Monday, November 26, 2012

This Week's Book: Priceless

I met a couple interesting benchmarks this week. This is the first time I've started a book for Book a Week before the week in question began (I started this one on Saturday evening). I'd previously had a rule against that, but after seeing how late I could read books in the summer, why not allow this? The important thing is that fifty-second book will be read by the end of the year. The other accomplishment is that this is the earliest in the week I've completed a book. Before this, it was The Satanic Bible, finished on the Wednesday of its week.

I think I'm about done for anything behavioural this year. Interesting read.

November 25-December 1: Priceless: The Myth of Fair Value by William Poundstone

Non-Fiction (2010 - 288 pp.) 

Priceless: The Myth of Fair Value adds to the growing stash of general interest material in behavioural decision theory. Much of this work is by psychologists or economists, but Priceless is by a professional writer. The best comparison would be Malcolm Gladwell's Blink. This perspective is interesting in that William Poundstone is able to report of others' theories without advancing any of his own, so his fifty-seven snippets are anecdotes about a subject rather than forays into it. The format fits the book nicely. The question the book asks is: how are prices set, and why do we keep falling for them? 

The first part of the book is a recap of any book dealing with behavioural decision theory. Some of those books are referenced in this list (Thinking, Fast and SlowPredictably Irrational) and they all have largely the same messages about phenomena like anchoring, the endowment effect, and other classic staples of the discipline. Having read a few of the articles during my education, I would recommend skipping straight to those if you already know why people will pay less for tickets than they would want in return for them. 

The highlight of Priceless is the substantial material on psychophysics, a field with which I was unfamiliar prior to reading. The connection between sensory perception and physical sensation is far outside of any of the social sciences training I have received, yet it is among the most interesting psychology-related subdisciplines I could have imagined. How far does a floor need to move before someone standing on it notices? What if the person is concentrating on something else and has no idea what is about to occur? Questions like these surface in various parts ofPriceless. Their connections to marketers' pricing schemes vary. The quality of the anecdotes is universally high. 

My problems with the portrayal of the ultimatum game could take up an entire entry and more. In light of this, it is too bad so much of the book considers the ultimatum game. Regardless, the ultimatum game responses make plenty of sense in a game theoretic context, with a general veto being the equivalent of a fight response in a first-entry deterrence game. The veto is not an irrational, emotional response; it is a reasoned method of threatening the proposer with punishment. Aside from this and similar issues, the constant "economists are all wrong" diatribe is worn and was never true. Chapter 9's anecdote about Maurice Allais and Milton Friedman demonstrates this quite handily. Some of the studies inPriceless leave much to be desired, but Poundstone was in no position to conduct them. Most of the studies were very interesting, though. 

An enjoyable read for those interested in behavioural decision theory. Books like these make me suspect I have a streak of the dreaded homo economicus in me. 

Ease of Reading: 7 
Educational Content: 6

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