▸ economics

Read: The Calculus of Selfishness

Karl Sigmund's The Calculus of Selfishness applies basic evolutionary game theory to the analysis of cooperation in strategic interactions. Though it is published in the Princeton Series in Theoretical and Computational Biology it is rather addressed to social scientist, economist and psychologist, and in particular undergraduates.

The Calculus starts simple enough and Sigmund introduces whatever mathematics he needs without being too formal in his approach. For a text in applied math the book reads surprisingly well. However, it is still a book in applied math and I fear it is as such not really appealing to an undergraduate in the social sciences. Indeed, I do not believe there are many undergraduate economics students who would enjoy this book and not put it aside after the first few pages, the first chapter at the latest. While this may be a good example of a text in applied math it is not ‘‘good enough’’ for the nascent social scientist.

On the other hand, it is an excellent introductory text on the evolutionary game theory of cooperation, direct and indirect reciprocity, fairness, reputation, and trust. I only wished Sigmund would have expanded on structured interaction and the co-evolution of subpopulations. He only hints at what results would be obtained when one would look at these things more carefully.

I also particularly appreciate that each chapter ends with a briefly annotated list of references for further, in more depth, reading on the topic and the game theoretic approach that was introduced in the respective chapter. While the terse exposition of the chapter can only serve to raise one's interest these references are the real treasure trove of The Calculus of Selfishness.

Hence, while I would not recommend the book to any of my undergraduates in economics or social sciences I would happily point any graduate student in its direction.

Read: In the Beginning was the Command Line

In The Beginning was the Command Line, a manifest for the command interface published in 1999, is obviously dated. It cannot discuss any of the more recent developments in operating systems. Though I wonder whether there really is that much development that would be needed to discuss the essay's thesis. Or at least the essay's thesis as I see it. Stephenson has, of course, made many more observations and statements that one could discuss, that maybe would merit an update.

Stephenson has made some valid observation concerning the economics of software production and the particular cases of Microsoft, Apple, and Linux. These observations could even merit a discussion in an appropriate business information technology course at college. Yet, this is not what I would consider Stephenson's main insight. (And therefore I do not think that Birkel's 2004 update of the essay, essentially an annotated version, does add anything of substance. It just corrects a few factual errors that are irrelevant to the essay's insight.)

The main insight, I believe, is the classification of computer users, users of any product really, in two groups (or was this three?). There are the users who don't need to know. They run the applications. There are the users who want to know. They write the applications, they hack and produce a solution to a problem.

The first group of users may be sub-divided in more specific groups with different needs and demands, generating a continuum of users that may approach the second, much smaller group of expert users, the makers.

These two groups differ dramatically in their approach to use a computer. One group may be thankful for abstraction, simplification, and GUIfying. The other will want to use the command line interface, access the computer at a lower level, bend it to one's will (and will rant about the inferiority of MS Windows).

I (happily, proudly) admit that I – often, not always – want to know. And yes, I am still using the Command Line Interface. I feel so much more in control, so much faster in many tasks.

Thus, I think the lesson of Stephenson's essay is not the economics behind the software production at Microsoft, Apple, and for Linux. It's that, especially for software, a one-size-fits all does not exist and that feature wars may be detrimental to the final product's usability and quality. Maybe not necessarily due to the needs of the users but due to their different mind sets, their approach to software use.

Read: The Myth of the Rational Market

Slowly, very slowly I read through the backlog of books on my to-read-shelf. Justin Fox's The Myth of the Rational Market must have been on my shelf for about three years. I should have read it earlier. It's good.

The Myth of the Rational Market is an entertaining history of academic and applied finance. Fox links the events in the financial sector to financial innovations to changing schools of thought and to persons. The result is a vivid tour through the ups and downs of the stock market and an introduction to the various characters that shaped and challenged the scholar's view on the financial markets. I honestly enjoyed reading the book, seeing all those well known names of (dare I say) colleagues and their research.

Though there is, of course, a chapter on experimental economics and behavioral finance it is pleasantly little pop-sciency. Given the hype around behavioral economics during the past years this is anything but granted…

Not being from or in the US I also found the remarks about the distinction between economics departments and business schools – which encourages differences in approaches, research questions and rigor – interesting. Yes, there is a similar divide in content and academic ‘style’ in Germany, yet, we are most often part of the same academic unit and not separated by the design of the institution.

Read: Living Economics

Peter Boettke's Living Economics is an excellent collection of essays on the history of (austrian) economic thought and thinkers together with some more general remarks on the teaching and practice of economics.

