Book Review: Free Market Madness

Review of Peter A. Ubel (2009) Free Market Madness: Why human nature is at odds with economics  – and why it matters. Harvard Business Press, ISBN:9781422126097

Despite the title, this book sings the praises of the free market. However, it soundly debunks a libertarian free-market fundamentalism that draws its legitimacy from the rational-choice assumptions of economics.

The author is a medical doctor and decision scientist, not to mention an accessible writer. The book is based on many important scientific studies, including the author’s own research, so there’s a high fact-to-opinion ratio. In his medical work, Ubel sees first-hand the obesity crisis, the stressful conditions in which we make medical decisions and the inefficiency of a market medical system. This in turn shows the danger of believing that people always make decisions in their own best interest.

Other writers have criticised free-market economics for ignoring market failures (such as pollution) or for ignoring the moral dimension of decision-making. Ubel instead shows that rational-choice economics has been refuted – no, not by the financial crisis – by decades of behavioural research, in laboratory and real-world experiments on decision making. The fact is that the brain has many decision-making modules. Maybe one of them wants you above all to get fit, eat right and avoid diabetes, but when you are out shopping it’s a different module that chooses to buy the doughnuts.

Human behaviour responds to incentives, but as this book shows, incentives are not the whole story. There are framing effects, comparison effects, social pressure, and the many human quirks which are exploited by marketers to make you buy stuff you don’t really want. To rational-choice economists, incentives are the whole story, hence their theory of “rational addiction”, and Ubel shows what a fallacy this is.

Thaler and Sunstein’s “Nudge” has brought the policy implications of behavioural economics to public awareness. However, that book reflects the political atmosphere of the US where it’s beyond the pale to challenge that the individual knows best. As a result, it reads as oddly right-wing to a European audience. This isn’t the case with “Free Market Madness”. Ubel believes in life, liberty and the pursuit of happiness but doesn’t want us to sacrifice our happiness on the altar of freedom, like so many of his patients have. Ariely’s “Predictably Irrational” is more wide-ranging, but Ubel is more specific about where orthodox economics has gone wrong. All three books are valuable contributions and deserve to be read with each other, with Ubel’s in particular being a serious wake-up call to our political discussion.

Despite its significance, I can’t give this the highest rating because after an excellent first few chapters, the argument becomes more diffuse. He gives examples of how we make decisions irrationally, and how the free-market fundamentalists are ignoring the science, but it’s not structured as tightly as it could have been. Perhaps that’s pedantic: the book is persuasive enough to show me that some of my own beliefs, however appealing, were wrong.

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