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Logic of Life

By Kevin

Perfecting Rationality's Definition

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.