As Boettke often summarizes the contribution to economics of a scholar's whole lifetime in only a few pages Living Economics requires (and deserves) the reader's undivided attention. (I have to admit that – I hope it was just due to me having a cold – I had to reread a few passages to fully grasp them.) It is well worth it and the reader is likely to be rewarded. It is obvious how passionate Boettke is about his profession.

I like the distinction between mainline and mainstream economics which allows Boettke to show the connections of the Austrian school to other streams of economics that follow the same or closely related lines, pulling the different streams closer together.

Yet, I would have preferred a more monolithic book. As it is a collection of essays there are some repetitions and the transitions between chapters (i.e. the essays) was often quite abrupt. On the other hand, this allowed me to put the book aside after an essay more easily and ponder on what I had just learned.

Read: Adapt

I really liked Tim Harford’s The Undercover Economist and The Logic of Life. His recent Adapt is good but not on par with his two other books.

The idea of failure as a driver of success it not new. Fail early, fail often, fail cheep is a well and long known slogan that sums up the gist of the book pretty well. Rapid prototyping (was hip when I learned programming) is a related development methodology that applies exactly this mantra to the development process.

Tim Harford presents a number of case studies, each focusing on a different aspect of the falling forward process. First, he shows how a lack of the willingness to adapt leads to devastating and utter failure. Then, how experimentation, the willingness to fail, can lead to success …eventually.

Each case study is linked to name. There is a face for each of the failures, trials, and successes. This helps to emotionally connect. You boo the rigid non-adaptors, you cheer the daring and successful adaptors. And this is where Tim Harford, at least from my perspective, fails. Adapt becomes an entry in the long list of self-improvement guidebooks.

By focusing so much on the extraordinary individuals, heros, and blockheads the more skeptic reader may get the feeling that Harford is talking about outliers, non-generalizable singular events (he is not; at one point he also cites and discusses a more rigorous study with lots of data; this gets completely lost later on). This is even more so as he mentions the same individual(s) over and over again at different places and in different contexts. It diminishes the credibility of main thesis. This is bad because I believe the idea of fail early, fail often, fail cheep to be good and true. I did not want to read a self-improvement book. A little bit more supporting data, a little bit more variation would have been nice.

A minor quarrel: why dispraise Hayek (I have the paperback edition) after using his work for supporting a point? What does this add to the thesis of the book?

Read: The Hesitant Hand

This week’s theme seems to be history… The Hesitant Hand is a history of economic thought, of the government’s role in the economy to tame (the consequences of) self-interest. It’s remarkable how the economists’ perception of government and its role in the economy changed over time (laissez-faire – only hope – the worst thing on earth – as good or bad as any other market participant). And it is also remarkable how today’s common perception of past economists is wrong, distorted, and attributing too extreme positions. Hence it is really great to have Medema giving this very instructive overview and setting the record straight.

I found it also interesting that the change within the profession can be accredited to so few individuals (of course, there is a supporting cast).

Reading The Hesitant Hand I felt that the history of economic thought should have a much larger part in today’s economics courses. Even, or especially in the introductory courses. It’s amazing what can be found in the writings of Smith, Marshall, or Robbins. So many things got lost, and so many things get re-discovered and are not attributed to the original thinkers. I certainly got a few very good quotes that I will use in class this fall. I may even add the book to the recommended readings list for the Introduction to Economics that I teach at Jacobs University.

Given that the government’s role seems now to be on par with the market institution, both market participants and government officials and bureaucrats are driven by the same motives and have the same capabilities, it will be indeed exciting to observe whether and how dropping the assumption of unconditional narrow self-interest as suggested by contemporary behavioral economics will impact the profession – and the role of government.

Read: What's the Use of Economics?

The most recent financial and economics crisis raised some serious concern about the usefulness of economics, its research agenda, and what and how it is taught at universities. Almost no one did see the crisis coming. And looking at Europe, there seems to be no perfect consensus on what are the best policy measures. (Admittedly, what is best depends on the goals and different policy recommendations may be a result of a difference in goals.) Last year, in February 2012, there was a small conference on teaching economics after the crisis. “What’s the Use of Economics?” is a kind of conference proceedings, a selection of short essays assessing the current state, the need for change, and possible routes for change by various attendants edited by Diane Coyle.

Of course, some of the essays are more and some are less useful; overall the book is just excellent.

One recurrent theme is the lack of historical knowledge imparted by most current economics programs. While I would be a fan of more (or at least, say, one) courses in the history of economic thought the authors would rather stress the importance of economic history. I can agree with that – as long as these course do not degenerate into some applied econometrics courses; they are great, too, yet not what is needed here.

