The Logic of Life, by Tim Harford (Little, Brown)

The hidden economics of relationships, drug dealing and more
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The Independent Culture

Want to know why people smoke cigarettes? Or why bosses are overpaid? Or why it would be a social disaster if the divorce rate was to fall too far? These, and many other puzzles of life, can be logically explained by economics. Tim Harford sets out to explain the theories that do so.

To most non-economists, such a proposition must seem absurd. After all, this is a profession that cannot accurately predict something as big as a house-price crash, so the notion that it can peer into the minutiae of people's behaviour and explain it is a tall order. Yet some of the most interesting recent work in economics has been in doing just this.

When people think of economics they think of macro-economics, the study of the big numbers of growth, inflation or budgets. There is, however, a parallel side to the subject: micro-economics, the study of the detail of human behaviour; why people, companies or governments behave as they do. This side of the discipline has made enormous strides. There is data available now from all over the world that enables micro-economists to develop their theories, and then test them. You might think that explaining why people behave in a certain way is much more interesting – and as important – as the macro-economic stuff. But hardly ever has it been brought to a popular audience.

Three people have changed this utterly: Steven Levitt, Stephen Dubner, and Harford. The first two wrote Freakonomics, the latter another bestseller: The Undercover Economist. Both books cherry-pick interesting bits of behaviour (for example, why do people become drug-dealers when it is dangerous and the pay for most very low?) and explain the economics behind them. Now Harford, whom I should disclose that I know, has gone further, to show how the work of academic economists explains a vast range of behaviour that puzzles most of us.

Take those three questions noted at the top. Economists use brain-scanners as well as data to explain the tension in human brains on decisions not just about stopping smoking, but also how to boost payments into pension plans. Bosses are overpaid because it is not worth the while of shareholders to organise a way of deciding their pay more precisely. And divorce? Making divorce easier can be shown to cut domestic violence by a third, and the number of women murdered by their partners by 10 per cent. Economists really can explain life, even if they cannot predict a recession.

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