It never ever occurred to me that one could write an entertaining fiction out of economics concepts. There's something so compelling about basic economics and the way it appeals to pragmatism and common sense that it'd be boring and mundane to package it into a story for the layman. Interesting conclusions of economics about reality is constantly featured in the popular economics books that are in the market nowadays but it's difficult to entertain people with economics in fiction.
Yet there are economics professors who manage the feat. I first stumbled on The Fatal Equilibrium by 'Marshall Jevons' because it was on my university course reading list but failed to find a copy of the book in Singapore so I set out to find out if 'Marshall Jevons' wrote something else. Eventually I discovered that happened to be the pseudonym of two economics professors, William Breit and Kenneth G. Elzinga who decided to collaborate on a series of detective novels that featured the use of economic reasoning to solve crimes. I laid my hands on a copy of 'Murder at the Margin' from the Central Public Library and went on to finish it within 3 days. It was an easy read for me and while it wasn't fast-paced, the fact that it was a mystery novel kept me reading on, though not with the same sort of enthusiasm reserved from the works of Dan Brown.
Eventually it was entertaining and a rather enjoyable read. The duo also wrote 'A Deadly Indifference', which at present, is the final work of economics fiction they've done together. Then I went on to discover that other works of economics fiction actually exists; including that of John Kenneth Galbraith, 'A Tenured Professor' which mocks more than it promotes Economics as it is. This novel deals much less with Economics concepts than those of Marshall Jevons. Russell Roberts also published another narrative that's more centered on economic concepts, titled 'The Invisible Heart'. The sample chapter offered does seem pretty interesting.
I always briefly considered I'd try and imagine how a Homo Economicus will function or think in our reality and write a book about it but then I thought it'd be too boring. A fiction work on economics should ideally be like these rather successful novels - a strong dose of cerebral stuff woven into reality.
Someone recently asked me about books to read on Behavioural Economics and I told him he's lucky because if it was a couple of years back, the subject hasn't exactly attracted that much attention so there's not much books and they're probably pretty hard to find. I thought I'd share with readers of ERPZ who might be keen to explore this blooming area in the field of Economics & Psychology.
Recommending books is a tricky affair because people have a variety of tastes for books; non-fiction books are not as much a social affair as fiction so it isn't always that enjoyable to follow the crowd. Nonetheless, I'm attempting this tricky activity here:
Nudge by Richard Thaler
Stumbling on Happiness by Daniel Gilbert
Predictably Irrational & The Upside of Irrationality by Dan Ariely
Create Your Own Economy by Tyler Cowen
Now, the fact is that I haven't actually finish all of the books above, but here are my reasons for the recommendations:
Richard Thaler have got his research on behavioural economics cited by lots of different writers of popular economics books and you can be sure that he's an expert on the subject; I've looked through the first chapters of 'Nudge' and while it doesn't exemplify brilliant, engaging writing, the ideas are interesting and implications enormous (which means people should know about them and try to steer them correctly).
Dan Ariely's Predictably Irrational basically has some fan club and I've watched him speak at TED.
I've read Tyler Cowen's 'Discover Your Inner Economist' and while he keeps distracting readers in his writings, he eventually does bring his points across. And on the way, you would have picked up much other tidbits. So I'm pretty sure his new book would also be an enjoyable read.
I wrote a review of Tim Harford's Logic of Life a long time back. It didn't make it to the publication I intended it for and so I publishing it here:
Thanks to a huge mishmash of research done by a new breed of economists who try to take on the challenges to rational choice theory, Tim Harford the Undercover Economist is persuaded that humans are smart rational creatures working within a world of imperfect information and impossibly tough circumstances. And obviously, he has decided to write a book to convince you of that too. Harford's Logic of Life takes on the Freakonomics track - citing loads of research supporting quirky or counter-intuitive explanations for common phenomena, which is perhaps very rational given that Levitt's Freakonomics sold more than 3 million copies worldwide while The Undercover Economist have no such statistics to brag about.
