From the book publisher
In this groundbreaking book, Tim Harford, the Undercover Economist, shows us a new and inspiring approach to solving the most pressing problems in our lives. When faced with complex situations, we have all become accustomed to looking to our leaders to set out a plan of action and blaze a path to success. Harford argues that today’s challenges simply cannot be tackled with ready-made solutions and expert opinion; the world has become far too unpredictable and profoundly complex. Instead, we must adapt.
Deftly weaving together psychology, evolutionary biology, anthropology, physics, and economics, along with the compelling story of hard-won lessons learned in the field, Harford makes a passionate case for the importance of adaptive trial and error in tackling issues such as climate change, poverty, and financial crises—as well as in fostering innovation and creativity in our business and personal lives.
From the book, Chapter 3
The following excerpt from the book discusses the Spitfire, the radical plane that saved Britain during WWII. It is so pithy and evocative I might as well quote it verbatim. A larger section of the book has been excerpted in the online magazine Slate. The business blog by Tim Kastelle and John Steen also has a good review of the book.
When we invest money now in the hope of payoffs later, we think in terms of a return on our investment—a few percent in a savings account, perhaps, or a higher but riskier reward from the stock market. What was the return on [the] investment of 10,000 pounds? Four hundred and thirty thousand people saved from the gas chambers, and denying Adolf Hitler the atomic bomb. The most calculating economist would hesitate to put a price on that.
Return on investment is simply not a useful way of thinking about new ideas and new technologies. It is impossible to estimate a percentage return on blue-sky research, and it is delusional even to try. Most new technologies fail completely. Most original ideas turn out either to be not original after all, or original for the very good reason that they are useless. And when an original idea does work, the returns can be too high to be sensibly measured. The Spitfire is one of countless examples of these unlikely ideas, which range from the sublime (the mathematician and gambler Gerolamo Cardano first explored the idea of “imaginary numbers” in 1545; these apparently useless curiosities later turned out to be essential for developing radio, television, and computing) to the ridiculous (in 1928, Alexander Fleming didn’t keep his laboratory clean and ended up discovering the world’s first antibiotic in a contaminated Petri dish).
We might be tempted to think of such projects as lottery tickets, because they pay off rarely and spectacularly. They’re rather better than that, in fact. Lotteries are a zero-sum game—all they do is redistribute existing resources, whereas research and development can make everyone better off. And unlike lottery tickets, bold innovation projects do not have a known payoff and a fixed probability of victory. Nassim Taleb, author of The Black Swan, calls such projects “positive black swans.”
Whatever we call them, such ventures present us with a headache. They are vital, because the payoff can be so enormous. But they are also frustrating and unpredictable. Usually they do not pay off at all. We cannot ignore them, and yet we cannot seem to manage them effectively either.
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