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Logic of Life: The Rational Economics of an Irrational World

Logic of Life: The Rational Economics of an Irrational World

4.3 4
by Tim Harford

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In The Logic of Life, bestselling author Tim Harford quite simply makes sense of this world.

Life often seems to defy logic. The receptionist is clearly smarter than the boss who earns fifty times her salary. Arbitrary lines starkly divide the desirable districts of the city from the dangerous ones. Voters flock to the polling booths to elect candidates


In The Logic of Life, bestselling author Tim Harford quite simply makes sense of this world.

Life often seems to defy logic. The receptionist is clearly smarter than the boss who earns fifty times her salary. Arbitrary lines starkly divide the desirable districts of the city from the dangerous ones. Voters flock to the polling booths to elect candidates who’ll rip them off to favour special interests. None of it makes logical sense — or does it?

Economist and acclaimed author Tim Harford thinks it does. By weaving stories from locations as diverse as a Vegas casino to a barroom speed date, Harford aims to persuade you that people are, in fact, surprisingly logical.

When a street prostitute agrees to unprotected sex, or a teenage criminal embarks on a burglary — perhaps especially when a racist employer disregards a black job applicant — we would seem to be a million miles from rational behaviour. Harford shows that, discomfitingly, we are not. It turns out that the unlikeliest of people are complying with the logic of economics and responding to future costs and benefits, often without realizing it; and socially tragic outcomes can have their roots in individually rational decisions.

Brilliantly reasoned, always entertaining and often provocative, The Logic of Life is a book to help you understand yourself and the world around you.

Editorial Reviews

Readers of Slate.com know Tim Harford as a genial online columnist who explains the secret of Starbucks cappuccino prices or the economic advantages of polygamy. In The Logic of Life, the "undercover economist" turns his search for rational explanations for facets of our irrational lives in equally unexpected directions. With telling insights, Harford explains the sliding price scales of prostitutes; the logic behind poker systems; and the surprising connection between contraceptives and divorce rates.
William Grimes
The world is a crazy place. It makes perfect sense only to conspiracy theorists and economists of a certain stripe. Tim Harford, a columnist for The Financial Times and the author of The Undercover Economist, is one of these, a devotee of rational-choice theory, which he applies ingeniously and entertainingly to all kinds of problems in The Logic of Life…Mr. Harford has a knack for explaining economic principles and problems in plain language and, even better, for making them fun.
—The New York Times
Publishers Weekly

Financial Timesand Slate.com columnist Harford (The Undercover Economist)provides an entertaining and provocative look at the logic behind the seemingly irrational. Arguing that rational behavior is more widespread than most people expect, Harford uses economic principles to draw forth the rational elements of gambling, the teenage oral sex craze, crime and other supposedly illogical behaviors to illustrate his larger point. Utilizing John von Neumann and Thomas Schelling's conceptions of game theory, Harford applies their approach to a multitude of arenas, including marriage, the workplace and racism. Contrarily, he also shows that individual rational behavior doesn't always lead to socially desired outcomes. Harford concludes with how to apply this thinking on an even bigger scale, showing how rational behavior shapes cities, politics and the entire history of human civilization. Well-written with highly engaging stories and examples, this book will be of great interest to Freakonomicsand Blinkfans as well as anyone interested in the psychology of human behavior. (Feb.)