A second notable theme concerns employability. What is taught in many programs is not necessarily what non-academic economists will need in their jobs. I also tend to agree here. Guilty as charged (even though I teach in a multidisciplinary program; a more multidisciplinary approach is also recommended in the book). Though this is, of course, a result of our self perception as academic economists: Do we train future academic researchers or ‘mere’ government economist? I guess most of us prefer to think – or hope – it is the first. The truth is mostly different and therefore there is indeed the need for some changes in the curriculum.

Read: Principled Agents?

Now to something completely different: Political Economy.

Besley's “Principled Agents?” is an attempt to unify a number of different principal agent models concerning the political decision maker, government, and voters. He discusses competing views of government and government failures, he analysis the effects of accountability, he analyses the impact of the political agency on public finance. And he does all this in a way that, I would argue, even an undergraduate would be able to follow and enjoy. He succeeds very well in this attempt to unify the general frame of his analyses.

Another distinctive feature of “Principled Agents?” is that it presents its analyses not only in a unified frame but it also takes a less extreme approach to the analysis of government than either the Samuelsonian welfare economics or the overly pessimistic public choice approach of Buchanan. Not all government officials are purely benevolent, not all government officials follow only their own interest.

What stopped me in my tracks, however, was his Final Comments. In the Final Comments Besley hints at interesting extensions. Among other things, he implicitly questions the institution of elections, at least for some level and part of government.

Once, the city states of Athens, Venice, and Florence have used lotteries instead of elections to select their councils. Do elections really select the best person for the job? Do we need to select “a best” person for such a position, with the selection always being tainted by imperfection? Should we not rather re-think the duties of the bureaucrat and the politician? Do we want a political elite, distinct from the general population, or do we want to maintain a unity of purpose, an egalitarian access, the widest possible access to public office? All questions that, I believe, are worthwhile to think about.

Read: The Art of Choosing

It really seems to become a popular exercise, writing up your research in a format suited for the mass market, writing a popular science book. While the secret to success for science journalists is to cram as many anecdotes as possible in a more or less organized way in between the covers of their book those original researchers that get noticed add a little of a personal touch, some private details to the mix. Or, if they are really successful they add a lot of personal stuff to complement their research results, to enlighten the reader with regard to their motivation and their personal process of doing research.

Sheena Iyengar of jam-sampling fame (PDF) belongs to this last group. Her The Art of Choosing is a remarkable re-telling of her research hand in hand with a telling of her story. Not only is her book, that is the chapters in her book more cast from the same mold as, for instance, Ariely’s The Upside of Irrationality, also her philosophy, her world view, and her conclusions from her research are much more appealing to me. Hence, she tells not just about the Art of Choosing, she tells about seeing choice where others may see only fate, destiny, or a pre-selected path. She writes about “freedom-to” and personal responsibility. Yet, at the same time, she also writes about (optimal) limits to choice, the need to delegate decisions in certain situations, and cultural differences in the benefits of choice.

This book is highly recommended.

Read: On Classical Economics

The nice thing about a (large) private collection of un-read books is that you can start immediately to read more of a topic as soon as your interest is turned towards that particular niche of you bookshelves.

After having read Robbins’ A history of economic thought I now turned to Sowell's On classical economics. What was a rather different experience.

On classical economics is a loose collection of independent essays that appear to have a common structure but actually have not. The first half of the essays deal with topics: philosophy, macroeconomics, microeconomics, and methodology of the classical economists; the second half focuses on individuals of the respective time period. Some of the essays are rather dated, the first were published in the 1970s. Though, since Sowell does not refer to (almost) any of the secondary literature on the topic – not in his older essays and not in the more recent ones that make up this collection – you just do not notice that they are from different periods. In fact, you do not notice that Sowell holds views on the topic that may differ substantially from those of the current majority of scholars (unless you already know about them). He just neglects all other research and focuses on the original works.

Consequently, opinions about the scholarly value of On classical economics may differ widely as can be seen in a number of reviews of the text (that can be found by a simple google search of the title). While, e.g., a J. Ahiakpor sees obvious deficiencies J. Ullmer and J. Berdell are much more enthusiastic about it.

I have mixed feelings. On one hand, I enjoyed reading the book (if you discount the enormous number of endnotes – I hate endnotes, I much prefer footnotes). On the other hand, the text is too driven by a single opinion and not balanced at all. Thus, you are forced to read more on the sub-topics and diverse classical authors to get the whole picture, the essence of their work and accomplishments. Further, the focus on dissenters of the classical economics of their time is rather biased and leads to a debasing of the accomplishments of classical economics.