Monday, 7 April 2008

Books and beats

Well, I finished The Logic Of Life, and I suppose my overall impression was 'not bad'. I quite enjoyed the Undercover Economist, but I was less impressed by this one. 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. We can 'learn' better choices.

In contrast when we are in a new and unusual situation we find it much harder to act rationally. Interestingly he uses the example of deciding how much to save for a pension. A similar point has been made by Joseph Stiglitz - what can you do about it when you have learnt that you didn't save enough for retirement?

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.

Anyway with that book out of the way I'm now splitting my time between Robert Shiller's New Financial Order and a book about lying.

On the music front I've downloaded some great stuff recently. On the recommendation of my mate Kenny I bought Arvo Part's Fratres, which is moody modern classical music and really rather good. Off on a different tangent I also got Diary Of An Afro Warrior by Benga which is what I believe the yoof call dubstep. It's a lot more interesting than a lot of music from that genre, and nice and spooky in places.

Finally, a bit more of an oldie, I've also been listening to Modus Operandi by Photek. I've never really jazzy drum & bass, and where this edges towards that sound I lose interest. The beats are also surprisingly slow in places (not a bad thing in itself). But where it's good it's very good - bleak and moody.


Charlie Marks said...

"the stuff about unreliable political regimes and their impact on economies can surely be applied to places like Zimbabwe"

and the UK?

I always find the argument quite ridiculous. Mugabe doesn't control the Zimbabwean economy - Brown doesn't control the UK economy - Bush doesn't control the US economy...

Tom P said...

The point he makes is that if you can't rely on the Government to act lawfully it makes people less willing to trust, and that has an impact on things like credit.

Obviously we have a major problem currently because exactly the same lack of trust has hit the financial markets as a result of the sub-prime fallout (so driven by the financial sector rather than govt). But we aren't in the same position as Zimbabwe.

Charlie Marks said...

I'm tempted to say "yet". Brown's already been warned about food riots... a long way off, I suspect.

If the government can be blamed for anything concerning the economy it is the failure to develop and retain a strong agricultural and manufacturing base.