Tim Harford - Dear Undercover Economist: The Very Best Letters From the Dear Economist Column

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Also by Tim Harford

The Undercover Economist

The Logic of Life

LITTLE, BROWN

Published by Hachette Digital 2009

Collection and Introduction copyright Tim Harford 2009 Individual Dear Economist columns copyright The Financial Times

Tim Harford has asserted his right to be identified as Author of this Work.

All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of the publisher, nor be otherwise circulated in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser.

A CIP catalogue record for this book is available from the British Library.

ISBN 978 0 7481 1202 9

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Hachette Digital
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To Fran

CONTENTS

Can Economics Make You Happier?

Love and Dating

Work, School and Money

Family Life

Food, Drink and Entertainment

Miscellaneous Queries

Introduction

Can Economics Make You Happier?

Economists might not be the first people you would think of to give you advice on parenting, the intricacies of etiquette or the dark arts of seduction. Even at best the economist can seem a remote figure: infinitely rational, untroubled by indecision or weakness of the will, a Spock-like creature too perfect to be able to relate to mere human concerns. At worst the economist can look like a social naf, if not an outright sociopath; a man (or occasionally a woman) who knows the price of everything and the value of nothing.

At least such is the traditional image of the economist; and who is Dear Economist to disappoint? He is not, it would be fair to say, as sympathetic as more traditional agony aunts. He is blunt. He is rude. He loves jargon. When confronted with a woman who enjoys the dating game but worries that she might leave it too late to settle down, Dear Economist offers not a shoulder to cry on but a frank explanation of optimal experimentation theory. When a dinner party guest wonders how much to spend on a bottle of wine, Dear Economist ignores the Good Wine Guide and reaches for the Journal of Wine Economics.

And yet his advice can be surprisingly sound. In the six years since the Financial Times entrusted me with the awesome responsibility of answering letters to Dear Economist, I have even whisper it been known to take some of his counsel myself.

This shouldnt be surprising. While Dear Economists bedside manner may leave something to be desired, economics itself is instinct to strip away social niceties and model problems simply can succeed in providing just the kind of no-nonsense counsel we expect from any good advice column. And modern economics is far removed from its traditional image. It is no longer dominated by unworldly mathematical supermen but by streetwise statistical detectives, and the debate between behavioural economists and rational choice theorists is throwing ever more light on what rational economic behaviour looks like when people behave less like Mr Spock and more like Homer Simpson.

As a result modern economists understand much about both how we should behave and how we sometimes fall short. If anyone is going to dispense advice with the supreme confidence of the super-rational know-it-all, who better than an economist?

Should I Fake My Orgasms?

Love and Dating

It is not for nothing that sex, dating and relationships have traditionally formed the staple of the agony column. Wise words on these subjects are not easy to find. Not many people want to ask their parents for tips about losing their virginity. It is no less embarrassing to seek the opinions of colleagues as one contemplates an extra-marital affair. We know that envious friends may not always give us impartial advice when we wonder whether we have, at last, found the one. What could be more welcome in such cases, then, than the cool counsel of economic rationality?

Economists, it is true, do not generally enjoy a reputation as lotharios unsurprisingly, when the economists response to the delicate question of faking orgasms is to reach for the analytical framework of a two-player signalling game. But economists do not dismiss love. On the contrary, we are unorthodox experts in the romantic arts. Economists understand decision-making in the face of uncertainty. We understand the dangerous blandishments of cheap talk and the value of binding commitments.

Above all, economists understand the concept of non-zero-sum games, interactions in which both sides can expect to benefit from the bargain. When it comes to love, you could even say that we economists are optimists.

My boyfriend and I have been seeing each other for a while, and last month he moved in with me. It seems sensible for us to put his flat on the market, but hes suggesting that we wait a while in case things dont work out. What would you advise?

V.H., Leeds

Dear V.H.,

Modern living has made it so much more difficult to judge where you stand.

Mothers used to teach their daughters not to believe suitors promises that they would still love them in the morning. Then, commitment was made in the form of a marriage proposal. But then courts in the US stopped allowing women to sue for breach of promise the polite way of describing the actions of a cad who proposes marriage, beds his fiance, and then changes his mind. At that point it became traditional to back up those promises with diamonds, a girls best friend.

Times have moved on and it is much more difficult for both men and women to gauge their partners seriousness. But if you apply a spot of screening theory to your domestic situation you will discover exactly where you are. (Screening, the theory of which won enfant terrible Joe Stiglitz a share of the Nobel Prize in 2001, is the art of finding out hidden information by forcing people to act, rather than simply murmur sweet nothings.)

If your boyfriend is enjoying the perks of living with you but lacks real commitment to your relationship, then he enjoys a high option value from owning a flat to which he can return. This is true even if he loves you but doubts the constancy of that love.

If, on the other hand, he is convinced that you will grow old together, the option value of a spare bachelor pad is minimal. The only reason for him to hold on to the flat is because he thinks its a good financial investment. Pundits can argue about compared with the loss of his soulmate.

To screen for your boyfriends type, you must demand that he sells his flat at once claim that the Financial Times has been predicting a fall in prices, if you wish.

The art of successful screening is to impose a demand that one type of person is unwilling to meet. You dont want to be sharing a house with that type of person, so put your foot down.

Yours credibly, The Undercover Economist

I have a Valentines Day problem.

I will be taking my sweetheart out for a romantic dinner and I know how it will conclude: Juliet will refuse dessert, Ill order a chocolate cake and she will proceed to eat most of it. I find it an infuriating habit. Can you offer me any advice?

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