Tim Harford is a very cool economist. His book describes how we humans are very rational in our choices, it’s just a question of understanding the incentives that drive those decisions. He comes to some interesting, fun and startling conclusions about the human condition through wonderful studies and exciting statistics. His is an evidence-based world from which we can learn much about overcoming our less helpful tendencies and cognitive biases.
I recommend reading his book, however if you want to get a flavour of the main themes, here they are:
The more floors in the buildings in a street the more dangerous it is. After controlling for race and class in the residents of a building, it can be seen that for every extra floor in the building, you are 2.5% more likely to be mugged or have your car stolen, a statistic that goes up to 25% after 10 floors. The theory is that people feel less like they are being observed so are therefore emboldened with the thought that they can get away with it.
He describes the tournament theory: you are rewarded relative to those around you, therefore you are more likely to make others look bad, and just work as hard as you need to to look better than others.
He describes why CEOs getting paid so much is not necessarily all bad: the guy at the top being paid more doesn’t motivate him to work harder; it motivates those under him to work harder so they can achieve that position, and this can still add value to a company even if people aren’t rewarded fairly for their work.
The amount of luck involved in achieving a good outcome in a particular kind of work perversely means that bonuses must be significantly higher for that role. So if 95% of the outcome of a job is down to hard work, and 5% down to luck, motivating a person with a bonus is easy – the bonus doesn’t need to be very high. However, if 95% of a job is luck and 5% is hard work then the worker would just put his feet up and wait for the money to come in. If however he were rewarded massively for that extra 5% he’d buckle down. This clearly has some interesting implications for certain unpopular sectors where very high bonuses are awarded.
We are motivated to work harder if we know a more productive colleague can see what we are doing – if a supermarket worker at a till knows that a faster colleague is behind them they are faster themselves.
On The Hunt For A Mate
The less men there are (for example; works the other way around too), the more likely it is that women will settle for a less good “deal” in terms of what they get out of the relationship, because there will always be another girl that will settle for a less good deal to get her man.
We don’t have absolute values about what we want in a partner; we choose the best from those available in the group. I’ve seen other studies around this from the analysis of speed dating statistics.
And now we get to the sensitive topics:
On Sexual Choices
It may taboo to discuss sexual orientation in such terms, but the evidence is there. If you are from a family that contains someone with HIV/AIDS, then you are less likely to be in a male homosexual relationship, and more likely to be in a lesbian relationship. A rational decision based on the first hand information you have of the disease. Male anal sex increases the likelihood of contracting HIV, and lesbian sex means it’s lower than heterosexual penetrative intercourse.
People may find it uncomfortable to read the phrase “rational racism”, but that doesn’t make it less truthful. If people actually find the balls to face facts and understand why they themselves can be racist, and take responsibility for that fact, the sooner we can get better at avoiding these things in our society.
Harford references some surprising studies that show how racist people are. For example one study found that resumes headed with stereotypically white names received 50% more interview requests than the same resumes with stereotypically black names. Sadly, he shows, this is because there is an economic advantage to some ‘”rational” discrimination in recruitment. Another proves how easy it is to engender a colour bias with a simple game, the implication being that it’s much more of a problem if such biases are entrenched over generations.
I challenge you to take this IAT test. Most people tend to say “not me”, however I’m humble enough to say that I did it and found that I have racial biases. If you pass with no racial tendencies, then you are part of a very small and special part of society, and I would like to know how you managed it. For the rest of us mere mortals we need to be aware of our biases in this regard and understand how to motivate and incentivise ourselves to beat them.
The good thing is that Harford present ways that we can beat racism that are proven to work empirically.
On Society And Innovation
So if we live in a society where earning money is rewarded rather than punished (with taxes or corruption), and private property and the rule of law is respected, then people will innovate and come up with great ideas. The economic viability of the idea is paramount. For example, he describes why the industrial revolution did so well in the UK: not because Britain had people who were more inventive or clever than other Europeans as some historians like to maintain, but because we had an easily available energy in the form of coal, and wages were significantly higher than the rest of Europe, so cotton mills, coke smelting, etc. were much more economically viable due to the resulting wage savings.
He finishes with what he admits is not an iron clad theory: that the number of ideas produced by humans, is directly proportional to the number of humans there are. Hence, as population has increased so has innovation.
The main theme is that we are entirely rational creatures, making logical choices given the incentives we have. The more we understand our biases and motivations, the better we can be for that knowledge, and the more we can influence ourselves to perform in better ways.