Unlike Freakonomics however, Logic of Life draws upon a larger collection research and is not detailed with the description of underlying research. Harford groups the different studies with ancedotes on some of the researchers to weave incredible but true stories about how people choose their lifelong partners, why people choose to live in crowded and expensive cities when the rise in their wages doesn't justify their expense and many more. Harford sees himself as a detective, peeling away layers of complexity from issues like crime and racism and attempting to investigate the causes of the emergent patterns. This is perhaps why the chapters were further segmented with sub-headings that gives the location and date related to events or research that follows, much like the old detective movies where the establishing shot is augmented by these information.
He starts out with the most provocative topic of 'sex' and go on around what he call the 'edge of reason', actions or habits which conventional wisdom will probably declare as largely irrational behaviours. In his chapter titled 'Las Vegas', Harford connected stories of Chris Ferguson, Von Neumann and Thomas Schelling with their research on Game Theory, rationality of gamblers and other sort of addicts. He explains the birth of Game Theory and the hopes of its applications in a myriad of different fields. A similar pattern emerges in every chapter, with Harford using his journalist style of conveying economics research findings to laymen, occasionally planting his opinions and thoughts, all the while steering readers back to the main message of his book, "humans are by and large rational and takes rational actions".
Another dominant theme in his book is that irrational or extreme situations can result from purely rational behaviours on the part of individual agents involved in decision making. It is much like prisoner's dilemma being played out by an entire community of people. Prisoner's dilemma is a situation where 2 individuals rationally chooses the collectively worst outcome simply because the alternative, better collective outcome appeared impossible. Harford points out this is probably how racism is perpetuated and reinforced by rationality of both the racist and the victim race, citing an experiment at University of Virginia where 'racism' was initiated by patterns that started merely by random chances. He offers his view that the solution out of this vicious cycle would somehow involve a change in the incentives of the parties involved and would take a long time.
Having started out his book with rational decisions that affects individuals and gradually moving on to those small individual rational decisions that impact on the community or even a race, Harford paces towards the finish of his book with how countries' politics and even the history of mankind is influenced by the combination of rational decisions so far made by all the tiny little economic agents each just trying to do their own things and to get by. He ends with the wildly speculative but not wholly unsubstantiated idea that the explosion of innovation and economic growth within the last century or so is merely a result of people responding to incentives.
Logic of Life offers a huge load of interesting, nice-to-know but otherwise pretty useless (at least to you and me) facts and speculation about the world that economists have discovered or concocted; very unlike The Undercover Economist which breath life into textbook economics. And this brings us to the question of why we should even bother to read this book. Rationally speaking, Logic of Life helps us gain a deeper appreciation of the study of economics as a means of understanding the world and ourselves - it demonstrates how the subject can be used to answer questions posed by the psychologist, anthropologist, sociologist, political scientist and a whole lot of specialist in other fields.
After reading Lord of Finance, I wanted learn more about finance industry of the west in its early days and discovered that I could perhaps learn about the history of the industry from the story of a single firm. Charles Ellis' 'The Partnership' turned out to be a great book for that; it charts the course of Goldman Sachs rise to one of the most well respected investment banks in the world finance community.
At the end of the book, I guess I gained way more than just knowledge about the history of finance industry. The Partnership was a great read, for the rich collection of little anecdotes about the people in the top strata of the great firm as well as the description of how the firm navigated the circumstances of those times. The story of the firm's rise in itself was immensely inspiring; no doubt it was great people who helped to build up the firm. These people helped me learn much about the importance of hard work and persistence, as well as the need to prepare for and learn from adversity. The main character in The Partnership that demonstrates the 'rags-to-riches' idea was Sidney Weinberg, touted as a 'saviour' of Goldman Sachs. Malcolm Gladwell explored the idea of how early adversity can aid one in life in an article on New Yorker, referring to Sidney Weinberg of Goldman Sachs based on the stories mentioned in Charles Ellis' book.