Copyright 2007 Reed Business Information
Kirkus Reviews
Or, the things people will do for money-and for good reason. Contrary to pop economists who have examined the stranger moments of human behavior vis-a-vis the benjamins (Freakonomics, etc.), Financial Times and Slate columnist Harford (The Undercover Economist: Exposing Why the Rich Are Rich, Why the Poor Are Poor-And Why You Can Never Buy a Decent Used Car!, 2005) centers on the predictability of much of it. Criminals, for instance, "can be brutal and remorseless, but many of them are far from indifferent to the ‘pains of imprisonment,' " because they know that in the calculus of life crime literally doesn't pay. That calculus comes into play when Mexican prostitutes (Harford picks many examples from the demimonde) determine whether or not the john must use a condom, charging more if not; and when soldiers decide whether to risk their lives by re-enlisting in exchange for the healthcare and other benefits offered by the military. "Even a coward like me will risk his life for money," writes the author, and risk is omnipresent, in various degrees, whenever money enters the discussion. Harford occasionally gets caught up in the inevitable abstractions of economics, but for the most part his narrative is refreshingly down-to-earth and even useful. The reader learns here, for instance, why he or she should damn the torpedoes and bet with a handful of bad cards: "Your opponent will have to call you a little more often. Because he knows that your bets are sometimes very weak, he can't afford to fold too easily." Would that the rest of life operated so predictably. But then, at least in a way, it does, so that, as Harford explains, it becomes apparent why Detroit is a third-rate city and NewYork a first-rate one, why New Orleans should not be rebuilt and why agribusiness contributes to political campaigns while real-estate agents do not. Chock-full of numbers and money talk, but oddly entertaining-of a piece with Dan Ariely's superior Predictably Irrational (2007) and other recent popularizing works in behavioral economics. Agent: Sally Holloway/Felicity Bryan Agency
From the Publisher
Praise for The Undercover Economist:

“A rare specimen: a book on economics that will enthrall.… Beautifully written and argued, it brings the power of economics to life.”
—Steven D. Levitt, co-author of Freakonomics

“Harford is smart. Scary smart. So smart he can illuminate, in clear, entertaining English, ideas and forces of mind-boggling complexity.”
The Sunday Tribune

“A playful guide to the economics of everyday life [that] succeeds in taking the chalkdust out of the subject.”
The Economist

“A tour de force.… If you need to be convinced of the ever-relevant and fascinating nature of economics, read this insightful and witty book.”
—Jagdish Bhagwati, author of In Defense of Globalization

“This is a book to savor.”
The New York Times

“Harford writes like a dream.… Reading The Undercover Economist is like spending an ordinary day wearing X-ray goggles.”
—David Bodanis, author of E=mc2

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Random House Publishing Group
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Read an Excerpt

Chapter One
Introducing the Logic of Life
The Economics of Sex, Crime, and Minnie Mouse
Harpo Studios, Chicago

Parents, brace yourselves." With those words, Oprah Winfrey introduced America to the shocking news of the teenage oral sex craze. In The Atlantic, Caitlin Flanagan wrote, "The moms in my set are convinced-they're certain; they know for a fact-that all over the city, in the very best schools, in the nicest families, in the leafiest neighborhoods, twelve- and thirteen-year-old girls are performing oral sex on as many boys as they can." Flanagan poked a bit of fun, but she wasn't really laughing: She was convinced that the fears were largely justified. Indeed, the American "blow job epidemic" has now been addressed everywhere from PBS documentaries to the editorial page of The New York Times, sometimes with giddy and slightly voyeuristic horror, sometimes with calm reassurance that the epidemic is simply a myth.

The so-called epidemic is often exaggerated, but it's no myth. One recent study, conducted by researchers at Johns Hopkins Bayview Medical Center in Baltimore, found that between 1994 and 2004, young people between ages twelve and twenty-four became more than twice as likely to report that they'd recently had oral sex. (For boys the rate climbed from 16 percent to 32 percent; for girls, from 14 percent to 38 percent.) Anecdotal evidence from experts suggests that the true increase may be even higher. I sought advice from Professor Jonathan Zenilman, an expert at Johns Hopkins University on sexually transmitted diseases. He explained to me that in 1990, perhaps half the women and a quarter of the men who came to his clinic (both teenagers and adults) sometimes performed oral sex on their partners. He believes that oral sex is now much more common: "Now it's seventy-five to eighty percent." And while it's the blow jobs that predictably have caused the panic, oral sex is now much more equitably distributed between boys and girls than in 1990. "Epidemic" might be putting it too strongly, but oral sex is definitely in vogue.

The question few people seem to have asked is "Why?" Are kids really becoming more depraved-or are they just being smart? Might there not be such a thing as a rational blow job? I'll say more about exactly what rational means later in this chapter, after we've dealt with those libidinous teenagers. But the basic idea is not complicated: Rational people respond to trade-offs and to incentives. When the costs or benefits of something change, people change their behavior. Rational people think-not always consciously-about the future as well as the present as they try to anticipate likely consequences of their actions in an uncertain world.

