Anna Schetkina, NES graduate and PhD student at the Wharton School of the University of Pennsylvania, presents her favorite books on economics. They are as close to real life as possible, since Anna’s professional interests are in the field of marketing. The books she discusses are about people and their irrationality, as well as about finding a rational explanation for the strangest behavior. They are written vividly, describe real-life situations, and have stories about marketing tools and the most fascinating psychological experiments. Anna also suggests a book that can teach you to think like an economist. And after reading it, perhaps, you will not want to think in any other way.
Dan Ariely is one of the most influential scholars at the intersection of economics and psychology. He is known for ingenious experiments, clearly showing the distance between real people and conventional economic agents who thoroughly consider all their actions a hundred steps ahead and accurately weigh all benefits and costs. This series of three books is worth reading if you want to learn more about your own cognitive mistakes and how to deal with them, and maybe about better organizing your business. Dan Ariely's research is strongly inspired by business issues, and companies successfully implement his findings. But most importantly, this series is incredibly easy and fascinating to read. Even if you do not apply the author’s ideas in practice, you can always retell entertaining and real-life cases from these books to your friends. Ariely and his co-authors even received the Ig Nobel Prize in Medicine for showing that an expensive placebo works better than a cheap one.
The book Predictably Irrational tells us, among other things, about the role of social norms: participants of an experiment perform their task more willingly if you ask them for a favor or offer a Snickers bar rather than give them a small amount of money. By the way, if you offer them "Snickers for fifty cents", they will also perform badly. The Upside of Irrationality explains why we value our crookedly assembled Ikea cabinets so much (I have a bedside table at home, assembled with screws sticking outwards, but I will never exchange it for a different one). You can also learn how this strange effect is associated with soaring sales of dry mixes for cakes. They were not popular until one day egg powder was removed from their content, forcing people to add eggs to the mixture themselves: the cooking process became more complicated, the taste did not change, but sales spiked.
The Honest Truth About Dishonesty, the third book from the series, describes a funny experiment to determine the boundaries of human ethics. Dan Ariely and his co-authors left a few cans of coke and a few dollars in the refrigerator in a student dormitory, and came back to check them a week later. You can find out the result of the experiment (clear for anyone who happened to live in a student dorm) and details of subsequent research in the second chapter.
Ariely is not only a brilliant scholar, but also a great storyteller. My passion for behavioral economics (which eventually led me into marketing) began with his books and the lecture at NES in the fall of 2019, which I was lucky to attend.
Speaking about this series, it is impossible not to mention the scandal around one of the studies described in the third book. It was published in 2012. The authors conducted a field experiment together with a car insurance company. Auto owners were asked to submit their mileage on a special form. The results showed that if the checkbox "I hereby declare that the information provided is true and correct" was placed at the top of the form and not below it, people were less likely to cheat. In 2020, the scholars together with two other co-authors published another article in which they reported that they could not repeat this result with a different set of data. Finally in August 2021, a group of researchers published an article on DataColada, proving that the data of the original paper were falsified. All the authors have issued letters denying their involvement in the falsification. I think the article on DataColada, the answers and the discussion in the media well deserve reading as they provide a great example of the replication crisis (many studies are difficult or impossible to repeat), and show how academia is trying to get out of this crisis.
Stephen Landsburg is one of the economists who became famous largely for their popularization of economics. Following the traditions of the Chicago School of Economics, he stands for the application of economic principles and economic thinking in politics, law, environment protection, health, insurance, etc. His eloquent and sometimes harsh statements often draw criticism. And yet, his The Armchair Economist remains for many the first book that helps them to dive into economics and gets them fascinated by the unique view that economists have on our world. This happened to me seven years ago.
Interestingly, the book is literally the opposite of Ariely's works at its core. While Ariely tries to show how far common people are from any rational models, Landsburg shows that rationality can be found even in the strangest behavior. Why are there sold-outs and mile-long queues at rock concerts? Can't organizers just raise the ticket prices? Perhaps, the fact is that concert promoters earn a lot by selling merchandise like T-shirts and posters: adults won't buy them, but teenagers who can't pay much for a ticket, but are willing to stand in a very long line, will buy both. What is the reason for so many price tags that end in .99? Can't people actually understand that 999.99 is 1000, not 900? It may be the case that with the advent of cash registers, such price tags helped control sellers’ honesty. Instead of not registering the purchase at the checkout and keeping 1000 for themselves, cashiers have to return change by opening the cash register, and therefore ‘legalizing’ the purchase. In addition to the fascinating list of paradoxes of human behavior and unexpected rational explanations, this book introduces readers to the ideas that are so dear to the heart of any economist - the incentive problem, the principle of indifference, information asymmetry, and shows that we unknowingly face their consequences in our everyday life.
This book is very similar at its core to The Armchair Economist (even the titles are similar). There are no formulas, detailed descriptions of research or theories in it. You will not even find attempts to integrate an economic way of thinking into the universal philosophy of law and ethics. Instead, this book provides answers to really burning questions. Tim Harford is known as a journalist and podcast author, not as an economist. He has received several awards for economic journalism and knows exactly what questions to ask and what stories to tell so that it would be impossible to quit reading his book. Who gets the huge amounts of money that we overpay for a cup of coffee on our way to work? It turns out that it is not the owner of the coffee shop. Why are airport lounges so terrible? Why are there no tables on cheap trains? Why are private-label goods sold in supermarkets in such unattractive packaging? Tim Harford gives one answer to these three questions and at the same time tells a fascinating story about IBM simultaneously releasing two printers and selling the one with higher cost at a cheaper price. I should say that the range of topics discussed in this book is quite standard - price efficiency, information asymmetry, auctions, the importance of institutions, and it will hardly surprise someone who has already read several popular books on economics. And yet, for me, the sparkling humor and real-life examples make this book a must-read.
