The Lively and Logical Logic of Life
Boredom drives a lot of academic research. After you’ve studied a subject for decades, it isn’t much fun to keep repeating the standard lessons, so you mischievously start looking for counter-examples and loopholes. Unfortunately, when the mischievous academic talks to a broader audience, he often leaves the impression that the standard lessons are a waste of time. Frankly, I think that a lot of recent popular economics books fall into this trap.
Tim Harford’s The Logic of Life is a welcome antidote. Harford argues that the standard economic assumption of human rationality usually works. In fact, it works in a lot of cases where you might think it doesn’t.
The best example in chapter 1 is condom use by Mexican prostitutes. It’s easy to say "A prostitute would have to be a brain donor not to use a condom every time." But Tim demurs. By bargaining about condom use, instead of using every time, prostitutes raise their income by about 25%. Still not worth it? Think again:
In fact, the prostitutes know that while the risks are real, they are modest. Only one in eight hundred Mexicans carries HIV, and even among prostitutes it afflicts just one in three hundred. Even if a prostitute is unlucky enough that one of her unprotected jobs is with a man who is HIV positive, the risk that she will catch it is less than 2 percent if one of them is carrying some other sexual infection, and less than 1 percent otherwise…
As far as we can tell, the typical Morelian prostitute is acting as though she valued one extra year of healthy life at between fifteen thousand and fifty thousand dollars or up to five years’ income.
Tim may sound like a typical insensitive economist in this quote, but he’s firmly in the Alan Blinder "hard heads, soft hearts" tradition:
[A] rational world is not necessarily a wonderful one… Rational individuals can make choices that are bad news for others; risky sex is just a particularly clear example. And when rational individuals face a miserable set of choices, as do the Morelian prostitutes, they cannot do better than pick the best of a bad lot. We will not solve social problems if we pretend that they are caused only – or even mostly – by the mad, the stupid, and the morally degenerate.
As an academic, I’m tempted to immediately highlight a counter-example. Morelian prostitutes value a year of healthy life at up to five times their annual income. But what about Levitt and Dubner’s drug dealers who risk their necks for minimum wage? Aren’t they irrational?
But for now, I’m going to resist the temptation to dwell on counter-examples. You’ve got to learn to walk before you can learn to run. And you’ve got to understand rational explanations for human behavior before you can understand irrational explanations. The Logic of Life may well be the best introduction to the rational choice approach on the market. Even better, it’s well-written enough to inspire even jaded academics to get back to basics. Bravo, Tim.