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Wednesday, July 28, 2010

If You Only Read One Economics Books this Summer, Read this Book

The book, Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions by Dan Ariely, is one of the most fascinating, interesting, and informative books on economics. He is able to blend economics and psychology into a great read.

If you think you know about economics already, you may be right to a certain extent. For example, basic supply and demand works at all prices down to a penny, but once you drop from a penny to free (or what he call in the book FREE!), then economics is turned upside down. For example, did you know that attorneys would rather work for free than be paid $30 an hour?

He explains how relativity and comparisons affect our financial decisions (and personal decisions such as dating). He also talks about how compensation of gifts versus cash bonuses can make a big difference, and how it can affect employee morale. In addition, he also covers how ownership can affect the perceived value of the asset, and how it can vary widely from the perceived value of the non-owner. Did you know that the more expensive a medicine is, the more likely you will receive a positive benefit, even if it is the same medicine?

The nice feature about this book is that all the lessons he offers in the book are backed up by scientific experiments, that he has performed! He goes into detail about the experiments, without making it boring. Ariely talks about how the control groups and the experimental groups are set up, and even gives examples of a couple of the human guinea pigs for each of the experiments and what they experienced, and why they experienced it.

After the experiments are over, he thinks about the 'what-if's', and then performs follow-on experiments, and he tells you about the follow-on studies.

For an economics / psychology book, it is amazing how it holds your attention. I like the fact that he doesn't just tell you what he thinks; everything is back up with experimentation. I highly recommend that you read Predictably Irrational, Revised and Expanded Edition.

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