Derek Sivers

Discover Your Inner Economist - by Tyler Cowen

Discover Your Inner Economist - by Tyler Cowen

ISBN: 0452289637
Date read: 2009-10-19
How strongly I recommend it: 8/10
(See my list of 320+ books, for more.)

Go to the Amazon page for details and reviews.

Recommendations for the transactions of life. When to give to charity, what restaurants to choose, what insurance to buy, etc. He makes a rational case for these, often surprising, from an economics point of view.

my notes

You can pay to have a group of “artists” kidnap and then humiliate you.

In India it is possible to rent a crowd for your next public demonstration.

The central concept of economics is not money but rather incentives.
Quite simply, an incentive is anything that motivates human behavior, or encourages an individual to make one decision rather than another.
An incentive can be money, but it can also be a tip, a smile, or an act of praise.
An incentive can be a promise of lifelong devotion.

Good economists believe that we live our lives according to economic principles that anyone can understand.

With pieces placed on the board randomly, in no particular order, when asked to re-create the observed patterns, the masters did no better than the novices.
The masters were remembering the piece placements not by having flawless memories, but by recognizing familiar patterns.

We can use economics to expand our repertoire of “recognition chunks” for seeing patterns in human behavior.

Steven Levitt of Freakonomics fame made his name by studying statistics about unusual or under-explored walks of life, such as crime, real estate agents, and sumo wrestling.

The thirty-one U.N. diplomats from Norway and Sweden had no unpaid parking tickets over this period of time. Diplomats from Canada, Ireland, the Netherlands, the United Kingdom, and Japan also had no unpaid parking tickets. In contrast, Kuwaiti diplomats incurred more than 246 unpaid parking violations per diplomat. Egyptian diplomats were a distant second with a mere unpaid 139.6 violations per diplomat. The next eight worst violators, in order, were: Chad, Sudan, Bulgaria, Mozambique, Albania, Angola, Senegal, and Pakistan.

The higher a country ranks on indexes of domestic corruption, the higher the number of unpaid New York City parking tickets reaped by its U.N. diplomats.

Offer monetary rewards when performance at a task is highly responsive to extra effort.
Clerical work requires attentiveness. Filing papers in the right order is tedious, but it is within reach of most of us. We need only try to get it right. Pay us more for a good result and we will try harder.
This has been confirmed by laboratory experimentation.
Prizes and rewards also boost simple memory and recall skills, again provided the tasks are within the reach of most people.

Prizes also motivate individuals to spot typographical errors. For the reasonably literate this task is largely a matter of vigilance. Prizes and payments also induce individuals to endure more pain.

Criminals almost always perceived themselves to be in a situation of crisis.

Stressed people tend to conform more to social opinion. They feel out of control and so they look to groupthink and the security blanket of other people’s approval.

Too many external incentives can diminish internal motivations.

When rewards and penalties will motivate, especially for simple tasks, the quality of the person matters less. Hire a drudge and pay him a bonus to file those papers.
We should pay more for talent when bonuses and intrinsic motivation will work together for very high levels of effort and achievement.
In these cases social status reinforces rather than displaces monetary rewards. The drive to perform really matters.

The problem with Soviet communism was not just that healthy incentives were too weak, but also that bad incentives were too strong. For most people in the Soviet Union, the only way to have a decent life was to court the Communist Party.

The Soviet Union offered less scope for incentive-free behavior than does capitalism. A state-controlled economy led to less play, most of all in the realm of creating and implementing new business ideas. Play was pretty much restricted to close friendships and family relations. The result was less creativity and less personal human investment in making our world a better place.

Scarcity refers to the fact that most of what we want is not in free supply. Of course, some scarcities are more important than others. A good intuitive economist approaches a practical problem by asking “What is the relevant scarcity hindering a better outcome?”

In every room ask yourself which picture you would take home - if you could take just one - and why. This forces us to keep thinking critically about the displays. If the alarm system was shut down and the guards went away, should I carry home the Cezanne, the Manet, or the Renoir? In a room of Egyptian antiquities, which one caught my eye? And why? We should discuss the question with our companion.

At the end of the visit, ask which paintings stuck with you.

Museums are not put there to make you happy.

Donors do not want exactly what visitors want. Visitors want that the museum be fun and easy to use. Donors are more concerned that the museum confers status upon them in the arenas of high culture, high society, and perhaps high finance. Donors like fancy receptions, which is why museums hold them.

A tragedy of the commons occurs when individual actions, taken together, destroy the value of an asset or resource.

Who are the people who like just about everything, from Chinese pipa music to Bach to Algerian Rai to Stockhausen to bebop to 1920s blues?
They are either musical professionals or nerdy upper-middle-class professionals, usually with some experience living abroad.
That’s me. Sadly I am no less predictable than the Grand Rapids stoner.

Few of us escape the need to rebel against something. This is, as you might have guessed, a way of establishing a sense of being in control.

A story achieves force by linking past, present, and future events. Valuing our stories means giving credence to our past decisions and narratives; this means we will often honor sunk costs. Bygones are never truly bygones.
By honoring past investments, and our past cultural attachments, we are building up a narrative and a self-image.
Sometimes our current actions confer redemptive value on past actions and prove that our previous sacrifices were not in vain.
We go so far as to invent new ends, so we can see our earlier investments as part of a coherent pattern.

