The Logic of Life and Economics Jokes

March 8, 2008

With everybody going nuts over Dan Ariely’s Predictably Irrational and the subject of Behavioral Economics, I’ll just take a minute to put in a plug for another book that I haven’t read, Tim Harford’s The Logic of Life.

As Harford explains in this interview with Will Wilkinson, the lab experiments of Behavioral Economics are nice for what they’re worth, but we shouldn’t get too carried away into believing that people are just completely irrational. People do respond to incentives, and there are many situations in which people appear to act irrationally, but in fact a convincing case can be made defending the rationality of their behavior.

Harford explains a number of these situations in the interview, I highly recommend it even though it’s an hour long. This was my favorite part:

[Tim is talking about how responsibilities in a marriage partnership are divided up]

Tim: Whoever is relatively best at one of these tasks should do it. What we’ve found is men historically have been the ones who go out to work. The great insight of comparative advantage is that that doesn’t tell you anything about whether men are actually more capable about going out to work, what it does tell you is that men are extremely poor parents of young children.

Will: They’re even worse at raising children than they are at making widgets.

To an economist, jokes involving widgets are always funny.

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3 Responses to “The Logic of Life and Economics Jokes”

  1. Dan Ariely Says:

    I also love Tim Harford’s The Logic of Life. it is a great book

    As for extrapolating from experiments. I agree that we should careful when we do this but I also think we should be careful when we extrapolate from game theoretic models about how people should behave.

    At the end of the day, if we want to have a science we should submit these ideas to field experiments and see what are the importance forces when it comes to important social topics such as taxes, no child left behind etc.

  2. Thomas Says:

    Well, I sat through the interview and I think that the logic of life is an oxymoron. It is always a fun exercise to try to *apply* logic to life, though, and that’s why you and I have so much fun debating each other!

    I did like how Tim didn’t laugh at the widget joke. He just railroaded right through it…

    I also liked their discussion about self-fulfilling prophecy, like the experiment in which discrimination arises between the green workers and the purple workers. Of course, these are psych experiments conducted in a lab setting- the kind of stuff that forms the hopelessly erroneous basis of behavioral economics -so I’ll have to be wary of them!

  3. William Bruntrager Says:

    Thomas,

    Re: The Discrimination Experiment

    You should be extremely wary of that experiment, because its result doesn’t hold up at all in the real world, at least as applied directly to education. While returns to education are positive for everyone, they are even more positive for blacks. In other words, blacks are rewarded even more than whites for completing additional years of schooling.

    Of course, the experiment was about signals for unseen underlying characteristics, and education is seen, so the finding isn’t exactly refuted.

    Thanks for listening to the interview. Yeah, Tim certainly seemed to take no notice of that widget joke.


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