Embedded Economics

To a lot of people, economics is the study of the economy–prices, unemployment, GNP, and a variety of other topics that are probably important, almost certainly boring. To some economists, myself among them, economics is a way of understanding behavior, relevant to not only prices and employment but marriage, crime, warfare, and much else. Its central assumption is rationality: Individuals have objectives and tend to choose the actions that best achieve them. It is not a perfect description of human behavior–I, for example, am not perfectly rational. But it may be the best way we have yet discovered of predicting the behavior of other people, especially ones we do not know well enough to fine tune our model by adding in their particular forms of irrationality.

One implication of this view of economics is that it need not be, quite often is not, boring. It includes topics such as the effect of polygyny or polyandry on the implicit price of a husband or wife. Also why armies run away, the defects of sub-game perfect equilibrium as an approach for dealing with small children, and why, after laws changed to make it easier for unmarried women to avoid having children, they started having more of them instead of fewer.  In one of my favorite examples of economics as both science and art, Gary Becker constructed an economic model of altruism from which he deduced the Rotten Kid Theorem, a proof of under what circumstances a rotten kid will or will not find it in his rational self interest to kick his little sister. He also deduced a possible explanation for why altruism, the inclination to benefit others even at some cost to yourself, has not been bred out of us by evolution.

Another implication is that economics does not have to be done by economists. It does not require academic training, let alone academic training in economics, to work out the implications of rational behavior. My father used to have a colleague, a prominent physicist, who would from time to time come into his office with an economic idea he had thought out for himself. It was usually an idea economists had worked out fifty or a hundred years earlier. But it was right.

Physicists can do economics. So can storytellers and poets, as this book demonstrates. It consists of short works of literature, mostly poems and stories, with interesting economic ideas embedded in them. Each is followed by an essay discussing, critiquing, expanding on the economic idea.

The book is not intended as a substitute for an economics textbook–readers who want to learn the core of economics, price theory, commonly mislabeled “microeconomics,” are directed to an earlier book of mine, Hidden Order. This one will, I hope, be used as a supplement, to make an economics course and the resulting discussions more interesting.

But it is also intended for readers who are simply looking for a collection of works worth reading, each followed by an economist’s thoughts on it.