The Worldly Philosophers

I just finished the book The Worldly Philosophers which paints a historical portrait of some important names from economics and their ideas. The book covers:

- Adam Smith: The first to build a theory about the market and the powerful mechanism driven by self-interest and competition;

- Parson Malthus: Which saw the tendency for species to outstrip their means of subsistence, which would make progress pointless;

- David Ricardo: Which saw the landowner as the sole beneficiary of progress, through his monopoly on rent;

- John Stuart Mill: The economist which realised that once profit is realized, society should decide how to best distribute it;

- Karl Marx: Which saw the inevitable failure of capitalism and the great opposition between the capitalist and the employee;

- Thorstein Veblen: Who saw in the modern society the struggle between the leisure class and the worker class, with work itself being denigrated and making workers wish they ascend to the leisure class;

- John Maynard Keynes: The famous economist which saw economic depression as a spiral which could endure unless government would stimulate the economy through spending;

- Joseph Scumpeter: Which saw the innovation as the driver of capitalism and the collapse of capitalism once innovation is destroyed by bureaucratic management, among others.

The book paints a vivid historical picture of the lives of these men and the times in which they lived. This gives a good perspective from which to understand their ideas.

I wish Friedrich Hayek was included, in order to present the other major school of economics still important today.

When examining current political and economic debates, it is easy to see the basis for the current policy proposal in the economy theory of these great names in economics. This shown the great power of ideas to influence future generations, and gives a more subtle and long term way for improving society, not through direct action, but through insightful thought into how to organize a better world.

Predictably Irrational

Dan Ariely, in the book Predictably Irrational shows us how people are not just irrational, but irrational in a consistent way:

- adding an expensive option, increases sales of the moderate expensive one;

- we evaluate our income/wealth more as a relation to our peers than in actual numbers;

- anchoring on any information leads our estimations and old prices anchor us to new situations;

- a cost of zero, makes the item irrationally attractive, to the detriment of opportunity cost and other alternatives;

- social norms cannot be mixed with market norms;

- something for free makes us more altruistic than a low price;

- we underestimate the effect of arousal on our decisions;

- once we own something, we value it much more;

- we value having options more than those options give us;

- more expensive food, wine, placebos, have a better effect than cheap ones;

- expectation greatly influences our experience and enjoyment;

- procrastination can be addressed with imposed schedules (but not self-imposed variable ones);

- in order to achieve long-term goal, it must be tied to short-term rewards that compensate for the short-term effort.

It's fascinating to see how advances in psychology uncover hidden forces which guide us in predicable ways.

The honest truth about dishonesty

In the book The honest truth about dishonesty, author Dan Ariely, shows an interesting theory about honesty.

It seems that most people want to think of themselves as good honest people, but also want to benefit from cheating.

To achieve these conflicting goals people use rationalizations and the culture around them. This leads to most people cheating a little, with their combined effect dwarfing the cheating of the few big cheaters.

The book then shows how many different factors influence cheating behaviour:

Ability to rationalize, creativity, conflicts of interest, previous cheating, cognitive depletion, peer dishonesty, culture examples of dishonesty, helping others through cheating are factors which increase dishonesty.

The amount to be gained and the probability of being caught seem to have no effect.

RSA Animate Presentation of the ideas in the book.