Logic of Life

Economist Attempts to Show 'Logic of Life'

Tim Harford uses economic theories to show the rationality behind people's actions. / Courtesy of www.timharford.com
By Cathy Rose A. Garcia
Staff Reporter

Life can often feel out-of-control and random. How many times have you thought that people, situations and events don't seem to make sense?

Tim Harford, author of the best-selling book ``The Undercover Economist,'' shows how there is logic to the madness called life in his new book ``The Logic of Life.''

Here he applies economic theories, including game theory by John von Neumann and Thomas Schelling, to real life situations. He says economists are ``always looking for the hidden logic behind life, the way it is shaped by countless unseen rational decisions.'' He finds the logic behind poker, divorce, racism, crime and politics, as well as finds answers to burning questions like why your boss is overpaid.

``The argument of this book is first, that rational behavior is much more widespread than you would expect and crops up in the most unexpected places ― including the heads of oversexed teenagers; and second, that the economists' faith in rationality produces real insight. I believe that if you do not understand the rational choices that underlie much of our behavior, you cannot understand the world in which we live in,'' he said.

It does seem like a bit unbelievable to say that criminals are capable of making rational choices in life. But Harford says that even criminal minds still weigh the benefit of committing a crime with the risk of imprisonment.

``Criminals can be brutal and remorseless but many of them are far from indifferent from the `pains of imprisonment.' Prison, whatever its other costs, reduces crime because with a fearsome enough prison system, crime does not pay," Harford said.

Perhaps the chapter ``Why Your Boss is Overpaid'' will catch many office workers' attention, since it explains why co-workers backstab each other and why the ``idiot'' boss is being paid a fortune for sitting behind a big desk.

Economists have apparently found a way to explain the misery of office life through the ``tournament theory.'' In most offices, there is stiff competition among employees to get promotions and bonuses.

``Workplace tournaments encourage workers to sabotage one another and demand higher bonuses if success is largely a mater of luck. Evidence is mounting that tournament theory is the most convincing explanation of why work sucks, but it doesn't stop there. Tournaments also require increasingly absurd pay packages as workers get higher in the corporate hierarchy,'' he said.

If you're still wondering why your boss gets paid so much more for less work,
Harford adds ``the more grotesque your boss' pay and the less he has to do to earn it, the bigger motivation for you to work with the aim of being promoted to have what he has.''

Racism remains a hot button issue in the United States. Harford noted the prevalence of ``rational racism'' where employers use the average performance of an applicant's racial group as a piece of information to help them decide to hire the applicant or not.

Researchers Marianne Bertrand and Sendhil Mullainathan conducted an experiment to study racial discrimination. They responded to job ads, by mailing resumes with ``black'' and ``white''-sounding names. The results showed that resumes with white names received 50 percent more invitations for interview.

There seems to be a persistent bias against African-Americans, who are perceived as not as educated compared to whites. It would make sense for black kids to not study well, since they think they won't be given any good job opportunities anyway.

``Racism can be rational, meaning that while it is appalling, it is profitable for employers. Rational racism makes it rational for black kids to study less… This is a miserable story, but identifying problems is the first step towards establishing solutions,'' Harford said.

There are a lot of anecdotes throughout the book, but probably the most interesting was how Chris Ferguson, a doctoral student at University of California Los Angeles, became the World Poker champion. Ferguson applied von Neumann's game theory to the game of poker and figured out which hands to bluff with, how often to bluff, and so on. Using these results, he succeeded in beating some of the world's best poker players.

Harford says that while humans' rational behavior can backfire, like in racism and crime, the same rationality will help the human race survive the next million years.

As far as the logic of life goes, the book will offer some insights that will make you say: ``so that's why.'' Overall, Harford seems to have tried to stretch the topic too far, covering several disjointed topics. He also gives mostly anecdotal evidence and can be a bit heavy with the economic theories.

If you enjoyed Malcolm Gladwell's ``Tipping Point'' and Stephen Dubner and Steven D. Levitt's ``Freakonomics,'' you will probably appreciate reading ``The Logic of Life.''

cathy@koreatimes.co.kr