A powerful way of looking at the market, of much use to investors and strategists.



What do we know about the way economies work? According to two British economists, less than we think.

As Donald Rumsfeld once observed, there are known knowns, known unknowns, and unknown unknowns, a vexation for the smartest strategist. Kay and King (The British Tax System, 1978) employ a like notion here: Although in economics there is a neat little concept called “perfect information,” and although pricing is assumed to incorporate shared knowledge, the governing principle of the real world is uncertainty—and most of the time, we don’t know what we don’t know. This “radical uncertainty” means that our understanding of the present is incomplete and of the future, even more fragmentary, meaning that economists are forced to rely on something akin to hunches. They must explain by way of “narrative reasoning…the most powerful mechanism for organizing our imperfect knowledge,” creating stories about the world that incorporate our experiences, the experiences of others, and such reliable data as we are able to assemble in a “world of uncertain futures and unpredictable consequences.” A repeated example throughout the book is the probabilistic assessment Barack Obama received when determining whether to launch the raid that killed Osama bin Laden: It wasn’t 100% sure that bin Laden was in that Pakistani compound, and a botched operation might have meant war. That things worked out as they did was by no means guaranteed, and neither is following the rules of economics: Supply and demand is a powerful explanatory tool, but it explains only so much about how people and markets behave. While a sophisticated knowledge of economic concepts is a desideratum for following the authors’ argument closely, many of their takeaways don’t require much expertise. “Never rely on data without asking ‘What is the source of this information?’ ” they counsel, helpfully, one of many dicta to help overcome the shadowy unknowns that elude us even with the benefit of hindsight, such as why recessions hit when they do.

A powerful way of looking at the market, of much use to investors and strategists.

Pub Date: March 17, 2020

ISBN: 978-1-324-00477-6

Page Count: 384

Publisher: Norton

Review Posted Online: Dec. 8, 2019

Kirkus Reviews Issue: Jan. 1, 2020

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Striking research showing the immense complexity of ordinary thought and revealing the identities of the gatekeepers in our...


A psychologist and Nobel Prize winner summarizes and synthesizes the recent decades of research on intuition and systematic thinking.

The author of several scholarly texts, Kahneman (Emeritus Psychology and Public Affairs/Princeton Univ.) now offers general readers not just the findings of psychological research but also a better understanding of how research questions arise and how scholars systematically frame and answer them. He begins with the distinction between System 1 and System 2 mental operations, the former referring to quick, automatic thought, the latter to more effortful, overt thinking. We rely heavily, writes, on System 1, resorting to the higher-energy System 2 only when we need or want to. Kahneman continually refers to System 2 as “lazy”: We don’t want to think rigorously about something. The author then explores the nuances of our two-system minds, showing how they perform in various situations. Psychological experiments have repeatedly revealed that our intuitions are generally wrong, that our assessments are based on biases and that our System 1 hates doubt and despises ambiguity. Kahneman largely avoids jargon; when he does use some (“heuristics,” for example), he argues that such terms really ought to join our everyday vocabulary. He reviews many fundamental concepts in psychology and statistics (regression to the mean, the narrative fallacy, the optimistic bias), showing how they relate to his overall concerns about how we think and why we make the decisions that we do. Some of the later chapters (dealing with risk-taking and statistics and probabilities) are denser than others (some readers may resent such demands on System 2!), but the passages that deal with the economic and political implications of the research are gripping.

Striking research showing the immense complexity of ordinary thought and revealing the identities of the gatekeepers in our minds.

Pub Date: Nov. 1, 2011

ISBN: 978-0-374-27563-1

Page Count: 512

Publisher: Farrar, Straus and Giroux

Review Posted Online: Sept. 4, 2011

Kirkus Reviews Issue: Sept. 15, 2011

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Occasionally wonky but overall a good case for how the dismal science can make the world less—well, dismal.


“Quality of life means more than just consumption”: Two MIT economists urge that a smarter, more politically aware economics be brought to bear on social issues.

It’s no secret, write Banerjee and Duflo (co-authors: Poor Economics: A Radical Rethinking of the Way To Fight Global Poverty, 2011), that “we seem to have fallen on hard times.” Immigration, trade, inequality, and taxation problems present themselves daily, and they seem to be intractable. Economics can be put to use in figuring out these big-issue questions. Data can be adduced, for example, to answer the question of whether immigration tends to suppress wages. The answer: “There is no evidence low-skilled migration to rich countries drives wage and employment down for the natives.” In fact, it opens up opportunities for those natives by freeing them to look for better work. The problem becomes thornier when it comes to the matter of free trade; as the authors observe, “left-behind people live in left-behind places,” which explains why regional poverty descended on Appalachia when so many manufacturing jobs left for China in the age of globalism, leaving behind not just left-behind people but also people ripe for exploitation by nationalist politicians. The authors add, interestingly, that the same thing occurred in parts of Germany, Spain, and Norway that fell victim to the “China shock.” In what they call a “slightly technical aside,” they build a case for addressing trade issues not with trade wars but with consumption taxes: “It makes no sense to ask agricultural workers to lose their jobs just so steelworkers can keep theirs, which is what tariffs accomplish.” Policymakers might want to consider such counsel, especially when it is coupled with the observation that free trade benefits workers in poor countries but punishes workers in rich ones.

Occasionally wonky but overall a good case for how the dismal science can make the world less—well, dismal.

Pub Date: Nov. 12, 2019

ISBN: 978-1-61039-950-0

Page Count: 432

Publisher: PublicAffairs

Review Posted Online: Aug. 29, 2019

Kirkus Reviews Issue: Sept. 15, 2019

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