If Tim Harford was born 150 years ago, he would have provided strong competition to Arthur Conan Doyle. Sherlock Holmes, Doyle’s creation, unveiled the mysteries of human behaviour using nothing but cold logic and immaculate observation. Harford’s undercover economist does the same in his two books, The Undercover Economist (2005) and his new release, The Logic of Life. But there is one difference between the two: While we ordinary mortals can never hope to match Holmes’ skills, we can all aspire to be like Harford’s invisible alter ego.
Harford uses the tools of economics to crack some of the mysteries of life. Those tools are available to us as well, and are easy to use. Indeed, by the time you finish reading The Logic of Life, you might feel equipped to do a little sleuthing yourself.
The Logic of Life: Random House, 272 pages, £12.99 (about Rs1,000).
The engine at the heart of The Logic of Life is rational choice theory. “If you do not understand the rational choices that underlie much of our behaviour,” Harford writes, “you cannot understand the world in which we live.” His basic premise: “Rational people respond to trade-offs and incentives.” Using this as a starting point, he then demonstrates how drug addicts, teenage muggers, suburban sprawl, inner-city decay and endless meetings at the office are all rational.
It is not Harford’s point that “people are always and everywhere rational”. They obviously aren’t. But, he writes, “[P]eople are rational nearly enough and often enough to make the assumption of rational choice a very useful one.” He elaborates: “In the hands of economists, ‘rational choice theory’ produces an x-ray image of human life. Like the x-ray, rational choice theory does not show everything. Nor is the picture necessarily very pretty. But it shows you something important, and something that you could not see before.”
This might appear to rest on a picture of us as “consciously calculating beings.” But rational behaviour doesn’t always arise out of a conscious process. Harford writes: “We often aren’t conscious of the calculations of costs and benefits that we make when we act rationally—just as, when someone throws a baseball for us to catch, we aren’t conscious of our brain solving differential equations to work out where it’s going to land.”
Another objection to this focus on rational behaviour might be that much of our behaviour is driven by our emotions. Harford writes: “[O]f course we feel passionately about sex, love, crime, and all sorts of other things… The whole purpose of acting rationally is to maximize our emotional pay-offs.”
Is there an issue that involves our emotions more than love, or the mates we choose? In my favourite chapter of the book, “Is divorce underrated?”, Harford demonstrates how economics can unveil the mysteries of love and mating.
“Lovers plan, strategise, negotiate and deal with the harsh realities of supply and demand,” Harford writes. He recaps how men and women are hard-wired differently by evolution, and how women are more attracted to high-earning men than the other way around (he presents data to back this up.) This explains why there are more women in most cities than men—men are more likely to respond to rising rents by moving out, while women have more reason to stay, because they are more likely to meet desirable mates. This also explains why “unskilled urban jobs [like waitressing and secretarial work] that could easily be done by either sex would tend to be done by women.”
“[I]n places where men are scarce,” Harford writes, “women respond by staying in school longer. In cities where men are particularly rich, women are particularly plentiful.” Harford writes about how the contraceptive pill has changed society by changing our incentives. Because the pill makes it “easier for men to get sex outside of marriage”, there are fewer marriages.
Women respond to this by studying harder: “four US women [graduate] from college for every three men.” Being able to delay having babies also enables women to make income gains because of “the economies of scale in education and work which reward those who spend a long time in college and then work long hours early in their careers.”
This also explains the “divorce revolution”. The family has always been a powerful unit, and a rational one, because of the economic forces of the division of labour, economies of scale and comparative advantage. But the contraceptive pill changed the equations within a marriage, as women became “more highly educated, career-minded and employer-friendly”. They were also aided by household technology, which vastly reduced the time that household chores took up. As the incentives changed, so did the need to be married, or to stay inside a bad marriage. All these trends, of course, were entirely rational—but this rationality was hardly a conscious process.
The Logic of Life is so compelling not just because of Harford’s sleuthing, but because he is such a powerful storyteller. Writers of popular thrillers would be proud of the narrative momentum he maintains in his chapter on game theory, “Las Vegas: The Edge of Reason”, which brings to life fascinating people like John Von Neumann, Chris ‘Jesus’ Ferguson and Thomas Schelling. But it is packed with insight as well—it explains how addiction can be a rational thing, how it involves warring parts of our brain, and how I can explain my coffee addiction to my partner—hopefully without altering her incentives too much.
It also uncovers minor mysteries along the way, such as why advertising for nicotine patches and gum seems to lead to an increase in teenagers taking up smoking: “The advertisements tell them that there are new ways to help them quit, so rationally it is less risky to start the habit.”
Throughout the book, Harford doesn’t merely speculate, but uses research and empirical data to reveal the rational thread running through our behaviour. The economics and the writing are first class, and The Logic of Life is both entertaining and enlightening. Picking it up, I assure you, is quite the rational course of action.
Amit Varma writes the blog www.indiauncut.com. Write to firstname.lastname@example.org