Irrational Economist_ Making Decisions in a Dangerous World - Erwann Michel-Kerjan [2]
The Irrational Economist aims to shed light on some important developments in decision making that have occurred in economics and other social sciences over the past few decades, including some of the most recent discoveries. Quite surprisingly, much of the knowledge developed in these fields has yet to be translated from research into actionable decisions in the real world. Our goal in this book is simple: to provide this knowledge in a condensed fashion to help people make better decisions in a world that seems to become more and more uncertain—if not more dangerous—as time passes.
This last statement may seem controversial. Conventional wisdom holds that crises and catastrophes are not new and that the world has seen many great dangers before. The twentieth century alone witnessed one of the deadliest five-year periods in human history: Between 1914 and 1918, World War I killed over 15 million people. And as the war ended, the 1918-1919 influenza pandemic (commonly referred to as the Spanish flu) spread to nearly every part of the world. The flu killed over 50 million, more than the toll of the Black Death in the fourteenth century. Wars and natural disasters have indeed devastated many parts of the world throughout history. Since the industrial revolution, new types of technological risks and deadly weapons have also emerged.
But one of the hallmarks of the twenty-first century will likely be more and more unthinkable events, previously unseen contexts, and pressure to react extremely quickly, even when we cannot predict the cascading impact our actions might have.
That is because the world has been evolving at an accelerating speed. Physical frontiers between economies are disappearing, as described by Thomas Friedman in his best-selling book, The World Is Flat. Increasingly widespread social and economic activities have turned our planet into an interdependent village. Communication costs are close to zero, goods and people travel faster and more cheaply than ever before, and knowledge is shared with unprecedented ease on the Internet and through emerging social networks. There are many benefits to this process.
Yet the flip side of this extraordinary transformation has been somewhat underappreciated: Actions taken or risks materializing 5,000 miles away can affect any of us very soon thereafter. Viruses fly business class, too! The financial turmoil that started in 2008 is another example; this blew up the theory of decoupling long supported by many theorists who thought a reduction in the United States’ or China’s economic growth would not severely affect the rest of the world. Well, as we now know, it did—with profound consequences. We are all interconnected.
The litany of global interdependent risks is almost endless. Events that have surfaced prominently on the social, economic, and political fronts in many countries just since the beginning of 2001 are eye-opening: terrorist attacks; financial crises; global warming; scarcity of water and other resources; hurricanes, floods, tsunamis, heat waves, droughts, earthquakes, and wildfires unprecedented in scale and recurrence;1 failures of our aging critical infrastructures; 2 repeated genocides and local wars; nuclear threats; pandemics and new illnesses.
This list is long but hardly exhaustive: We trust that if you think for a moment about what is going wrong today, what you are afraid of, or you simply watch news TV, you shall soon add to this list. And as challenging as it is today on a planet with nearly 7 billion people, it is likely to be even more so as the population continues to grow; ever greater concentrations of people and assets at risk set the stage for truly devastating events to happen.
At the heart of the work that led to this somewhat unusual book is this question: Is the series of untoward events that have occurred since 2001 an omen of what the twenty-first