Friday, November 08, 2013

Book: The Logic of Life by Tim Harford

"It rarely pays to assume that any human being is incapable of weighing pros and cons of the decision in front of him."


The Logic of Life is not a book about the super-computing, spock-like, homo economicus or 'economic man', who is widely (and rightly) rubbished as a mythical creature who has little place in our model for how life works. Instead, Tim Harford explains that while human beings may be behaviourally flawed, man's actions, (including criminal acts) can be viewed as being broadly rational in the context of man's motivations - these reach well above the financial to include fear, love, etc.

My favourite sections are commented on below:

Rational crime

The idea of rational crime was developed by the Nobel prize winning Gary Becker, who stated that criminals weigh the costs and benefits of their actions and act accordingly (for his interview with Harford, Becker even parks illegally, accepting the low probability of a fine). Harford asks whether a sixteen year old really weighs up the gains from a street robbery against the risk of a spell in jail, commenting that most people would expect their behaviour to be irrational. Data based research shows that even juveniles respond logically to sentencing. Yet again, people respond incentives in a predictable way, even those devil-may-care teenagers!

Here's a nice bit on on rational addictions:

"It can also be rational to get hooked in the first place. Imagine a young man who is thinking of trying a new drug. He knows that everybody who tries it loves it, at least at first. Then some users find their lives degenerate into an increasingly desperate and futile attempt to recapture that initial buzz, leading to the pain of cold turkey or the anguish of eternal, unfulfilling addiction. Others seem able to enjoy the highs and remain quite content for the rest of their lives. He has no way of knowing into which category he will fall. Is it rational for him to ingest the drug? 

If you say 'no', read the paragraph again but replace 'trying a new drug' with 'getting married' and 'cold turkey' with 'divorce'. Getting married is not so different from getting hooked. It might not work out, it will restrict your future freedom of choice, and quitting if things turn sour is going to be extremely difficult and painful. But it will probably be a lot of fun, too."

A further insight from the rational choice economists is that advertising of nicotine patches and gum actually encourages non-smoking teens to take up smoking. It sounds odd but the logic is sound: products that assist quitting an addictive activity like smoking reduce the cost of taking it up, perversely making smoking more attractive.
 
However, it is not always so clear-cut. Harford highlights that the impatient, dopamine system in the human brain responsible for quick decisions can misfire with addictive chemicals and also with addictive behaviours such as playing the slot machines. In contrast, the cognitive system that is responsible for longer-term decisions takes longer to react. Harford cites a simple experiment where ten subjects were asked if they would like some fruit or chocolate. Seven chose chocolate. When other groups were offered the same choice but for delivery a week later, 70% chose fruit.

I suffer the same conflict when I go to the supermarket to buy healthy food for myself and then get home wanting a cream cake or chocolate. I also have a lot of high-brow selections on Lovefilm and Netflix and often find myself searching for some pop-corn cheese instead of that foreign art-house movie that will make me a better, cultured person. Harford proposes ordering your films and then keeping away from the list, letting the DVD’s come through as per your set-up. However, this isn’t a perfect solution, since if you feel like watching Expendables, a silent movie or French classic probably won’t be a good substitute. It’s a tough one.

There are other instances where the strong-willed self can outwit the weak-willed self with strategies e.g. defaulting your options to your long-term interests and making change more difficult. It’s a bit like a negotiator tying their hands. He gives the example of people who put themselves on casino blacklists, using self-barring to address their gambling problems.

However, Harford also notes “Schelling observed..that it’s not always easy to tell whose side you should be on. People can save too much, exercise too much, diet too much, and commit themselves to ‘improving’ activities – subscriptions to the Times Literary Supplement or membership of the Royal Opera House – that they do not really want.

On speed-dating:

Some facts from a study of 1,800 men and 1,800 women:
- Women proposed a match to one in ten men.
- Men proposed a match to two in ten women.
- Characteristics receiving more offers: tall men, slim women, non-smokers, professionals.

No surprises so far. Here's the interesting bit: People changed their preferences substantially based on the group that turned up that evening (so much for looking for the’one’). Men may prefer women who are not overweight, but if twice as many overweight women turned up one evening the same number of men proposed matches. Similarly, women may prefer tall men to short but in a group of short men, the short guys had more luck. The same applies to levels of education. People lowered their standards and settled for what they could get (i.e. market conditions). Only when there was an age mismatch did people prefer to hold off for another evening. Harford says “None of this to deny true love exists. But while love is blind, lovers are not: they are well aware of what opportunities lie ahead of them and they rationally take those opportunities into account when they are dating.”

Segregation 

In this chapter Harford describes Thomas Schelling’s explanation for community segregation (this could be on racial terms, income, etc). Imagine you have a chessboard with draughts pieces of each colour placed on alternate squares, so the board is filled with pieces. Then remove twenty pieces by random to create some empty gaps and add back five pieces randomly. Assume either sides are happy to live in a mixed set-up. However, a few of these pieces are now surrounded by the pieces from the other side. These surrounded pieces uproot to be closer to their own kind. Suddenly, the board dynamic changes and a chain reaction creates large scale segregation through no individual’s fault. They were happy to live in a mixed community and they end up segregated.

I'm really looking forward to reading Harford's new book on macroeconomics and also re-visiting his original book, The Undercover Economist.

 ****

PS - The Logic of Life is also a re-read. I read the book a few years ago but forgot everything about it other than that it was really good, so figured it was due a revisit .. a most logical approach that produced an optimal outcome.

2 comments:

redstar said...

The film bit is interesting - such are the dangers of choice! I enjoy being back in the UK with just the usual four channels available. Someone has arranged my viewing for me and there's often no way I can avoid something informative and uplifting. When it's up to me, the Walking Dead tends to appear on my screen instead of a more intellectual choice!

Christopher said...

The film bit is interesting - such are the dangers of choice! I enjoy being back in the UK with just the usual four channels available. Someone has arranged my viewing for me and there's often no way I can avoid something informative and uplifting. When it's up to me, the Walking Dead tends to appear on my screen instead of a more intellectual choice!