Basic Instincts: Human Nature and the New Economics [Paperback]

I love this book, it is very easy to read and very well written. I never read about economics and I enjoyed this book.

As a teacher of A-level economics (and university level, though I am not an ivory tower academic the author denigrates - I have been in business most of my life) I have for many years been drawn to the idea that it is people's behaviour which is at the root of many economic problems and sadly behavioural economics was not around when I studied. I was seeking a good introduction to the subject both to advance my own knowledge and to recommend to my students. Sadly, this book is not it.

The author will undoubtedly win many converts with this book, simply because it is brilliantly written. The odd split infinitive aside (for those who worry about such things) the author is particularly good at conveying many of the `tools' of behavioural economics in a way which can be understood by anyone, devoid of technical jargon. His descriptions of the mythical Marketopia and Muddleton are splendidly crafted and the book is liberally sprinkled with amusing anecdotes, fascinating stories and little-known facts from history.

But as I read on, waiting for how human behaviour relates to spending booms and recessions, for example, the book simply became an attack, sometimes almost bitter, on what the author terms `conventional economics'. And I found this less than convincing. The author is guilty of taking isolated examples and using them to conclude that everything is wrong with market theory. Only once do I recall him begrudgingly admit that many markets do work well most of the time, and then most of the attack is on the model of `perfect competition'. Worse, the author may be implying that people behave irrationally by, eg buying designer labels, which is not at odds with economic theory. If the consumer gets value (derives maximum utility in the jargon) by certain spending patterns, it cannot be said to be irrational, whatever anyone else thinks.

What is more disappointing, is that there is little new in some of these `revelations'. The concept of imperfect markets has been around since the 1930s, Adam Smith noted over 200 years ago that an individual's choice of work was not dependent solely on the wage, and long forgotten textbook authors were describing impulse buying, advertising persuasion, imperfect knowledge and many other criticisms when I was a student. Keynes, of course, referred to `animal spirits' yet this warrants barely a few paragraphs.

I was also more than intrigued at the author's use of data to support his claims, for example when comparing living standards of national economies. Admittedly, and mercifully, he does not plague us with tables of data, but I did wonder whether he was guilty of the very confirmation bias (selective use of data) he describes as a flaw. I also had a wry chuckle when he suggested (somewhat tongue in cheek) a tax on marketing - his description of how this would correct markets was based purely on conventional economic theory!

There are numerous other areas for dispute but, to me, behavioural economics does not have to undermine existing theory. That markets reflect changing patterns of demand and supply, be they rational or irrational (at least in the `short run'), need not be in dispute; behavioural economics has a major role to play in analysing those sometimes violent irrational swings. Behavioural economics can integrate seamlessly and harmoniously into economic theory without seeking to replace it, as the author would have.

So, it is a good read but, for me, the search goes on. It is an area I wish I could have studied and which I would recommend to certain students, as I firmly believe it is our own behaviour - that of governments, business and individuals - which can explain many of our economic problems, particularly spending booms and the subsequent hangovers which have littered history. But it is not to found in the detail of isolated examples.

Incidentally, quite apart from whether you agree with the author or not, this is not a book I would recommend for A-level students. Rightly or wrongly, they are being tested on `conventional' economics, and having something undermining their understanding might be confusing at that stage. Best to leave it until after they have taken their exams!

Lunn's book was a real eye opener. Reveals why we buy what we buy and sell what we sell. Very well explained, very clever and quite fun book about economic behaviour. Well worth the price or is that just the title making me say that!?!?!