The Darwin Economy: Liberty, Competition, and the Common Good

257 Pages·2011·1.26 MB·English

by  Robert H. Frank

THE DARWIN ECONOMY

THE
DARWIN
ECONOMY
Liberty, Competition, and the Common Good
ROBERT H. FRANK
princeton university press
Princeton and Oxford
Copyright © 2011 by Robert H. Frank
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Library of Congress Cataloging- in- Publication Data
Frank, Robert H.
Th e Darwin economy : liberty, competition, and the common good /
Robert H. Frank.
p. cm.
Includes bibliographical references and index.
ISBN 978- 0- 691- 15319- 3 (hardback : alk. paper)
1. Free enterprise. 2. Competition. 3. Economics. I. Title.
HB95.F723 2011
330.12´2— dc23 2011017346
British Library Cataloging- in- Publication Data is available
Th is book has been composed in Minion with Knockout display by Princeton Editorial
Associates Inc., Scottsdale, Arizona
∞
Printed on acid- free paper.
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
For Tom and Karen Gilovich

CONTENTS
Preface ix
1 Paralysis 1
2 Darwin’s Wedge 16
3 No Cash on the Table 30
4 Starve the Beast— But Which One? 46
5 Putting the Positional Consumption Beast on a Diet 64
6 Perpetrators and Victims 84
7 Effi ciency Rules 100
8 “It’s Your Money . . .” 119
9 Success and Luck 140
10 Th e Great Trade- Off ? 157
11 Taxing Harmful Activities 172
12 Th e Libertarian’s Objections Reconsidered 194
Notes 217
Index 229

PREFACE
Behavioral economics has been the economics profession’s runaway
growth area of recent decades. Scholars in this area work largely at the
intersection of economics and psychology. Much of their attention has
focused on systematic biases in people’s judgments and decisions. As the late
Amos Tversky, a Stanford University psychologist and a founding father of
behavioral economics, liked to say, “My colleagues, they study artifi cial
intelligence. Me? I study natural stupidity.”
In the early 1980s, I taught one of the fi rst undergraduate courses in
behavioral economics. Because few students had heard of this nascent fi eld,
my fi rst challenge was to come up with a course title that might lure some to
enroll. In the end, I decided to call it “Departures from Rational Choice.”
Naturally, there was no standard syllabus then. Aft er much thought, I
decided to cover material under two broad headings: “Departures from
Rational Choice with Regret” and “Departures from Rational Choice with-
out Regret.”
Under the fi rst heading, I listed studies that document the many system-
atic cognitive errors to which people are prone. For example, although stan-
dard rational choice models say that people will ignore sunk costs (costs that
are beyond recovery at the moment of decision), such costs oft en infl uence
choices in conspicuous ways. Suppose you’re about to depart for a sporting
event or concert at an arena 50 miles away when an unexpected heavy snow-
storm begins. If your ticket is nonrefundable, your decision whether or not
to drive to the event should not be infl uenced by the amount you paid for it.
ix