Today’s post is from Rich, who attends meetings of the What Are You Reading Now? Book Club:
The Logic of Life by Tim Harford
This book is subtitled: The Rational Economics of an Irrational World. The author’s first book, The Undercover Economist, was an excellent discussion of the way free markets work and sometimes don’t seem to work, and why. The basis for people’s decisions in those areas was almost invariably cost or gain in monetary units. This newer book has a different slant in that the rationale for various decisions is often something other than just money. Many of the topics are on the seamy side of life, such as prostitution, crime, addictions, gambling, race discrimination, politics, etc. There are also interesting viewpoints on working in an office, strategy of the cold war, and aspects of city life vs. rural environments.
The author’s basic premise is that when some activity has a high cost people tend to do it less and do it more when the cost is low. One example was a study done about juvenile crime. Each state has laws that govern whether a person is tried as a juvenile and subject to lesser penalties as a result. Some states have greater differences between the penalties as a juvenile versus an adult. The study compared the crime rates as youths were juveniles versus crossing the line into adulthood. The states with harsher juvenile penalties, more like the adult penalties, had lower crime rates as juveniles. Where the juvenile penalties were less, the crime rates as juveniles were higher implying conscious decisions to commit crime based on the expectation of a lesser penalty.
The author tells a story about gambling and game theory. In 1944, John von Neumann published Theory of Games. It was a mathematical work which drew little attention among gamblers, although it did address poker and other gambling games. One exception was Chris Ferguson, whose father was a math professor who taught game theory. Ferguson was a computer science graduate who began writing programs to play various games. He began to see strategies that were different from what the poker experts said. He finally began to play with his own money. He discovered there are elements outside the probabilities, including bluffing with bad hands and the size of bets with good hands. He lost about $20,000 learning to play, but eventually he learned to win. In the 2000 World Series of Poker, he won with over $2 million in the take. It took almost 60 years for the theory of games to produce a winner.
In the final chapter of the book, an economic history of the world is compressed into a single year with an interesting discussion about the causes of economic expansions.
