Harford is a mecro-economist, a bridge between macro and micro economics. Harford explains macro-economic phenomena such as retail pricing, stock market behavior, taxation, health-care, environment, and licensing air-waves; by one-by-one getting inside the heads of each stake-holder on that poker table and dissecting their behavior in accordance with the first principles of economics: scarcity and choice. However, the insights only go as far as the developed world does. In the last 3 chapters where Harford tries to similarly explain the woes of the poor and developing worlds with examples of Cameroon, Belgium and China; his views quickly appear shallow and cliche, lacking the same wisdom as the rest of the book. 70% of the book is therefore a 5-star, and the rest is a 2-star.
With the Undercover Economist, Tim Harford de-mystifies the wiggling jelly of economics (where you cannot kill farm-destroying birds without suffering population explosion of farm-destroying insects and so on). What sound like conundrums are actually logical explanations of common-sense causal chains. For example, he explains that "more rational the behavior of stock market investors, the more erratic the behavior of the stock market becomes." I try to summarize: rational investors would buy shares today if it was obvious that they would go up tomorrow, but then everyone would buy today driving the price high enough so that it cannot go higher tomorrow. Rationality would obviously and consistently second-guess rationality, implying rationality cannot lead to predictable behaviour. The only thing left then is unpredictable news, which is a random event. This means that shares would behave like random walks. But if this was absolutely true, it would be a paradox, since rational investors would not invest in shares and only invest in predictable alternatives. The balancing point then lies somewhere in between. Harford then goes on to draw parallels with supermarket queues and how everyone tries to predict the fastest one, and a game of poker with players analyzing the outcome based on fundamentals yet betting based on their understanding of what the other players are thinking.
The book loses its panache, though, in trying to decipher globalization and the developed world through the "X-ray goggles of the undercover economist". Harford falls into the trap of taking the one-dimensional view of large developing countries (India and China in particular) as if they are obviously in a certain step in their evolution to become more and more like western developments. These simplifications might be half true, but hardly insightful. Statements of generalization based on anecdotes about either India or China is like generalizing about North and South Americas combined (a contiguous land-mass with about a billion people) or Europe and USA combined (the developed nations with about a billion people). Generalizations about India and China as an afterthought in the last couple of chapters lacked appreciation or perspective on the infinite diversity of the subject.
Except those week spots, a very readable economist with a fun and easy style. References to Nobel Laureates in Economics, and key theorems of importance would also make you keep going back to the book. This is one to keep.
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