Stephen Karlson (shkarlson) wrote in 50bookchallenge,
Stephen Karlson
shkarlson
50bookchallenge

DEALING WITH COSTLY INFORMATION.

Tim Harford's The Logic of Life: The Rational Economics of an Irrational World attempts to understand more challenging topics than The Undercover Economist. Book Review No. 23 suggests that the supporting material is not as carefully developed as was the case in Undercover Economist (or perhaps I'm more familiar with Undercover's supporting material). That noted, the book sheds light on a number of phenomena that appear strange if one's prior exposure to economics is to the principles style complete and perfect information (the distinction is important) economy. The chapter on business follies is instructive. (Whatever headquarters rewards, headquarters gets more of, and in a world of costly information, conflicts of interest between wealth-pursuing owners and emolument-pursuing administrators managers are inevitable, and winner-take-all tournaments with rewards out of proportion to productivity likely.) The chapters on residential self-segregation and the emergence of stereotypes, which Mr Harford refers to as "rational racism", are sobering. Agglomeration economies are non-trivial. There's more to come in an upcoming book review on that point.

Some of the stories call for further work. A mating market in which there are 19 identical men and 20 identical women leads to a Bertrand dissipation of all the gains from trade available to the women. Does that model generalize? Mr Harford doesn't tell us.

(Cross-posted to Cold Spring Shops.)
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