Armed with this basic definition of rationality, then, we can ask: What are the costs, benefits, and likely consequences of a blow job? Okay, perhaps the benefits are too obvious to be stated, particularly for the recipient. But it should also be obvious that the cost of a close relative of oral sex has risen: Regular sex is more costly than it used to be because of the spread of HIV/AIDS. HIV is much more likely to be spread by regular sex than oral sex. Many teenagers know that: One recent study of sex education concluded that it was more common for U.S. kids to be taught about HIV/AIDS than about preventing pregnancy. Teenagers may also know of other sexually transmitted diseases such as gonorrhea, an infection that might make a girl infertile if transmitted through penetrative sex, but when transmitted by oral sex may have much milder symptoms, such as a sore throat. The costs of oral sex are, quite simply, lower than the costs of regular sex.

If teenage girls really do weigh those costs and benefits before going down on their boyfriends, this is a straightforward explanation for the growing popularity of oral sex. Since regular sex is riskier than it used to be, and since teenagers are unlikely to have given up on the idea of having sex, the rest is basic economics. When the price of Coca-Cola rises, rational people drink more Pepsi. When the price of an apartment in the city goes up, rational people move out to the suburbs. And when the price of penetrative sex rises, rational teenagers have more oral sex instead.

Certainly, the evidence suggests that teenagers are moving toward less risky sexual behavior. The U.S. Centers for Disease Control and Prevention reports that since the beginning of the 1990s, the number of teenage virgins has risen by over 15 percent. There are still a few million teenagers who haven't given up on sex, of course, but since the early 1990s they've switched to using birth control methods that will also protect them from sexually transmitted infections. Use of the contraceptive pill is down by nearly a fifth, but use of condoms is up by more than a third.

Perhaps Oprah shouldn't be quite so worried. Oral sex isn't a symptom of more promiscuous teenagers. In fact, it's a sign that teenagers are behaving more responsibly, in enthusiastically-and rationally-choosing an alternative to riskier sex.

This is all very cute-or horrifying, depending on your tastes. But it is also a glib explanation. Before blithely claiming that oral sex is more popular because rational teenagers know that regular sex is riskier, a real economist would want a tighter hypothesis and serious data to back it up.

That real economist might well be Thomas Stratmann, who with the law professor Jonathan Klick has pinned down the rationality of the teenage sex drive rather precisely. Rational teenagers would have less- risky sex if the cost of risky sex went up, so the question is how to work out whether that is how teenagers behave. That requires some precisely measurable source of increased cost, something more quantifiable than a general increase in the amount of education about AIDS.

The U.S. Constitution has duly obliged, by providing a federal structure that allows states to determine their rules governing teenage abortion; some permit teenagers to have abortions without the notification or consent of their parents, and some do not. Such laws provide plenty of fodder for political controversy, but they also provide a natural experiment for researchers. Since abortion notification laws make it more difficult for teenagers-but not for adults-to get an abortion, they should discourage risky sex among teens, relative to adults. If, that is, teenagers are in fact rational.

It is not hard to see that abortion notification laws raise the cost of getting pregnant, at least for those teenagers who, given the choice, would have terminated an accidental pregnancy without telling their parents. If teenagers look ahead and work all this out, they should also take extra steps to prevent that accidental pregnancy-steps which, besides that of choosing oral sex over regular sex, are likely to include more use of condoms, or perhaps no sexual activity at all.

Sex is not a calculated act, and so that degree of foresight may sound implausible, but Klick and Stratmann found persuasive evidence that abortion notification laws really do discourage teenagers from having risky sex. Looking at statistics from sexual health clinics, they found that wherever and whenever parental notification laws are passed, gonorrhea rates start to fall in the teenage population relative to the adult population-to whom, of course, the new laws do not apply. The only explanation for this would seem to be that an abortion notification law significantly raises the risk of unprotected sex, and that the teenagers rationally respond to that risk.

Sex, then, has a cost. The risk of AIDS-along with intensive education about that risk-has probably encouraged teenagers to switch to a lower-cost substitute, oral sex. The threat to careless or unlucky girls that they will have to tell Mom or Dad that they accidentally got pregnant has done something similar.

