Prompted by a query from our friend Daphne, I got and started reading “The Mind of the Market” by Michael Shermer. While I love that he is the founding publisher of Skeptic magazine, I think in this book he wanders widely in topics related to evolutionary theorizing and economics, and sounds fairly strident while not really understanding the economics and game theory he talks about all that well. One particular jolt I received was to discover in a single paragraph Nash equilibrium and Pareto efficiency discussed as just two different equilibrium notions. This from someone who has written before a whole book about evolution and ethics, and certainly ought to know better.
So did I bring the book with me to NYC on our day trip two days ago to read on the train? Nope, I also had Tim Harford’s “The Logic of Life” on hand, in the trembly tall waiting-to-be-read pile. I took that with me and so far am loving it. Harford knows economics quite well and writes beautifully. He adopts a notion of rationality much weaker than the one standard economics assumed all these last few decades for homo economicus. He then proceeds to remind us that rats act rationally (in this sense) in laboratory experiments, mentally disturbed individuals do, teenagers do (even when considering sex!), and just about everyone else, especially when engaged in familiar activities, which is to say, most of the time. This idea of rationality is fine: maybe it will even be a palliative to the urge I have to wave quote signs around the word “rationality” when mentioning it in my university lectures. Strange to believe, economists and logicians have known the extreme concept of rationality, that supposedly is the main property of homo economicus, to be very difficult to keep away from logical contradictions and paradoxes (or to keep anywhere near applications of economics to real life), and yet have been slow to build formal theories embodying the various versions of this weaker rationality that might even work to characterize real behavior. But economists have certainly started doing so, and Harford’s book is an excellent one to show the general audience of curious minds a survey of the progress so far. I am looking forward to finishing the book quite soon.