Economist Tim Harford knows why you do what you do. His latest book, The Logic of Life: The Rational Economics of an Irrational World, explores the surprising, and sometimes frustrating, notion that rational choices lie behind lots of seemingly random situations. The London-based blogger, columnist, and author also of The Undercover Economist talked with U.S. News about why divorce is underrated, why sex in the city gives men the upper hand, and why an unfortunate logic underpins racial segregation. Excerpts:
Are we generally rational people? Do we make good decisions?
Yes, and more than people would expect. When you put people in familiar circumstances—their work, doing shopping, their relationships—they make better decisions, often in an unconscious way. It's like a skilled baseball player catching a ball. The equations you'd have to solve in a logical way (to make that catch) are incredible, but somehow the mind is solving them all the time. The same is true for our economic decisions.
How is this book different from The Undercover Economist?
With Undercover Economist, I tried to explain the economics of everyday life—going to a supermarket, buying a cup of coffee. The difference with Logic of Life is I'm trying to apply the same logic to things people never think of as being economic, such as crime, racism, dating and divorce, office politics, real politics, the way cities work, etc. What you come up with is often very surprising.
For example, economically speaking, why is dating in New York tough?
It's fine for the guys because there are more single women than men in New York. It's not a massive imbalance. It's about 5 percent. But it turns out, that can have a really big effect. Basically, for every 100 partnerships, you've got five single women running around trying to find partners. That shortage of men can have a very big effect on the bargaining power of women. Despite the education we've all received about equality in the sexes, somehow it isn't working out.
So why would women stick it out in the city?
According to Lena Edlund [an economics professor at Columbia University], women have more to gain from being in cities than men, and specifically, women value getting good jobs. She argues women also value having a successful partner, a rich partner, more than men do. You can call that a bunch of gender stereotyping, and it is. But there's actually a lot of evidence that she's right—from Internet dating ads to sociobiology work. If women value both rich partners and jobs for themselves, the city provides both things.
Why is divorce underrated?
I just love the way one economist described it. He said, "We know there's an optimal rate of divorce, and we know it's not zero." Of course we'd prefer every marriage to be happy. It's [more about] the effect of the threat of divorce on a marriage. When divorce became easier, you found a decline in domestic violence and female suicide even though the divorce rate didn't really change. If the husband knew the wife could walk out, it seemed to have an important effect on the way he behaved.
What's "logical" about racism?
Thomas Schelling wrote about the economics of racial segregation—not the financial aspect of it but the incentives behind it. He observed that you could easily get segregation among people who say they prefer an integrated neighborhood. People want a mix, but they don't want to be surrounded by people of a different color or who speak a different language. Those fairly mild preferences can cause a chain reaction [resulting in] a completely segregated neighborhood.
What about changing incentives for racist employers?
One thing that's slightly hopeful in economic analysis is that the more competitive a market is, the harder it is to get away with racism, not for any higher motive than profit. If you're running a company and find low-level managers are passing over quality applicants because of the color of their skin, these guys are costing you money. There's more data now. You're going to be able to find people making bad hiring decisions—bad as in morally wrong and bad as in just dumb business decisions.
If political considerations were absent, what big societal problem could economics solve or go a long way toward improving?
Congestion is a straightforward problem, and economics has a straightforward solution. If you raise the price of driving in rush hour, then people will be more discriminating about when to drive. You could shape people's behavior, and we'd almost all be better off. It's just one of the things almost every economist would agree is a wonderful idea, because people are rational and respond to incentives.