In Malcolm's article, he speculated that the sort of 'dual identity' that underprivileged outsiders can assume might help them succeed. People are more forgiving to the mistakes they might make while they bring in more unusual skills/knowledge that would prove valuable to the privileged circle. This often provide them with great connections that extend over a wide spectrum of 'classes'. This seem to be the advantage that Goldman Sachs rode on in the early days, through its founders as well as Sidney Weinberg. Goldman Sachs, being a little Jewish firm when it started out was the natural destination for the Jewish businesses for commercial paper; then when it started branching into the businesses of the big banks it was overlooked in some sense. The willingness of Goldman Sachs to do business with a wide variety of clients while trying to build up its grand reputation was admirable.
Goldman Sachs' ability to innovate and great foresight thanks to its leaders was important but perhaps not as much as the entire firm's willingness to work hard and push towards their goal. The kind of determination and persistence in trying to get business for the firm exhibited by their bankers and salespeople was absolutely amazing and Charles Ellis managed to convey all that extremely well through his wonderful narration of stories and events after events. The book might be really thick and it holds plenty of what one might consider 'long grandfather stories' but most were inspiring and groups of chapters on the firm under different leaders could be read on their own. The Partnership is definitely a great book for those interested in finance, personal motivation, business and storytelling.
After leaving it on my bookshelf for a while I eventually took out Lord of Finance to resume reading books on my journeys. Written by Liaquat Ahamed, I bought it at one of Harris' 20% storewide sales during a period when I was thinking about reading up more about Finance after the recent crisis. I thought it was good to beef up my knowledge of American finance since Age of Turbulence was the closest I got to reading about the financial sector of America.
The book turns out to be more than what I was expecting. Written in the style that feels very similar to Doris Kearns Goodwin's Team of Rivals, Lord of Finance traces the little stories that demonstrated the personalities of the four most important central bankers prior to 1929. They had exerted huge influence on the economies of Europe and United States, and unintentionally engineered in the Great Depression with their policies and beliefs. It was interesting to get a peek at a world still obsessed with the almost divine quality of gold as a storekeeper of value and with poor understanding of monetary economics.
Even more intriguing is that monetary policies and innovations are being created by these people who has a nuanced view of monetary economics and poor understanding of the workings of the economy. The stories and opinions of civil servants, politicians and aristocrats in those years demonstrates the experimentation humans had gone through in order to figure out how this gigantic machinery works. Of course, this study and experimentation carries on today.
Liaquat Ahamed got really good reviews (here and here) from New York Times for this book, especially for the fact that the contents of the book chillingly echos the stories of Wall Street in the past couple of years, involving banking heros and monetary policies, speculative bubbles and a huge crash. The description of the mania and the built up to the eventual crash sounds rather familiar to me given that I just finished John Cassidy's Dot.con a while back. Men's penchant for not learning from History seems particularly pronounced in bouts of 'Irrational Exuberance'.
For that, Liquat gives a brilliant analogy for the role of Central Bankers or the policies makers trying to stabilize the economy and also pushing for growth. He sees them much like Sisyphus in the Myth of Sisyphus, condemned the work hard to create the conditions fertile for economic growth only to have speculation and irrational exuberance extinguish the fruits of their labour - much like Sisyphus who have to push a boulder up a mountain knowing that when the deed is done, it'll roll back to its original position for him to do it again. Perhaps Albert Camus is right, for the struggle probably do fill the central bankers' hearts and the belief of their heroism keeps them happy.
Lord of Finance simply surprises me with the rich collection of anecdotes about the main characters of the story Liquat tries to tell and the manner it imparts knowledge on finance and the workings of money in the economy to the readers - subtly and not too overwhelmingly technical. As a result the book caters to a wide range of audience; students interested in economics, history, finance and perhaps just stories about great men's mistakes.
Those interested in getting a preview before making a purchase of the book or going on a trip to the library to borrow it might like to check out New York Times.
