At its core, economics is about making decisions. In the history of economic thought, great intellectual prowess has been exerted toward devising exquisite theories of optimal decision making in situations of constraint, risk, and scarcity. Yet not all of our choices are purely logical, and so there is a longstanding tension between those emphasizing the rational and irrational sides of human behavior. One strand develops formal models of rational utility maximizing while the other draws on what behavioral science has shown about our tendency to act irrationally.

In Risk, Choice, and Uncertainty, George G. Szpiro offers a new narrative of the three-century history of the study of decision making, tracing how crucial ideas have evolved and telling the stories of the thinkers who shaped the field. Szpiro examines economics from the early days of theories spun from anecdotal evidence to the rise of a discipline built around elegant mathematics through the past half century’s interest in describing how people actually behave. Considering the work of Locke, Bentham, Jevons, Walras, Friedman, Tversky and Kahneman, Thaler, and a range of other thinkers, he sheds light on the vast scope of discovery since Bernoulli first proposed a solution to the St. Petersburg Paradox. Presenting fundamental mathematical theories in easy-to-understand language, Risk, Choice, and Uncertainty is a revelatory history for readers seeking to grasp the grand sweep of economic thought.

Review

In Risk, Choice, and Uncertainty, George Szpiro presents a remarkably readable, nonmathematical account of the theory of choice between risky alternatives. -- Harry Markowitz, winner of the 1990 Nobel Prize in Economic Sciences

Risk, Choice, and Uncertainty is a masterpiece of intellectual biography. In his best book to date, Szpiro’s wit and stylish writing make the history of thinking about thinking both intriguing and accessible. -- Sylvia Nasar, author of Grand Pursuit: The Story of Economic Genius

Economic theory treats humans as "utility maximizers". But what is "utility"? 300 years ago, Daniel Bernoulli declared it as relative gain in wealth. Later it became an abstract scale for consistent preferences, but this postulated "rationality" has its own paradoxes and controversies as concerns actual behavior. George Szpiro's sweeping historical tour de force of this topic entertains, informs and delights. -- Bernhard von Stengel, Professor of Mathematics, game theorist, London School of Economics and Political Science

Risk, Choice, and Uncertainty is a well-organized and pleasantly written account of the history of economics seen through the lens of individual decision making, ranging from expected utility to prospect theory. It will be of interest to a lay audience and curious students alike. -- Maria Pia Paganelli, Trinity University

Presents a new approach to the history of economic thought, providing a study of how people make decisions. ― Journal of Economic Literature

Highly recommended. ― Choice

Table of Contents

Part I. Happiness and the Utility of Wealth

1. It All Began with A Paradox

2. More Is Better ...

3 .... at a Decreasing Rate

Part II. Mathematics Is the Queen of the Sciences ...

4. The Marginalist Triumvirate

5. Forgotten Precursors

6. Betting on One's Belief

7. Games Economists Play

8. Wobbly Curves

9. Comparing the Incomparable

Part Ill .... But Man Is the Measure of All Things

10. More Paradoxes

11. Good Enough

12. Sunk Costs, the Gambler's Fallacy, and Other Errors

13. Erroneous, Irrational, or Plain Dumb?

About the Author

George Szpiro (Ph.D., mathematical economics and finance, Hebrew University) has for the past thirty years worked as correspondent of the Swiss daily Neue Zürcher Zeitung, which has a readership of 500k. He is the author of Kepler’s Conjecture (John Wiley, 2003), Numbers Rule (Princeton University Press, 2010) and Pricing the Future (Basic Books 2011), among others.