|From dr_tr at Flickr Creative Commons|
I've been reading more books lately than I usually do, and I thought I'd share the ones I liked (and that have at least some angle on personal finance and wealth). I'll keep the reviews short, and please comment back with any books you'd like to recommend. I'm always looking for new ones to check out of the library.
Nudge: Improving Decisions about Health, Wealth and Happiness, by Richard Thaler and Cass Sunstein. The pivotal idea of the book is that classical economics views people as entirely rational and omniscient beings ("Econs"). But people are, of course, going to act like people ("Humans"), so each group is going to handle myriad, complicated choices differently. As such, simply providing more choices and giving everyone the freedom to choose (say, offering 1,000 choices of mutual funds in a 401k plan) is a great approach for Econs, but a bad approach for Humans. Humans need some form of choice architecture: a structure of available choices that simplifies, informs, and nudges people towards the "best" choice, without in any way removing freedom of choice. The authors term this approach "libertarian paternalism", a kind of terrible title (as they acknowledge) but it does capture the idea: preserve freedom, but care enough about humans to realize they may need some direction in choosing what they, themselves, would think is best. The book tackles ideas like 401k investment options, healthcare, gay marriage, and even school lunch menu architecture.
The New Geography of Jobs, by Enrico Moretti. Moretti posits that there is an economic gap between cities that are innovation hubs in certain industries (Bay Area for software, San Diego for biotech, New York for finance, etc.) and those that are not. All workers, from teachers to waiters, that live in those innovation hubs all enjoy higher wages from the industries: their rising tide lifts all ships. Over time, the gap between the "have" cities and the "have nots" is growing. As it relates to personal finance on a micro level, there seems to be little that is more important for American workers than the city that they choose to live in. Mobility is paramount. On a macro level, there seems to be nothing more important for America than finding educated workers able to fill the needs in our innovation hubs (to maintain the competitive edge our country currently has in these fields), either by educating our own or allowing highly educated immigrants to fill those needs. Either solution will do, as Moretti notes, but the former has a much brighter outcome for American workers.
The Price of Everything: Solving the Mystery of Why We Pay What We Do, by Eduardo Porter. Porter argues that all our choices, from big to small, are shaped by the prices of our available choices. When we decide whether or not to pay for the private school instead of the public school, the prices and benefits of each are weighed. We do the same when deciding to buy the cereal that's on sale rather than our regular go-to. Simple enough. But the process also happens in reverse: our choices illustrate a price we value something (or someone) at. When we decide to let our child ride a bike without a helmet instead of purchasing one at $30, increasing the miniscule chance they will suffer a fatal injury, we are effectively putting a price on his or her life. Morbid as it sounds, governments need to do this sort of calculation when deciding whether to provide foreign aid, or build up the levies around New Orleans. Porter takes a thought-provoking path through the world of prices, including that of happiness, work, faith, and the future. It is definitely worth a read.
And I'm currently reading The Myths of Happiness: What Should Make You Happy, but Doesn't, What Shouldn't Make You Happy, but Does, by Sonja Lyubomirsky. It's one of those books that has the potential to really change your life, because it challenges a lot of the commonly held beliefs about what makes us happy using scientific evidence that you know on some level must be true, even as your intuition says it cannot be. Over the next few weeks I'm going to take the findings on Lyubomirsky's chapters on Work and Money, apply them to my life, and write about it here. Greater happiness, here we come!