Tuesday, April 1, 2008

Why Economics Explains Almost Everything. - Book review.

Book Cover

The Economic Naturalist - Why Economics explains almost everything by Robert H. Frank

The Economic naturalist is another book in the genre of what might be called 'popular economics'. Although this formula of applied Economics has been used many times before, I feel this offers a useful addition to the growing genre of applied economics.

It is based on questions asked by first year students of Robert Frank's economic course.

The thing I like about the book is the quantity and diversity of questions and corresponding answers. There is little in the way of complex terminology, most answers rely on simple concepts such as opportunity cost and cost benefit principles. The answers are also quite short and to the point. On some occasions it leaves you thinking that there are many other possibilities as well. But, the important thing is that it generates a wealth of thought provoking ideas related to economics principles; the questions and answers would be just as interesting to non economists as economists.

Examples from the Economic Naturalist
  • Why Do Animal Rights activists Target fur-wearing women but leave leather clad bikers well alone?
Some answers suggested:
  1. The physical and evolutionary advantages of harassing old women versus burly bikers.
  2. The total number of animals it takes to make a fur coast versus a leather jacket. "Perhaps animal activists feel, in a finite world with limited time and resources, they should strategically target the activities that abuse the most animals."
  3. The cost benefit analysis of gaining converts to their cause as opposed to the cost of alienating people.
Some of the questions themselves are intriguing:
  1. If attractive people are more intelligent than others, and if blondes are considered more attractive, why are there so many jokes about dumb blondes?
  2. Why is there so much mathematical formulism in Economics? - Similar principle to raising your voice at a party. With stiff competition for jobs, positions in economic departments were often awarded to the most impressive use of mathematics. Thus, the bar was always been raised. To get noticed it is necessary to use more and complex mathematical equations. Thus the mathematics becomes a signal for an economist's competence rather than being intrinsically helpful to solve the problem in question (I'm sure many economists would dispute this)
  3. Why Does the Practise of Splitting the Bill cause people to spend more at Restaurants? - When the bill is split the marginal cost to you of buying an extra garlic bread is very low. When the bill is split between 10 people, you only pay 10% of the cost. Therefore a £2 side order only costs an extra 20p; therefore, it seems cheap. If you pay for your meal directly you have to face the full £2 charge.
  • Of course, it depends on the person; some people will be very sensitive to putting additional costs onto their friends. If the bill is to be split there is a significant social 'faux pas' of spending on the most expensive items. This is an example of one idea that can vary depending on who is involved with the meal.
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