• Tim Harford • Little, Brown • RRP $39.95
The apparent illogic of paying Disney Corporation CEO Michael Eisner US$800 million over 13 years is logical after all – at least Tim Harford, columnist for the Financial Times, economist author and champion of rational-choice theory thinks so.
To make his point about why bosses are logically overpaid and host of other seemingly bizarre but apparently logical human choices are made, he has written The Logic of Life – the rational economics of an irrational world.
Humans are, he suggests, rational creatures who respond to incentives and rewards. The choice, such as decision to smoke and risk cancer or, as shareholder, sit by and let your cash be spent on lavish executive pay that is only shakily connected with performance, might seem silly, but Harford argues, compellingly and entertainingly, that logic is at work.
This book is not pure economic or even strictly management reading. Harford rationalises the logic behind nearly everything in vogue, from the increasing incidence of oral sex to the flaccid performance of over-paid execs. It is, however, only view of life that particularly acute economist could turn into clever literature.
Harford trips from topic to topic. Halfway through he lights on the rationale behind megabuck salaries for frequently non-performing executives. It is all about what he calls workplace tournaments, in which tournament-style incentives make it perfectly rational for workers to stab each other in the back. They are simply responding rationally to incentives offered.
Tournament theory has stood the test of time. According to Harford it makes sense in perverse kind of way: “The more grotesque your boss’ pay, and the less he has to do to earn it, the bigger the motivation for you (the lower level manager) to work with the aim of being promoted to have what she has.”
Harford is well-honed writer, explaining economic principles and problems in plain language while also poking portion of fun at them. The scope and breadth of his arguments is compelling – from small-scale personal acts to explaining the logic behind elements of the industrial revolution and environmental politics.
The book offers refreshingly different way of looking at things – in the workplace and far beyond. For interest, enjoyment and intellectual stimulation it deserves four out of five. Also well written which makes it easy to tackle – despite the apparent complexity of the topic.
