Lo: The Best Econ Book I’ve Read Recently

BY Business Desk  March 11, 2010 at 2:21 PM EST

Andrew Lo: The best economics book I’ve read recently is Human: The Science Behind What Makes Us Unique by Michael Gazzaniga. Now it’s true that Gazzaniga is a cognitive neuroscientist, not an economist, but the insights in this book are extremely relevant for today’s economy.

Ultimately, economic institutions are a product of human evolution, and they should be analyzed in that broader context. Allocating scarce resources by market mechanisms is the modern equivalent of the opposable thumb — an incredibly powerful innovation that is responsible for enormous growth and prosperity, but which occasionally goes awry (like someone who is “all thumbs”). By looking at economics as a branch of evolutionary biology and ecology, we can see new patterns and processes that explain much of the recent financial crisis, and the years of prosperity that led up to the crash.

Andrew Lo is director of the MIT Laboratory for Financial Engineering.