Robert Frank is professor of management and economics at Cornell University and an economics columnist. He is known for his brilliant academic and teaching achievements. In 2004, he received the Leontief Prize for Advancing the Frontiers of Economic Thought, the award for outstanding contributions to economic theory that address contemporary realities and support just and sustainable societies. The list of his contributions includes the areas of income inequality, conspicuous consumption, the role of emotions, social norms and altruism in decision-making, taxation and externalities, and many others. His productivity is obvious from the length of his curriculum vitae, having 22 pages of titles of books, articles and awards. The latter include numerous awards for teaching, where Robert Frank developed his own system of views. He believes that at the start of their education, students should not be loaded with formulas, graphs and problems. Instead, it is important to let them understand how economics can answer questions that at the first glance have nothing to do with it. NES Professor Andrey Bremzen followed this concept when he taught us the introductory course in microeconomics. At every lecture, he opened Robert Frank’s The Economic Naturalist on a random page and asked us a question from this book. Why the soda bottles are round and milk cartons are square? Why do car park payment machines have Braille script? Why taxis in New York are yellow, and in Ithaca they are of random colors? These questions really helped me not to lose touch with reality behind the wall of models and assumptions.
However, now I want to recommend not The Economic Naturalist but Passions Within Reason, which has been translated into Russian. The philosophy of this book occupies an interesting niche in the complex relationship between economics and emotions. Traditional microeconomic models tend to ignore emotions and social norms. Works in behavioral economics and decision theory describe people's deviations from "rationality", including those that are due to human emotions. This book does neither. It takes people's emotions for granted, embeds them in the (traditional for economists) concept of utility maximization and game theory, and then demonstrates how the model outcomes change. Suddenly it turns out that love is a solution to the commitment problem, and a vindictive character is a good protection from exploitation. Together with the author, you will apply economic analysis to the relationship market, to honesty and deception, self-control and reputation, morality and dignity. This book will also be an excellent introduction to evolutionary game theory, an interesting topic at the intersection of economics and biology. And yet, it should be said that this book is a little more demanding compared to Ariely's works, The Armchair Economist or The Undercover Economist. It requires the reader from time to time to deal with formulas, delve into models, or closely follow the explanation of a case. However, there is nothing too complicated or requiring special knowledge, while a fresh look at emotions and rationality is guaranteed.
This is one more book by Stephen Landsburg, which, unfortunately, has not been translated into Russian. It is a bachelor's textbook on microeconomics, a large and impressive volume as it should be. And it is the one that I used to prepare for the All-Russian Olympiad. I still think that this textbook is the best choice for the first serious taste of microeconomics. It offers a nice balance: thanks to numerous examples and lucid writing, it is almost as interesting and pleasant to read as popular literature, while graphs, problems and a supplement with the determination of all formulas help to thoroughly understand the material. The main advantage of this textbook is that illustrations are used to better explain all the topics: how the two curves relate, what is the meaning of the areas under the graphs, how to draw a price discrimination diagram. At the same time, the book covers a very wide range of topics: from information asymmetry to welfare theorems. Of course, it has all the traditional topics. Graphs are very helpful in linking formulas with all explanations, and after several weeks of practice, they would allow you to draw conclusions without even using formulas. I still have the reflex acquired from this book to draw a graph first when dealing with a problem.
Still, it should be noted that this textbook, like any other, has its limitations. It should hardly become the first book on economics in general: no matter how easy it is to read, it is still a textbook, quite an advanced one at that and assuming at least some minimal basic knowledge. On the other hand, using just this book will hardly be enough to prepare for an Olympiad or study at a university. It will give you basic knowledge, clarify difficult topics and illustrate everything with examples, but the most important part of microeconomics (as well as of mathematics) is independent problem solving. There are problems and very useful exercises in this edition, but there are not so many of them and they are usually not too difficult. However, if you want to take the first serious independent step into economics - and along the way learn about its unexpected connections with philosophy and law - you can hardly find a better guide.
This is also a textbook, but a much more unusual compared to the previous one. There are neither formulas, nor problems to solve, and there are very few graphs. The first edition was published back in 1973, and the Russian translation was released in the early nineties. Many cases described there, as well as some ideas, have long been outdated. Yet, this textbook is incredibly popular, especially in Russia, and there is a good reason for that. It contains an extremely large and concentrated dose of the "economic way of thinking". If you read this book long and carefully enough, and dutifully answer all the questions (of which there are plenty!), the phase transition is guaranteed. You will start thinking like an economist and will hardly be able to think in any other way.
Paul Heine considered teaching the most important part of his job. He even asked the University of Washington, where he worked, to be demoted from a tenure professor (a much more prestigious and highly paid position) to a senior lecturer in order to have more time to work with students. Throughout his life, he was a professor for about 15 000 students, not counting public lectures for a wide audience (just like his textbook, he was popular in the post-Soviet space). His teaching philosophy is based on the idea that economics does not provide answers. Instead, it offers a wide range of tools to explore a great variety of issues. The textbook follows this concept. Each chapter begins with a statement, for example, "You can often hear that our state will need more water in the next decade." Next comes a discussion of what is a necessity and a need, and concepts of cost and substitutes are introduced. The rest of the chapter is devoted to other examples and introduction to other related economic concepts and ideas, followed by a list of 40 questions. Many of the questions are based on real-life cases (why does a certain company say in its ads that its products are expensive?), some of them at first may seem abstract and philosophical (how does ignorance affect demand elasticity?). You will not find answers to these questions at the end of the book. Neither is there a manual with "suggested solutions". Following Heine's philosophy, you will have to give your own answers to these questions, and as you do that you will inevitably find that you have begun to think like an economist.