I've previously read Shock Doctrine and written a review on my personal blog; it was a time before ERPZ started and became active. Here's a reproduction of the original review:
After 2 months of reading I finally finished Naomi Klein's powerful book, Shock Doctrine. It was a long ride deep into the dark old mines of history on the different 'economic revolutions' all around the world: Argentina, Chile, China, Russia, Bolivia and Poland. It was a book that was written with intentions to put down Milton Friedman, clearly anti-corporatist and in some sense, anti-globalization. From this book I understand finally how the term 'anti-globalization' have been mis-interpreted by so many people, even myself. I once thought that it means being against the integration of cultures, economies and companies but then I realised it gets way deeper than that.
The idea of anti-globalization is usually used to mean being against the way the phenomena is taking place in our world, that inequality is rising and corporates are like taking over the world while people in poor countries work in sweatshops, suffer in silence and endure the hardship only to realise generations later that nothing changes. It is the discovery of a certain helplessness in the bottom layer of the world. Shock Doctrine is clearly about that, and more.
In a clear but otherwise way too long writing, Naomi presented a very complete picture of how pure ideology-driven economist are used by corporates and government to advance their self-interest. And of course, in a capitalistic perspective, self-interest is just profit and money. She didn't over turn free market theories on how a perfectly free market is able to dilute power and increase freedom but she did show that the approach that allows for extreme free market is not exactly compatible with democracy and worst of all, economist have been naive about how a free market can be brought to exist. Case after case cited in the book, firms are privatize just be selling it out to the private sector without proper valuation of the assets and this hasty act would not only delay the attainment of a market equilibrium that would be at least more socially optimal but also create new forces that increases the inertia of the market. In other words, it makes the market less free.
In the area of corporate America and politics, Naomi is suggesting that the corporate people have penetrated politics too deeply with CEOs becoming civil servants in top positions of the government and politicians being lobbied by powerful companies with CEOs receiving incomes more than 400 times the average person on the street. And because of that, government becomes ran like corporations, public sector jobs being slashed and direct public spending is reduced while outsourcing (locally, giving contracts to companies) all the functions that can be done by the private sector. Worst, it is infected by a touch of cronyism; and this probably explains why contracts are rarely distributed by bidding and that the contracts concentrate in the hands of the few big firms that are always 'aiding the government' with 'planning'.
It has been a good read anyways and while Naomi Klein has a rather extreme stance, my reading of Joseph Stiglitz (Globlization & its Discontents as well as Making Globalization Work) have helped me appreciate the gravity of the matters she was talking about and I could understand her thinking. As always, the writer do give us a gleamer of hope about what the future may turn out to be when the 'Shock Wears Off' and how we can prevent similar stuff from happening again. I would recommend this book for people who have no fear of heavy non-fiction reading, a thorough interest in learning how and why corporate America is seen in bad light.
As I was mentioning a couple of weeks back, I have been reading Thinking Strategically by Avinash Dixitt and Barry Nalebuff. This is a pretty old book, being first published in 1991 and the version I was reading is the 1993 paperback re-issue - there was no more revisits to this book by the authors since then but it's been in print until now. I believe it's largely used as readings for undergraduate economics students as well as students of business or management schools.
The 2 authors are great teachers of Game Theory in Princeton and Yale and have often adapted the principles this somewhat mathematical subject to the less mathematical real world. Thinking Strategically is a great attempt at discussing strategic thinking that follows from game theoretical analysis for the layman.
The good thing about ideas on strategic thinking is that their principles hold even when the examples they are attached to often become obsolete or arcane - that is not to say that Thinking Strategically features arcane examples. Most of the examples used to bring ideas across in the book are simple, often bordering trivia but they illustrate the essence of the concepts and can be used to explain the principles for similar but more complex issues. One of the case studies brought up that I particularly love is the one about a three-way duel where we have 3 shooters of varying abilities.
