[Book Review] FREAKONOMICS

FREAKONOMICS (2005)
Steven D. Levitt & Stephen J. Dubner
Harper Collins: New York City
Review by: B.N.Y.

Subtitled, “a rogue economist explores the hidden side of everything”, it captures the reader’s attention towards topics that are dominated by conventional wisdom. These are presented through the questions that are focusing on agents that are conventionally not thought to be sharing any characteristics or by assuming that no relation would ever exist between them in the first place or simply because nobody ever asked the question or thought that asking the question would have mattered. Levitt & Dubner have shown in a very clever way that the question actually does matter. The book encourages readers to be critical, not to simply rely on experts. Most importantly, it empowers readers to dig out their curious side and ask questions about simply everything, obviously including the knowledge that has been made into conventional wisdom. 

 

Incentives & Cheating
School teachers & Sumo wrestlers

One of the most commonly assumed facts in classical economics is that financial incentives lead to better performance or desired behaviour, as individual’s are expected to behave according to their self-interest. School teachers for example, whose pay and promotion are dependent on the test scores of the students, are more prone to cheating. This seems reasonable, since the teachers (as economic agents) are expected to act in their self-interest and are aiming to win. Sumo wrestlers on the other hand, are also found to be cheating in tournaments. Not to win, but to lose. In retrospect, incentives & cheating have brought school teachers and sumo wrestlers together as they tend to lay bare the self-interest that drives any economic agent. Financial incentives work differently, however in different situations.  A commonly cited example is the Israeli day-care experiment that showed that an individual’s behaviour is sometimes more effectively influenced through social incentives rather than financial ones when the stakes are small.

Information & Power
Real-estate agents & Ku Klux Klan

Stakes matter. They matter a lot. Real-estate agents for example, do not perform to the fullest and even help out buyers by providing information on the minimum price a seller is willing to sell. Closing the deal as soon as possible is the main objective, since putting more effort – that results in an additional e.g. $150 – does not provide enough incentive for the real-estate agent. Using their informational advantage they let the seller miss out on an additional profit (of e.g. $10.000). If this is true, why do individual’s rely on real-estate-agents one might ask. The answer lies in the following word: fear. Individuals fear that they don’t have enough information on the real-estate market, while they believe that real-estate agents do have it. It is based on the same principal as the Ku Klux Klan, a secret society in the US that terrorised people and lost its appeal after the information leak across the country.

Informational advantage thus provides leeway to deception. Deception can be interpersonal, as in the case with the real-estate agents or it can be found within an individual in the form of self-deception. Individuals have the tendency to act socially desirable (= another form of interpersonal deception), not wanting to be seen as a bigot. Sometimes, it goes as far as wanting to believe that they are not bigots and deceiving themselves (= self-deception). Manifestations found in the book are studies on pre-election polling, online dating and the TV-show The Weakest Link. Pre-election polling results show that individuals state that they are going to vote for a ‘Black’ candidate, but in the elections vote a ‘White’ one. (Or as recently happened: they state that they will vote for Clinton, but at the elections vote for Trump). On online dating websites ‘White’ profiles state their openness to all kinds of people (White/Black/Asian), but approach or reply more ‘White’ people. At the The Weakest Link, participants act more lenient towards ‘Black’ and female participants, while discriminating against participants that are as a group less portrayed as discrimination victims in society, such as Hispanic and elderly participants. What these three examples have in common is that they all embody self-deception and social desirability. Being watched or simply the refusal of believing that an individual himself is supporting bigotry results in inconsistent behaviour.

Self-interest & Convenience
Crack Dealer & Editorial Assistant

Another example of inconsistent behaviour as one might expect, is the observation that most drug dealers live with their moms. It is usually assumed that drug dealers draw a lot of money. This exemplifies the common thread between a crack dealer and an editorial assistant. It appears that the top echelon is indeed making a lot of money by using the majority that is working for little wages at the bottom of the pyramid and self-deceivingly expects moving up.

Crime & Abortion
Jane Roe & Nicolai Ceausescu

Why do crack dealers become crack dealers? Crack dealers are usually found to be born in financially distressed, one-parent households. They are labeled as unwanted throughout their lives and end up in the criminal circuit. The seminal work of Levitt has proven that there is a relation between the crime rate and abortion. Against all expectations that crime would continue to soar, it showed a sudden decrease in the 1980s. Levitt traced this back to the lift on the abortion ban credited to Jane Roe’s case that allowed moms who were not able to care for their babies to choose not to have them at all. On the other hand, the abolishment of the abortion law and the use of contraceptives in Romania initiated by Ceausescu, prohibited women from having the choice to decide whether they wanted to be pregnant or have the child. The consequences of these measures have also become apparent after two decades. Just as crime rates dropped in the US after abortion was legalised, the prevention of abortion led to the massive protests from the teenagers born after the abortion law, and ultimately led to the removal of Ceausescu from power.

Parenting & Child
Roland J. Fryer Jr. & Ted Kaczynski

Conventional wisdom has much to say about how parents should take care of their children. It plants fear in parents’ minds, which makes parents obsessive about their children or magnifies its expression. They are not only concerned about the safety of their child, but also about the future successes. It is found however that parenting does not have much influence on the child’s successes. Abortion is one way a parent has influence on the future of the unborn. Another one appears to be genetics. Certain factors of the parents (such as high IQ) finds its way to the offspring that start off with an advantage compared to other children that do not have the same background. There are of course exceptions to this story: Fryer, a successful ‘Black’ economist with a disadvantageous background made a huge accomplishment, while Ted Kaczynski, a ‘White’ mathematical prodigy embraced by an educated and loving family ended up being a terrorist.

 

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