The psychological research on “status quo bias,” which shows that people tend to overvalue goods, services, and identities simply because they already own or possess them.

“Hard to get” is too easy for the losers to mimic.

An economic approach suggests we should insure only against catastrophes that would wipe us out.

We should refuse to buy most product warranties.

To get at a person’s real opinion, ask what she thinks everyone else believes.

When we talk about other people, we are often talking about ourselves, whether we know it or not.

Another trick for eliciting honest answers is simply to ask for advice. When people tell us what we should do, their true selves, true desires, and true worldviews come to light.

Counter-signaling. The Japanese business card doesn’t suggest the person does no business; on the contrary, he is so successful and important at his work that no introduction is needed.
Counter-signaling is when the very rich dress like bums.
Paradoxically, reporting good news can make a person look bad.
If we look anxious to reveal good news, our listeners assume that we don’t come by good news very often.
Or perhaps our listeners believe we consider the good news a stroke of marvelous luck.
Counter-signals work only because their users have, at some point in the past, engaged in prior signaling.

Who should engage in counter-signaling? I see a rough rule of thumb.
If a profession has a great deal of upside potential but low downside risk, counter-signaling should be common.

When it comes to getting things done, the biggest enemy for most of us is a day spent not writing, not a day spent writing too little.
If a person can write a page a day, that adds up to about a book a year, an enviable pace.

Our natural tendency is to want to feel that we are taking care of everybody. We will favor policies that give us this reassurance.
In the process we will often reject policies that take care of a greater number of people.

If presidents, prime ministers, and popes were the only individuals who felt “they mattered,” our world would collapse.
Similarly, if we are to expect the full energies and brilliance of our artists, they need to believe that their creative works are of earth-shattering social and aesthetic importance.

At a fancy restaurant the menu is well thought out. The time and attention of the kitchen are scarce. An item won’t be on the menu unless there is a good reason for its presence. If it sounds bad, it probably tastes especially good.

For those looking to take a food vacation, I have a recommendation.
Choose a country with a great deal of inequality. It sounds heartless, but look for a big gap between the rich and the poor. Iron bars on the windows and barbed wire on the fences, however bad for the residents or for your safety, are both good signs for the food.
The presence of a wealthy class of people, all other things equal, is good for food because the wealthy are a strong market for a tasty meal. That encourages quality food. But when we look at producers, a certain amount of poverty is, sad to say, likely to produce gourmet meals. The higher the level of wages at the bottom, the harder it is to employ labor to cook the food, prepare the raw ingredients, and serve and bus the tables. So the committed foodie should look to regions where some people are very rich and others are very poor. The poor people will end up cooking for the rich people.
My meals in Mexico, India, and Brazil are typically delicious and cheap.
Haiti, despite being the poorest country in the Western hemisphere, has some of the best food in the Caribbean.

Paternalistic laws cannot be adequately enforced, or those laws create harmful and counterproductive black markets.

Advice on overcoming self-control problems: cultivate a healthy self-image and a set of narratives about who you are and why it is important to contribute to society, rather than yielding to every temptation.

Cornell University researcher Robert Frank asked economics students to play a variety of games for monetary prizes. The rewards the student received depended on how much he or she was willing to play noncooperative strategies at the expense of competitors. In these games, the individuals who had studied economics behaved more selfishly and less cooperatively than the control group. Furthermore a given student, after studying economics, played more selfishly than before.

If you are going to give, pick the poor person who is expecting it least.
Give to Bengalis who are sleeping, Bengalis who are cooking, and Bengalis who are otherwise occupied doing something from normal life.
It is not hard to find very poor Bengalis engaged in all of these activities.
It is quite easy to find a Bengali sleeping under a piece of cardboard.
We will know we have picked the right person if the object of our generosity is totally surprised.
The surprise means he or she was not eating up valuable time and energy angling for a donation.

“Seed money” also encourages people to give more to charities.
Seed money refers to the practice of lining up major grants in advance, before announcing a “capital campaign” to raise a certain sum of money, often as high as $100 million or more.
The seed money shows that prestigious and wealthy donors are already committed to the cause.
When the initial seed money is high, the subsequent fund-raising tends to go very well.
One of List’s experiments found that raising seed money from 10 to 67 percent leads to a nearly sixfold increase in subsequent contributions.
Like a matching grant, seed money signals that the charity is part of a powerful and noble endeavor; the charity is the winning team, so to speak.

A number of charities have been buying and freeing slaves in Sudan. These activities sound virtuous, but there is a danger: if we buy out slaves, we bid up the price of slaves. In turn more victims will be enslaved.

For a long time economists have debated the best way to use speculation to discourage the development of a market.
The answer is counterintuitive, but it makes sense upon consideration: buy up a great deal of the item.
When other sellers are ready to take their profits, dump the entire stock on the market at once, thereby lowering the price.
Other market players will not receive much, if any, profit.
Once the existence of this strategy becomes known, the market will wither rather than flourish.

Why not leave the tip on another table, served by the same waiter, rather than on my table?
So for just a moment, I put the money down on the other table. I knew the same waiter would receive it.
But upon a very brief reflection I recoiled in horror and quickly grabbed the money back. That waiter would think I stiffed him. He would think badly of me. I realized I don’t care how much the waiter gets. But I did wish - strongly - to uphold my side of the dining bargain.