The Drunkard's Walk

The is another one of those fascinating books that I would put into the category of "behavioural economics". To be fair, it probably has a much wider appeal than that and will be of interest to anyone interested in popular science.

The book provides fascinating insights into the way our brains are wired and the way that we process probability and randomness can lead us to misinterpret events. For example, if we take the three events below and ask people to rank them in order of their probability, they will often put C before A or B. Yet, statistically it is the least probable (based on both A and B have to happen so it is impossible for the probability to be less than A or B).

A. My company's profits will increase next year
B. The economic climate will improve next year
C. My company's profits will increase next year and the economic climate will improve next year

Why is this? As Mlodinow puts it "if the details we are given fit our mental picture of something then the more details in the scenario, the more real it seems and hence the more probable we consider it to be - even though any act of adding less than certain details to a conjecture makes the conjecture less probable".

Fascinating stuff! And this book is full of such examples based on our peculiarly human understanding of conditional probability and randomness. In fact, I got halfway through this book and found it amusing that I was finding conditional probability so interesting! Just goes to show how well written it is! Highly recommended.

Predictably Irrational

I just loved reading this book. It was the sort of book that you know by the time you get to the end of the first chapter that it is going to be a good read. This book doesn't disappoint.

Our irrational behaviours are neither random nor senseless - they are systematics and predictable. This book takes us through a set of experiments across a wide range to subject areas to prove the point. And it proves the point well. The material is presented in an engaged, and often humourous, style that makes the book very easy to read.

This analysis of irrational bevahiour (and it's impact on our decision making) is in direct contradiction to standard economic theory that assumes we all conform to simple rational rules (e.g. supply and demand). This book provides a new way of thinking about these behaviours and ultimately brings into question many of the assumptions that underlie traditional economic theory.

Take a look at the website that goes with the book. There are updates to much of the research as well as Dan's blog highlight how his analysis can be applied to current affairs.