WHAT THE BOOK SAYS

If humans are so clever, why do we smoke and gamble, or take drugs and fall in love? Is this really rational behaviour? And how come your idiot boss is so overpaid?
In fact, the behaviour of even the unlikeliest of individuals complies with economic logic, taking into account future costs and benefits, even we don’t quite realise it.
Rational choice theory affects most things, and can sit happily even with the most passionate emotions.
Most things can be explained: overpaid (apparently useless) bosses, proximity to neighbours, racism, and divorce decisions.
Rational people respond to incentives: when it becomes more costly to do something, they will tend to do less. In weighing up their choices, they will bear in mind the constraints on them, and their total budget. And they will consider the future consequences of present choices. This applies just as much to prostitutes and criminals as it does to anyone else.

WHAT’S GOOD ABOUT IT

The idea that everybody responds to incentives and consequences may have wider application than we think.
Game theory (Von Neumann) uses rational decision making to analyse every decision in a way that should lead to calmer, more beneficial decisions, but it is hard for the layperson to implement. Most of us just follow the ‘wisdom of crowds’ principle, but don’t adjust our guesses.
Human interactions are so shot through with ambiguity that they are better viewed as focal points (Schelling): where and when would two people who can’t talk meet each other in New York?
Tournament theory means that workers sabotage one another to win the top job: the bigger the boss’s pay, and the less they have to do to earn it, the bigger the motivation for everyone else to aim for it.
‘Egonomics’ is mental civil war: should I smoke or not? All humans wrestle with such conflict.
For every year that a woman delays having her first child, her lifetime earnings rise by 10%.
The ‘death of distance’ doesn’t make the world flatter, it makes it spikier, with evermore activity taking place in cities – centres of innovation and idea exchange.
The rate of technological progress is proportional to the world’s population – currently we should have a world-beating idea every two months (1 per billion people per year).