You would expect economists, of all people, to understand supply and demand. And sure enough, when 2005’s bestselling Freakonomics revealed an unexpectedly strong demand for pop-economics books, economists duly stepped up the supply. The Undercover Economist, Tim Harford’s first book, was one of the better examples of the genre. It was a guide to the basics of classical economics that used everyday examples, from cups of coffee to secondhand cars, to explain the principles of supply and demand, the theory of comparative advantage, the ability of markets to reveal hidden preferences, the benefits of trade, and so on.

With The Logic of Life, Harford steps more clearly into Freakonomics territory. Where his previous book channelled the grand old men of the field, Adam Smith and David Ricardo, the new one draws upon the work of modern neoclassical economists, who have used their theories to analyse things that most people would not regard as part of economics, such as crime, sex, divorce and racism. This was what made Freakonomics such fun: it was a popular treatment of the work of Steven D Levitt, a self-styled “rogue” economist at the University of Chicago, who has used economic theory to examine such questions as why drug dealers live with their mothers, the relationship between abortion and crime, and whether sumo wrestlers cheat. Freakonomics limited itself to Levitt’s work, however, not least because he was its co-author. The great merit of The Logic of Life is that it can roam among the other big beasts of the field (such as Gary S Becker and Thomas C Schelling) as Harford uncovers “the new economics of everything”.

Harford’s book opens with an arresting example: the economics of oral sex among American teenagers, which seems to have become more prevalent since the 1990s. Why? Harford explains that it is a rational choice for teenagers, who, subconsciously, are considering the costs, trade-offs and incentives. The emergence of HIV/Aids and more education about the dangers of sexually transmitted diseases have highlighted the risks of regular sex, and since teenagers want to have intercourse, it has made oral sex a more attractive alternative. Do libidinous teens really weigh up risks and benefits in this way? Evidence from sexual-health clinics indicates they do. An elegant study showed that when American states pass laws requiring parental notification or consent for teenage abortions, the gonorrhoea rate in this age group subsequently falls relative to the adult population. This suggests that teenagers do indeed respond to the new laws by having unprotected sex less often.

The Logic of Life applies the same analytical approach to a wide range of other questions. In each case, Harford presents an explanation for an apparently illogical or puzzling situation, and then shows how it can be tested using an artfully designed experiment or the clever use of statistical analysis. If the hero of Harford’s previous book was the power of markets, the hero in this case is “rational choice theory” – the idea that people act, in aggregate, in a rational way, choosing the best course of action in response to their preferences and the prevailing incentives and constraints. Although it sounds like a typically pointy-headed economist’s way of looking at the world, rational-choice theory does not assume that people make such choices consciously: expert poker players, for example, act as the theory predicts, even though they usually do so intuitively. And even though it seems not to leave room for emotion or human irrationality, the theory has genuine explanatory and predictive power.

Harford uses it to provide a convincing explanation of the complex relationship between women in the workforce and higher divorce rates. He also explains why there is a shortage of eligible bachelors in New York. That is what you would expect if men prefer good-looking women, and women prefer rich men. Since the rich men are disproportionately clustered in cities, you would expect to find lots of women there; and as rents rise, poorer and unskilled men should be more inclined to move out, or not move to the city in the first place. This is what the figures show: in 44 of 47 countries surveyed, there were more men than women in rural areas, and more women in the cities. In New York, there are 860,000 men aged between 20 and 34, but 910,000 women.

In a similar vein, Harford examines why it is difficult to give up smoking, why back-stabbing in the office is logical and why corporate bosses are overpaid, why neighbourhoods can easily end up segregated along racial lines, why politicians pander to special-interest groups, and how the accumulation of rational decisions, even though it can sometimes produce perverse results, leads to economic growth. The Logic of Life is an enjoyable read, and Harford presents complex arguments with unfailing clarity and wit. If his book has a failing, it is that it does not say much about the limitations of rational-choice theory, and the areas in which people do not seem to act rationally, even in aggregate. But perhaps, since Harford’s aim is to demonstrate the theory’s many merits, that was a rational choice.

THE LOGIC OF LIFE: Uncovering the New Economics of Everything by Tim Harford
Little, Brown £12.99 pp263

Available at the Books First price of £17.09 (inc p&p) on 0870 165 8585

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