Freakonomics

A Rogue Economist Explores the Hidden Side of Everything
by Steven D. Levitt and Stephen J. Dubner
ISBN: 006073132X

Levitt is an unusual and prize-winning economist. Dubner is a journalist who was assigned to write a profile of Levitt for the New York Times. The two apparently hit it off, so when Levitt was pushed to write a book, he said he would work on one with Dubner: Freakonomics is the result.

Levitt is driven to ask unusual questions and he finds sometimes unlikely and unexpected answers. He isn’t interested in whether interest rates will go up or down or what the stock market will do next, but in things like schoolteachers or sumo wrestlers cheating, or what causes crime. Dubner’s article sums up Levitt’s skill in applying the tools of economic analysis to daily living as the practice of “explaining how people get what they want.”

The main ideas of Freakonomics are, in the authors’ words:

  • Incentives are the cornerstone of modern life.
  • The conventional wisdom is often wrong.
  • Dramatic effects often have distant, even subtle, causes.
  • “Experts”—from criminologists to real-estate agents—use their informational advantage to serve their own agenda.
  • Knowing what to measure and how to measure it makes a complicated world much less so.

Incentives (and informational advantage) can explain why real estate agents selling their own homes take just a few weeks longer and sell for a just a bit higher than they do with clients’ homes. Conventional wisdom says that guns are more dangerous for children to be around than swimming pools, but the statistics say otherwise. Potentially the most explosive assertion in the book refers to a distant cause of the dramatic crime rate drop of the 1990s — the legalization of abortion in the early 1970s. (A much more compelling theory — because it has more information backing it up — than the “broken windows” theory Gladwell talks about in The Tipping Point.)

Their assertion that knowing what and how to measure makes the world less complex, on the other hand, I find a bit troubling. The desire to simplify an overwhelmingly complex world to make it easier to understand often leads to distortions which, in turn, lead to even more confusion. I would have liked it better if they had used “a seemingly opaque world” instead of “a complicated” one — and they do, elsewhere in the book. So I don’t think Levitt and Dubner fall into the distortion by oversimplification trap. What they do is keep the focus on the questions, and the data from which they tease out answers. Morality, they tell us, represents the way people want the world to work, and economics represents the way the world does work.

More valuable that the actual answers Levitt comes up with (why drug dealers often live with their mothers, what baby names say about parents) is the way he seeks to inspire people to ask more questions. Because “if you ask enough questions, strange as they may seem at the time, you may eventually learn something worthwhile.”

This is what Levitt and Dubner seem to want — not for readers to put down Freakonomics with an understanding of economic tools (though they do manage to explain regression analysis in plain English), but with a desire to question conventional wisdom in particular, and ask more questions in general. Freakonomics is really about new ways of looking at the world, so that we can see the world differently. Maybe the view will still be of they way we wish the world was, instead of the way it is, or maybe it will lead us to work to change the way the world works. Recommended.

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