A young economist named Andrew Francis has gone still further. If oral sex is a substitute for regular sex, he reasoned, isn't it at least possible that heterosexual sex is a substitute for homosexual sex? The rise of AIDS has made it more risky than it used to be to have sex with men, making homosexuality more dangerous for men and heterosexuality more dangerous for women. If the cost of one's sexual orientation is perceived to have gone up, wouldn't we expect rational people to respond to that?

Andrew Francis stumbled upon the possibility-it remains speculative-while trawling through a survey from the early 1990s in which nearly 3,500 people were asked intimate questions about their sexual preference and sexual history. The survey also asked people whether they knew anyone with AIDS. Francis then concentrated on people whose relatives suffered from AIDS, because you can choose your friends but not your relatives: It would not be surprising, or informative, to discover that gay men knew more people with AIDS than straight men.

Francis discovered that both men and women with a relative who had AIDS were less likely to have sex with men, and less likely to say they were attracted to men. At first, that didn't seem to make much sense-the unfortunate relatives were quite likely to be gay men, but if anything, genetic theories suggest that people with gay relatives should be more likely to be gay, not less. Then he realized what was going on: "Oh my God, they were scared of AIDS!" he told Stephen Dubner and Steven Levitt for The New York Times Magazine.

With that insight, everything fits. People with a relative who had AIDS were more likely to be aware of how terrible it is, especially back in the early 1990s, when treatments for AIDS were very limited and the disease killed many people within two years. Then what? Men who had a relative with AIDS were less likely to say that they found the idea of sex with men appealing. Women who had a relative with AIDS also seemed to be turned off by the idea of sex with men: They were more likely to say they were homosexual or bisexual. Both men and women with an acute awareness of the risks of AIDS were shifting away from an obvious way of catching it.

Francis found a couple of other curiosities in the data that backed up this interpretation. While people who had a relative with AIDS did shy away from sex with men, their earlier sexual history didn't reflect that. They were just as likely to have had sex with men at some stage, but then-becoming aware of the risks-they stopped. Furthermore, people with a relative with AIDS were more likely to be having oral sex and were less likely to have syphilis, which suggests their close experience of AIDS had inspired safer sex practices.

And the oddest fact of all: While none of the men in the survey who had a relative with AIDS called themselves homosexual or said the idea of sex with men was appealing, those men were more likely than other self-reportedly heterosexual men to be having anal sex-but with women. Perhaps, just perhaps, men who preferred sex with other men had decided that this was a reasonable-and safer-substitute.

You've just been reading a brief introduction to the economics of oral sex, underage abortions, AIDS, and homosexuality. A fair question at this point would be: What business do economists have poking around in such matters?

A new breed of economists is discovering something new about sex, crime, gambling, war, marriage, ghettos, racism, politics, and the last million years of human history. These economists are using the assumption of rational behavior as a way of focusing on something important about all these subtle, complicated topics. This is not to dismiss the contributions of psychology, history, sociology, and all the other ways we might seek to understand the world. But since we cannot apply all these disciplines at once, we have to simplify. Economists hope that their way of simplifying the world will provide more insight than it destroys. But why should you believe them, and why should you listen to what I have to say about them?

First, because it can be useful: The assumption that people are rational leads us to some clear and testable theories about the way the world works. It can help us to strip forbidding layers of complexity from intractable-seeming problems-for instance, inner-city deprivation-and guide us toward possible solutions. If crime rates are high in some areas, then rational choice theory says that crime must pay in those areas: We need to look for a way of raising the cost or lowering the benefit of committing crime. If inner-city teenagers don't have qualifications, then rational choice theory says that they must believe the benefits of getting the qualifications are outweighed by the costs: We need to work out if they're right, and see if we can change the incentives for them. And so on. A rigorously simplified view of the world can help even when it is oversimplified, because the simplicity makes it easier to spot the unexpected implications of your ideas, to uncover inconsistencies in your view of the world, and to test your ideas against the evidence.

