The Inner Lives of Markets: How People Shape Them-And They Shape Us Hardcover – June 7, 2016
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Bright, accessible A thoughtful examination of the mechanics of our one-click world.” Kirkus Reviews
This book is essential reading for any non-economist who wants to understand how markets shape our world, including transformational marketplaces like Amazon, Airbnb, and eBay.” Reid Hoffman, chairman of LinkedIn
With great clarity and with many vivid examples, The Inner Lives of Markets explains how the postWorld War II worldly philosophers (i.e., economists) have reconceived the workings of our economic system. That reconception takes us far from the black and white of Adam Smith and Karl Marx; yet more interestingly, it is in many shades of gray.” George Akerlof, Nobel Laureate in Economics―-
About the Author
Tim Sullivan is the editorial director of Harvard Business Review Press and has worked at Basic Books, Portfolio, and Princeton University Press, where he helped build one of the most successful academic economics lists in the world.
- Publisher : PublicAffairs; 1st edition (June 7, 2016)
- Language : English
- Hardcover : 224 pages
- ISBN-10 : 1610394925
- ISBN-13 : 978-1610394925
- Item Weight : 15.9 ounces
- Dimensions : 6.5 x 1 x 9.75 inches
- Best Sellers Rank: #521,201 in Books (See Top 100 in Books)
- Customer Reviews:
Top reviews from the United States
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While I’m not an economist (MSc in Industrial Engineer and MBA), I did study some economics, and within my long reading lists I always include some books on economics (particularly behavioral economics), and many of the non-fiction bestsellers I read do touch on economics very frequently. Against this backdrop, there were a few things that I particularly loved about this book:
First, the historical accounts are superb, both regarding their unexpected originality (starting with the fascinating tale on the economic organization of POW camps) and beautiful narrative.
Second, I did learn a lot about topics which are so close to our daily lives and so prevalent in today’s markets, but about which I realized I was quite clueless. This includes the brilliant description of the evolution of auctions, and the economics of platforms which represent so much (and each day much more) of our personal transactions.
Finally, as someone who has seen it all across the 42 countries I frequently visit, I truly loved the authors' so balanced view between the extremists for and against absolutely free markets. This is an extremely relevant issue these days in the whole world, from developed to emerging markets, and I wish everyone were exposed to their so sensible perspective.
Top reviews from other countries
The authors of “Inner Lives of Markets” claim to have been inspired by a book they found at the MIT bookstore that contained “reprints of the most important physics papers of the twentieth century, together with […] what they accomplished and why they were important.”
What they have borrowed from this book is the structure, rather than the goal.
Their much higher aim is to guide you, based on their reading of some seminal post-WWII Economics papers, to the conclusion that HL Mencken’s qualification must be applied to the generally accepted axiom that markets can solve all our problems: yes, there usually is a market-based solution, but you have to adapt the theory to the particulars of the problem you are trying to solve.
They set the scene early on, explaining that markets can make the difference between life and death: Trading between POWs (using cigarettes as currency) saved the lives of thousands of prisoners of war in WWII. Prisoners in camps where no trading was allowed and camps that were run by senior officers were much more likely to die than prisoners who were allowed to trade their rations. “Markets work” is the message here.
From there the authors move on to a high-level discussion of how Samuelson ('70 Nobel), Arrow ('72) and Debreu ('83) brought rigor to the study of Economics, but I have no idea why this chapter is here. The rest of the book is nothing to do with them, it’s a guided tour of some papers that endeavored to stop us looking at the economy as a whole and brought us back to basics, so we can examine individual markets one at a time:
Akerlof’s ('01) work regarding lemons is hailed as a major breakthrough, but is also criticized as ultimately inadequate to actually describe what happens with used cars, a market that somehow manages to clear, to say nothing of eBay and airBnB making a splash, despite the massive information asymmetries that logic would dictate should have stopped them in their tracks.
Spence’s ('01) work on signalling is added to the mix, as an early theory providing a remedy to the asymmetric information problem that ought to plague markets. (Spence, btw, stopped doing economics more than 25 years ago and has found his true calling as an administrator in academia and Nobel Prize-accredited pundit)
The theoretically “most efficient” Vickerey ('96) auction (where the highest bidder in a sealed-bidding process pays the price submitted by the second-highest bidder) is discussed next, as an introduction to a long chapter that unveils some of the shortcomings of this type of market-clearing process and other types of auctions that address these potential shortcomings. Stories involving Goethe (they weren't doing the Literature Prize in the 19th century) and the trading of Japanese baseball players by American teams keep this interesting, if trivial.
A chapter follows on “platforms” such as the Visa payment system and medieval trade fairs, Expedia, eBay and LinkedIn, but its hero is economist Jean Tirole ('14), and the main point is they are all different and you can’t cover them all with one theory.
The point is made again when the authors (successfully, bravo!) take you through Shapley’s algorithm that produces “stable” couples of boys and girls for the prom (the kind that won’t leave a single couple glancing at each other from the opposite side of the dancefloor, but will still obviously leave the prom queen dancing with the captain of the football team), only to tell you that you need a guru like Alvin Roth ('12) to solve more complex matching problems such as assigning kids to schools in Boston (for the record, I think the authors get either the answer wrong or the explanation here) or swapping kidneys between donors.
The two penultimate chapters are a wash: one’s about how a committed socialist who worked for a food bank was delighted to work using an internal currency of “shares” to allocate corporate food donations to the most needy branches of the food bank; the other is about how sometimes you should perhaps put efficiency to one side and recalls an early Larry Summers (the committee's Antichrist at this point, but don't count him out) faux pas regarding the trading in waste between poor and rich countries. (If I understand this right, Summers took the flak for standing behind the work of one of his underlings on this one, so the authors need to get their story straight, but the point is well made)
In the final chapter, the authors introduce the concept of time: what’s good now may be bad later, but you may find that “bad” habits are difficult to drop. So to do business in a backwards place you may have to initially hire minors or pay some bribes, but once this locale has moved forward from an economic standpoint, what wins? It’s a question Andrei Shleifer (robbed in '13) posed and it is very deep indeed.
I wanted to love this book, but in the end I could not. I think its failure lies in the structure. It all would have stood much better if it had not been structured around the papers by the famous people. And I got sick of being told how important all these Nobel Prize winners were.
Indeed, most books that talk about Economics are full of references to the peers of the authors. If you read a book by a giant, he will be discussing the work of his fellow giants and if you read a book by an up-and-coming guy all references will be to the work of his sparring partners in the field and none of the names will mean anything to you, but that’s OK.
Not this book. All references here are either to Nobel Prize winners or to dead people, with special mention for the one point where the Venn diagram meets, an economist who was (unwittingly from the Swedish side) awarded the prize posthumously!
My mom once advised me in her oblique and roundabout way to stay away from girls who don’t seem to have any girlfriends. I never got to test her theory, but this is a book by economists who don’t seem to have any economist friends they’re comfortable talking about.
“The Inner Lives of Markets” has a tremendous premise: Put in the work and the market will reward you.
But the analysis is superficial, the average reader will not feel the “star power” of Akerlof or Spence and this book is at best OK reading for that “economics for poets” distributional requirement at BU where one of the authors teaches.
Which is a shame, because this is a story that’s crying out to be told.