by Mario Rizzo
This is the time of the year that various publications recommend Christmas books or the best books of 2010. (I have never known what a Christmas — or summer — book is. Are they supposed to be light reading? I don’t believe in reading “light.” When I am in the mood for that, I watch TV.) In any event, I have a serious book to recommend.
Every so often a brilliant book comes out on a topic of great academic importance that is in danger of not getting the attention it deserves. I am thinking about Predictably Rational: In Search of Defenses for Rational Behavior in Economics by Richard B. McKenzie. I have never thought of McKenzie as a methodologist or theorist but as an excellent applied economist. This book shows clearly that he can be all of these things. (See his webpage here.)
The cover of McKenzie’s book looks a lot like Dan Ariely’s Predictably Irrational: The Hidden Forces That Shape Our Decisions. I am not sure if this was a wise decision by the publisher (Springer) or not. In some ways McKenzie’s book is an antidote to the Ariely perspective. But McKenzie’s book is more the book for economists. He writes in our language and addresses our issues. It is also methodologically more astute than Ariely’s book because McKenzie deals with the fundamental issue of whether we should want greater psychological realism in economics.
I am not going to try to summarize McKenzie’s conclusions because I have not yet finished the book but I already have read enough know that it is a highly insightful and important book. His treatment is from several perspectives: the history of economic thought, the philosophy of science, and recent developments in economics, especially behavioral and neureoconomics. (Take a look at the Table of Contents here.) Of particular interest to readers of this blog, he insightfully discusses the ideas of Mises, Hayek, Buchanan and the two Smiths.
I have become very interested in the topic of rationality in economics in the past few years. Some of the major challenges to the rationality postulate in standard economics have come from quarters advocating a new paternalism. They have argued that because individuals engage in systematic and predictably irrational behavior we cannot be sure that the free choices of these individuals will enhance their well-being. “Thus,” the state ought to incentivize (or nudge) behavior in a better direction.
As many readers of this blog know, Glen Whitman and I are writing a book for Cambridge University Press on the new paternalism. I expect that McKenzie’s book will be enormously helpful in this task. But for all economists it is vital to understand, better than we have, the role of the rational-behavior postulate in economics. McKenzie’s book is the place to explore the matter deeply.