THE INNER LIVES OF MARKETS

How economic theories power our market-driven lives.

Fisman (Chair, Behavioral Economics/Boston Univ.) and Harvard Business Review Press editorial director Sullivan, co-authors of The Org: The Underlying Logic of the Office (2013), show how key economic ideas of the past 50 years have given us “new forms of transacting,” most notably in the Internet marketplace (iTunes, Google, Uber, eBay and other e-commerce sites, etc.). In addition to well-known technological advances, “ideas that started in the academic study of economics…have had an outsized effect on how scarce goods are allocated—how, that is, we get the stuff that we want.” The authors’ bright, accessible account begins with the path-breaking research of British economist R.A. Radford, who in 1945 described a thriving POW–camp marketplace in Red Cross goods, and traces the postwar rise of mathematical modeling, which allows economists to make general predictions based on the specifics of any particular situation. Fisman and Sullivan consider the work of leading figures from Paul Samuelson to Kenneth Arrow and show how conceptual groundwork laid by Berkeley economist George Akerlof and his followers has allowed doctorate-level economists to help companies like eBay, Amazon, Airbnb, and Facebook to better compete in the marketplace. Among other things, readers learn how eBay auctions work; how increasingly common “platforms”—credit cards, Facebook, iPhones, etc.—bring together various groups to transact; and how the benefits of market efficiency are applied to the distribution of food among food banks and to such matchmaking challenges as admitting children to schools and connecting aspiring lawyers to clerkships. The authors caution that markets now reach so deeply into our lives that they can “transform” who we are. Market competition “can make us pay bribes, shirk on expenditures that would protect workers…and cut corners on product quality.” With a better understanding of innovations, write the authors, we can decide to what extent markets may need “a bit of help and oversight to perform their miracles of efficiency.”

A thoughtful examination of the mechanics of our one-click world.