Becker’s Nobel lecture provides a good overview of his work and how he extended the traditional analysis of individual rational choice by incorporating a much richer class of attitudes, preferences, and calculations. In this lecture, he also shared his inspiration to apply the tools of economic analysis to crime. He was driving to an examination and was late. He realised that to arrive on time, he would need to park his car and risk a parking fine. He knew that enforcement was patchy so there was a chance of not getting a fine. He made a decision to risk a fine. The private benefits exceeded the costs!
Understanding these cost-benefit considerations and non-market interactions matters to economic and social policy. As he aptly said in one of the speeches at the Nobel Prize award: “the widespread poverty, misery and crises in many parts of the world, much of it unnecessary, are strong reminders that understanding economic and social laws can make an enormous contribution to the welfare of people.”
Daniel Finkelstein wrote an interesting article in The Times in which he stressed Becker’s contribution to the world of economics, by emphasising that economics is much broader than understanding how money moves in the economy and that it’s about: “understanding people’s incentives, and structuring social institutions in response to them”.
When I studied economics, I don't think I appreciated the extent of this imbalance. Furthermore, there is a lot to be done and said to address it beyond the scope of this post. Though I am with Becker that this is not about re-inventing economics and abandoning rationality, or as he put it eloquently: "no approach of comparable generality has yet been developed that offers serious competition to rational choice theory". The key test is the generality of the predictions that arise from rational choice.
So the Godfather of Freakonomics is not with us anymore. Finkelstein summed it up much better: “The world has lost one of its great thinkers. Fortunately, we still have the power of his thoughts.”
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