The Logic of Life: hidden calculations that shape our world

"An economist is a man who states the obvious in terms of the incomprehensible," US publisher Alfred A. Knopf famously said. Until recently, there was a widespread perception that economics books are always deathly dull theoretical tracts on big issues such as inflation or gross domestic products, accompanied by dizzyingly complicated graphs.

But FT columnist Tim Harford helped change that view with his previous bestseller, The Undercover Economist, which used everyday examples from cups of coffee to second-hand cars to explain basic theories, such as supply and demand and comparative advantage.

Harford's latest book also applies economics to everyday life, showing how rational choices govern everything from suburban sprawl to drug addiction. "If you do not understand the rational choices that underlie much of our behaviour, you cannot understand the world in which we live," he says. The book is "a fascinating study of how society is shaped by hidden pay-offs and punishments", says The Economist.

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There is rational calculation everywhere. Advertisements for nicotine patches and gum, for instance, have actually ended up encouraging teenagers to take up the habit. Since there are new ways to help them give up, they think the risk involved in starting to smoke is reduced. Prostitutes sometimes forego condoms because they have balanced the chances of contracting AIDS against the certainty of higher take-home pay. And your boss is overpaid because "the more grotesque his pay and the less he has to do to earn it, the bigger the motivation for you to work with the aim of being promoted to have what he has".

Huge bonuses work in a similar way; the idea is to foster ever-increasing competitiveness as the size of a worker's bonus depends on his relative performance. The so-called tournament-style bonus system motivates workers "very well indeed"; unfortunately, it motivates backstabbing too.

Harford also examines the cost-benefit analysis involved in the dating game, the "Marriage Supermarket", why neighbourhoods can become segregated along racial lines, why neighbourhoods with permanent residents have more road crossings, and which poker hands to bluff with. He "has a knack for explaining economic principles and problems in plain language and, even better, for making them fun", says The New York Times.

Harford looks at "shelf after shelf of the economics literature, but in such skilful hands it does not feel like a dutiful trip to the library", adds The Economist. His "command of the subject is such that even a well-schooled economist will discover much that is new".

The Logic of Life is published by Little, Brown.