Of course, there isn't much use in producing clear and testable theories if the theories are always wrong. But they aren't-economists' faith in people's rationality is usually about right. Now, I'm not claiming that people are always and everywhere rational-as we shall see, it is easy to find instances where that is not true-but I do hope to convince you that people are rational nearly enough and often enough to make the assumption of rational choice a very useful one. Later in this chapter I'll say more about what it's useful for.

But rational choice theory is not merely useful-it's also fun. The new economics of everything-sex and crime, racism and office politics-offers us perspectives that are unexpected, counterintuitive, and refreshingly disrespectful of the conventional wisdom. The economists behind these iconoclastic ideas are often fascinating characters, too, and we'll get to meet them throughout the book.

In the rest of this chapter, I aim to flesh out the concept of rationality with some more examples, from collectible sports cards to Mexican prostitutes. But before I get to that, it's time to say some more about what I mean-and don't mean-when I talk about rational behavior, and why the idea is often seen as controversial.

Let me remind you of the simple definition of rationality I laid out earlier on. Rational people respond to incentives: When it becomes more costly to do something, they will tend to do it less; when it becomes easier, cheaper, or more beneficial, they will tend to do it more. In weighing up their choices, they will bear in mind the overall constraints upon them: not just the costs and benefits of a specific choice, but their total budget. And they will also consider the future consequences of present choices. As far as my definition goes, that's pretty much it. (It is true that economists sometimes use the word rationality to encompass more shades of meanings than this, but the technical distinctions are not important for our purposes.)

Meet the Author

Tim Harford is the bestselling author of The Undercover Economist, and a member of the editorial board of the Financial Times, where he also writes the “Dear Economist” column. He is a regular contributor to Slate, Forbes, and NPR’s Marketplace. Hartford has been an economist at the World Bank and an economics tutor at Oxford University. He lives in London with his wife and two daughters.

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Logic of Life: The Rational Economics of an Irrational World 4.3 out of 5 based on 0 ratings. 4 reviews.
RolfDobelli More than 1 year ago
Economists no longer just propose fiscal policies, forecast business growth, investigate interest rates and assign value to financial assets. Now they also conduct lab experiments, research teenagers' sexual activities, analyze prostitutes' condom usage, hypothesize about what happened to the Neanderthals, explain crime waves and develop winning poker strategies. Look under the bed or out the window, and you will probably find an economist taking notes while researching you and your neighbors. Tim Harford is one of these ubiquitous "new economists." He reports on odd studies and screwball findings, but for a serious purpose. He posits that seemingly dumb actions, such as going out of your way to become addicted, are almost always fully rational and logical, if unwise. getAbstract recommends Harford's iconoclastic book as an "X-ray image of human life." He and his irreverent new economist cohorts explain how everything works, and why. If you enjoy delving beneath the surface to learn what really makes things tick, Harford is the perfect guide and his book is an offbeat yet revealing travelogue.
Anonymous More than 1 year ago
Guest More than 1 year ago
Tim Harford has lots of fun (as do we) when hee examined the economic-logical basis of what we sometimes see as 'irrationa ' activity - addiction, excutive pay, divorce, racism, et al. Lots of fun to read and a lot of food for thought.
Guest More than 1 year ago
The most interesting part of the book is the theory on the reason why Neanderthals died out, losing competition to Homo sapiens. Neanderthals did not have division of labor, while Homo sapiens did. And the division of labor here specifically means division of labor between MEN and WOMEN. Division of labor, come to think of it, is such a basic social arrangement which improves work efficiency dramatically and has been employed since the earliest time in history. But in the 21st century, in the name of gender equality, Western societies are trying feverishly to do away with any division of labor between men and women. They argue that division of labor between men and women, a.k.a. traditional gender roles, is what kept women at home and hindered their fuller actualization / realization as a human being. But just ask why would anyone want to force clumsy, smelly, hairy men to take care of newborn babies? Their skin is coarse, unsanitary, and their voices low ¿ not what babies usually like. And why would anyone want to put women in military special forces, when they can't lift heavy weapons by themselves? Their maybe some valid biological reasons, why across all societies and all ages, women are the ones who take care of babies, and men are the ones who went to fighting. Maybe, just like Neanderthals were, 21st century Western countries are on its way to extinction.