In Review

21 November 2008 16:37 BST

Basic Instincts: Human Nature and the New Economics by Pete Lunn

Published by Marshall Cavendish Business, out now, hardback, 290 pages, £19.99.

In a nutshell...

Why we do what we do explained

What's it all about?

Pete Lunn sets out why standard economics is all wrong, because we are human. He explains the theories about why we make the decisions we do and why these are often against the assumptions of standard economic models. In its place he lays forward the new study of behavioural economics.

This may sound dry, but the book is an engaging series of stories about why we make the decisions we do and why we seem to be irrational, and why surprisingly this is not irrational.

To download a guide to the book, click here

Who's it by?

Lunn is a former journalist and Newsnight reporter. However, he turned his back on news and became an economist in Dublin. Strangely he started out as a neuroscientist.

As an example...

"Compare smoking and taking exercise. Smokers could save money by buying in bulk, but buy smaller packets instead, in the hope it will reduce their smoking. In contrast, people buy access to gym equipment through large monthly or yearly subscriptions. Studies show this entices healthier future decisions, as higher initial payments increase frequency of use. In both cases, the size of the initial purchase is designed to control our fluctuating preferences."

What the others say

"A hugely enjoyable string of pearls." - Mail on Sunday

So is it any good?

This book changed my life.

Well, not quite changed my life, but did make me re-evaluate decisions I make in day to day life, from which cigarettes to smoke, where to shop and whether to have an extra beer or not.

But don't be confused. This is not a drunkard's guide to economics. The central argument is that many of the assumptions, which now seem to accepted as truth, about economics and so how governments run our lives and firms make decisions, are flawed. Assumptions about human
behaviour as self interested and searching for lowest price are core to standard economics, and Basic Instincts aims to set the case for the new study of behavioural economics, as a way to explain how we live.

The author takes us on a road from the shops we choose and why, through economic experiments and anecdotes to explain why supposed irrational behaviour is not so irrational. Core to the argument is the fact we can be MISLED (make Mistakes, less Informed, Surprised, have bad Luck, suffer predictable Events, or suffered Dishonest).

Along the way he looks at why football transfer fees rocket, auctions for public works end up going over-budget, why we end up spending too much shopping, why advertising defies traditional economic theory, why we ignore discounts and avoid extra charges, and monetary policy is explained thanks to the people of the Micronesian island of Yap.

Lunn also stops off at Coca-Cola, Gillette, Post-It notes, Danish Butter Cookies, iPhones and Wal-Mart. Later in the book Lunn moves to stake the case for a "new economics based on more accurate theory of our economic instincts", and the tone becomes a little needlessly messianic.

I really enjoyed the book, but its wider appeal is hard to gauge. Basic Instincts is far from dry and is compelling, interest and light in its tone. I studied economics, but outsiders needn't feel put off as Lunn brings an enthusiasm to the subject that carries the book along.

But it isn't quite freaky enough to break the boundaries and crossover as a mainstream read, which, I suppose, is a shame.

7.6783/10

Daniel Barnes

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How old was Pete Lunn when he earned his PhD?

a) 22
b) 24
c) 26

Email your answer to competitions@inthenews.co.uk with 'inthenews Basic Instincts competition' in the subject line.

This competition closes at midday on September 26th.

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