Each shooter fires at someone (or something) each round; there's is fixed order as to who gets to shoot first. The one who's allowed to shoot first is a poor shooter with an accuracy of only 30%, the second has an accuracy of 80% and the last is a sharp shooter who shoots with an accuracy of 100%. The question is that if you're the first shooter and allowed to go first, who would you choose to shoot?
An analysis of this "game" gives us a surprising but convincing result. If you choose to shoot the average shooter, and succeed, you will definitely lose because the next in line would be the sharp shooter and he would shoot you. If you choose to shoot the sharp shooter and hit, the average shooter will shoot you, leaving you with a 20% chance of survival. And even if you survive, you only have 30% chance of hitting him later. You might say, this mediocre shooter is so lousy, he'll probably have to lose anyways. But you can actually raise your chances of winning by choosing a more intelligent strategy: To fire into the air.
This way, the average shooter will get his turn and attempt to shoot the sharp shooter since shooting you and succeeding mean he'll have to die when the sharp shooter's turn comes. If he succeeds, the mediocre shooter gets to try his hands at killing the average shooter. If he fails, the sharp shooter will immediately kill him and that once again, leaves the mediocre shooter with a chance of 30% to kill the sharp shooter. The somewhat counter-intuitive strategy of shooting at no one raise the chances of the mediocre shooter winning substantially.
The principle alluded by this example is that if you're a weak player; it is wise to allow the stronger players to make their moves and get rid of all each other before making a move and fire your best shot at the one left standing. Now that we surface the principle, the logic of such a choice becomes more intuitive.
Thinking Strategically is a great read for students who likes to think and don't mind re-reading some of the statements in the book a couple of times to understand the explanation behind some strategic moves. It teaches an important skill of looking forward and reasoning backwards and shows you the power of its application in all sorts of "games". The book might make you feel like you'll become smarter but trust me, it's not that easy to apply strategic thinking that quickly in real life and often, we need a degree of foresight that we would almost definitely lack.
I read the review of Alan Greenspan's book 2 years back in The Economist, but didn't buy it until late last year when I went on a book-shopping spree. The book gone on to stay on my book table (yes, I seriously need a bookshelf) for another year or so before I dusted it two weeks ago and began reading it. In any case, I bought an updated version, which features an epilogue detailing Alan Greenspan's take on the Subprime Financial Crisis and his prescriptions.
I was immediately surprised by Alan Greenspan's clear writing and simple style so contrary to his famous inscrutable public announcements about the Fed. It is this that earned The Economist's rare praise:
Sub-heading of the book review: "Not many surprises in this memoir-cum-essay except that it is an unexpectedly enjoyable read."
Book Review Quote: "[D]espite everything, the book turns out to be first-rate. It engages on different levels: it is intelligent in a way that few popular books on economics manage or even try to be; and, wonder of wonders, it is a good read."
The book begins as a memoir, detailing Greenspan's childhood, interest in music, schooling, economic/technical inclinations and his long career in the Federal Reserve Bank where he was Mr Chairman. His memoir ends somewhat abruptly in retrospect at the eleventh chapter, The Nation Challenged. Beginning with the chapter, The Universals of Economic Growth, he went on with his economy essays and analysis of various economies, industries and trends. Like what The Economist says, Age of Turbulence is a good read, his memoir was very neutral and he was very humble about his work at the Fed. His accounts of the workings of the Fed provides non-American readers a good starting point to learn about their system. Greenspan's essays on the world economy and economics stays faithful to his belief in the power of free markets and respect for the freedoms and rights that the American Founding Fathers have sought and preserved.
He defends his views that no one can possibly identify a bubble and actively sought to burst it before it gets too big and cause a crisis in its subsequent burst. As a matter of fact, this is the case because anyone who can confidently identify the bubble can profit from it by going against the flow and thus end up defusing it before it builds up. At times, when the so-called 'irrational exuberance' exerts too powerful a market force then regulators wouldn't actually be able to defuse it anyways. He seem to sigh at the voter's expectations that the government is almighty and is disappointed by typical politicians who doesn't seem to understand the meaning of 'trade-offs'. These are typical economist's perennial concerns about the world in democracies that never seem they'll ever go away.
