place in the future.)
The Logic of Life: The rational economics of an irrational world.
By Tim Harford
But rational choice theory is not merely useful—it’s also fun. Pg 9
Not many books start out with an economic explanation for the increased incidence of oral sex among young people. It certainly caught my attention and it is the example of demand theory that I use when teaching first year students. It makes perfect sense to them.
Tim Harford is a terrific writer and economist. He covers lots of ‘sexy’ topics with all of the rigour of a good economist and a background in journalism. They include the economics of divorce, why CEO’s earn so much, and gambling strategies. I do suggest you read Cocktail Party Economics before you read The Logic of Life though. His book will make more sense which can only make it more enjoyable to read. If you really like this book…you are in luck—he has written three others, two of which are in the same style. Check him out.
The Wisdom of Crowds by James Surowiecki
A well-functioning market will make everyone better off than they were when trading began—but better off compared to what they were, not compared to everyone else. On the other hand, better off is better off.” Page 107
It is always a pleasure to read a book featuring the work of economists that doesn’t imply we are idiots. (For an endless tirade against economists read The Black Swan by Nassim Taleb—but more on his book in a later post.) Surowiecki clearly understands the research he writes about and interprets it in an entertaining and easy to understand way. He is much like Malcolm Gladwell in that regard. (Come to think of it both of these guys wrote for the New Yorker so it might be the influence of their editors.)
According to the book, ordinary markets are a great example of the wisdom of crowds. (Preaching to the choir here.) The results of ordinary markets give us insight into why they are created for unusual things. Surowiecki gives us many examples of this: election markets can predict a presidency, sports markets can predict the outcome of the big game, and decision markets can decide if a particular product will make it in the business market place. I found his example of how a conventional market like the stock market predicted who was really to blame for the Space Shuttle Challenger explosion within minutes of the explosion fascinating.