Freakonomics Book review by: Shekhar Ruparelia 1st March 2006 Institute of Management, Nirma University
Peer review "Steven Levitt has the most interesting mind in America, and reading Freakonomics is like going for a leisurely walk with him on a sunny summer day, as he waves his fingers in the air and turns everything you once thought to be true inside out. Prepare to be dazzled." • Malcolm Gladwell
Freakonomics establishes this unconventional premise: if morality represents how we would like the world to work, then economics represents how it actually does work. • www.freakonomics.com
Levitt’s definition Economics is above all a science of measurement. It comprises an extraordinarily powerful and flexible set of tools that can reliably assess a thicket of information to determine the effect of any one factor, or even the whole effect.
Fundamental ideas of the book • Incentives are the cornerstone of modern life • Conventional wisdom is often shoddily formed and devilishly difficult to see through …but it can be done. • Dramatic effects often have distant, even subtle causes. • “Experts” use their informational advantage to serve their own agenda
Incentives Q. What is an incentive? • An incentive is simply a means of urging people to do more of a good thing and less of a bad thing. Economics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing. Economists love incentives. They love to dream them up and enact them, study them and tinker with them.
The three flavors of incentives • Economic • Social • Moral • Blood donation example • Who Cheats?
Cheating in Sumo wrestling? A wrestler’s ranking is based on his performance in the elite tournaments that are held six times a year. Each wrestler has fifteen bouts per tournament, one per day over fifteen consecutive days. If he finishes the tournament with a winning record (eight victories or better), his ranking will rise. If he has a losing record, his ranking falls. If it falls far enough, he is booted from the elite rank entirely. The eighth victory in any tournament is therefore critical, the difference between promotion and demotion.
What the statistics say Statistics when a 7–7 wrestler faced an 8–6 wrestler on a tournament’s final day Probability 48.7 Actual Percentage 79.6
How the Klan was bust • Ku Klux Klan • Stetson Kennedy • Secret Messages • Superman !! The Klan’s power was its hoarded information. Once that fell into wrong (?) hands, it was all over.
How to buy a house 5 terms correlated to a Higher Sales Price: Granite, State-of-the-Art, Corian, Maple, Gourmet 5 terms correlated to a Lower Sales Price: Fantastic, Spacious, !, Charming, Great Neighbourhood
But what about you? Think about how you describe yourself during a job interview versus how you might describe yourself on a first date. For even more fun, compare that first date conversation to a conversation with the same person during your tenth year of marriage.
Dating Data Roughly 50% of white women on a dating site and 80% of white men declared that race didn’t matter to them. Response data? White men who said race didn’t matter sent 90% of their email queries to white women. White women who said race didn’t matter sent about 97% of their e-mail queries to white men.
Conventional Wisdom Mitch Snyder and the American homeless • 3 million homeless Americans • 45 homeless people die each second Women rights’ advocates and rape / attempted rape victims
Sudhir Venkatesh & Black Gangster Disciple Nation • Organizational chart • Crack cocaine • Cost benefit analysis • Too many players in the game
The Butterfly Effect • Superpredator of the early 1990s • President Clinton “my successors…(will) be trying to keep body and soul together for the people on the streets” • Instead of rising by 15% however, crime rates fell by over 50% across the country
Factors for drop • Gun control • Better policing • Better economy • NONE OF THEM • Answer lay with a woman in Dallas named Norma McCorvey
Guns vs. Swimming Pools • “The basic reality is that the risks that scare people and the risks that kill people are very different.” • There is one drowning of a child for every 11,000 residential pools in the United States. • There is 1 child killed by a gun for every 1 million-plus guns.
Calling Children names • 1958, a New York City man named Robert Lane decided to call his baby son Winner. Robert Lane apparently had a special feeling about this one. Winner Lane: how could he fail with a name like that? • Three years later, the Lanes had another baby boy, their seventh and last child. For reasons that no one can quite pin down today, Robert decided to name this boy Loser. It doesn’t appear that Robert was unhappy about the new baby; he just seemed to get a kick out of the name’s bookend effect. First a Winner, now a Loser.
Learning You might become more skeptical of the conventional wisdom; you may begin looking for hints as to how things aren’t quite what they seem; perhaps you will seek out some trove of data and sift through it, balancing your intelligence and your intuition to arrive at a glimmering new idea. Some of these ideas might make you uncomfortable, even unpopular.
Learning (continued) The most likely result of having read this book is a simple one: you may find yourself asking a lot of questions. Many of them will lead to nothing. But some will produce answers that are interesting, even surprising.