As a pragmatist, Greenspan shows great appreciation for the rule of law that has maintained the workings of the market and fostered a culture of trust so essential to capitalism. And reflecting on that, Greenspan gives suggestions on how the emerging economies need to improve their governance and legal systems to catch up with their prosperity and march towards developed status. These are valuable insights gained from Greenspan's 19 years of being the Chairman of the Federal Reserve Bank. Indeed, Greenspan confesses that he knows little about international economics until he took on this role since his work at Townsend-Greenspan & Company (which closed following his nomination to that post) deals little with the economies of other nations.
Overall, Age of Turbulence provides wonderful insights into workings of the capitalist system of America and great ideas about emerging economies, the direction the world economy is heading to - knowledge significant to any economics students and economist-wannabe.
What I Know Is this book took me almost a year to finish but in actual days, I only spent a week or so reading it. Wikinomics by Don Tapscot and Anthony Williams was published in 2006 more or less as a study of this new emerging business model that surrounds most of Google's free products, social tools like Facebook and Twitter as well as other more business-oriented networks where mass collaboration is used to produce products, free or commercial.
The book definitely isn't an easy read and after reading the first half of the book I got pretty sick of the fact that the authors were merely packaging the case studies into different categories of models and repeating their theory of how mass collaboration is going to change the way goods are produced all around the world. That explains the gap of so many months before I picked the book up a week ago and continued from where I left it. The case studies were mostly fascinating, like the story of Goldcorp Mining and InnoCentive but others seem to be overly used, like for the case of Second Life and that makes the author seem like they're overhyping the phenomenon.
As the Wikipedia entry for the book quoted from Harvard Business Review, "like its title, the book's prose can fall into breathless hype." Indeed, the hype over mass collaboration seems a little overwhelming and when one is more of the skeptic the book becomes quite a disaster, especially when the book was first published in 2006 and 3 years on, you don't quite see how the subtitle 'How Mass Collaboration Changes Everything' manifest itself in the real world at all. Yes I know mass collaboration did help people and changed things but then it wasn't that breathtaking and mostly, life just went on as usual. Perhaps more important was the fact that this Subprime Financial Crisis seemed to be the working of a 'mass collaboration' of stupid people. In other words, Tapscott and Williams thought nothing of the risk of Groupthink in mass collaboration.
The prose is rather academic, starting with their 'hypothesis', which is the subtitle of the book somewhat and then the authors goes on to show how mass collaboration is being played out in different sectors, industries, different markets and such. To be fair, Wikinomics is a business sort of book, it focuses on the methods to harness the benefits of mass collaboration, possibly the mechanics of motivation that drives this phenomenon and discuss the success of these various means. It's the business sort of academic compared to what I generally prefer, the intellectual sort of academic. I believe students of A Levels would be way more intrigued by Wisdom of the Crowds by James Surowiecki, which I gladly finished almost a year ago.
The book discusses Coase's Law, which is basically an explanation of why firms expand to organize transactions within the firms. The Nobel Laureate for Economics in 2009, Oliver Willamson got his prize through his study and refinement of this theorem by Ronald Coase.
Wikinomics is definitely a book for business students and businessmen interested in working on projects that involves profiting from mass collaborations and setting up of networks. It is likely that some projects are more adapted to mass collaboration than others and some products will forever be provided by traditional manufacturing or services.
While the players in the books/knowledge/printing industries fight out on the issue of digitising knowledge, moreIntelligentLife intelligently discuss the grand potential of having these information digitized (be they facts, fiction, errors or mistakes).
The Economist believes that the agreement that Google strike would still benefit readers in general at the end of the day.
Update on 6 October 2009; Jeff Hecht from NewScientist offers an insightful analysis of the goods and the bads on this matter.