Freakonomics
Rarely does an economics book appeal to a big target market, however Freakonomics: A Rogue Economist Explores the Hidden Side of Everything offered 4 million copies after its 2005 debut. The e-book, via University of Chicago professor Steven Levitt and journalist Stephen Dubner, explains how incentives — the reasons why human beings do things — can motivate uncommon and unexpected effects in many regions of existence.
Praised and reviled for its outside-the-box approach — the work was condemned for suggesting that liberalized abortion laws helped lower the US crime rate — Freakonomics incited lively debate and inspired several sequels, a weekly podcast, and a film documentary. The 2020 ebook version of the revised and expanded edition forms the basis for this study guide.
By the end of the introduction, it was already easy to see why so many people had been hooked since the book was originally written in 2005. It’s engaging, informative, and highly entertaining. Were it not for the title, one would be forgiven for not knowing it was a book about economics at all. It doesn’t have a central theme, there are no pages and pages of statistical analysis — nor are there passages of inscrutable theory.
Instead, Levitt and Dubner set out a worldview based on a small number of fundamental ideas — which they express as such:
· Incentives are the cornerstone of modern life.
· The conventional wisdom is often wrong.
· Dramatic events often have distant, even subtle, causes.
· “Experts” — from criminologists to real-estate agents — use their informational advantage to serve their agenda.
· Knowing what to measure and how to measure it makes a complicated world much less so.
Levitt and a co-author originally made this claim in a 2001 thesis, writing that the decrease in crime in America during the 1990s was a consequence of the legalization of abortion via Roe v. Wade. Their logic was straightforward. Simply put, they argue that unwanted children are far more likely to become criminals when they grow up, legalised abortion means that fewer children are born unwanted, therefore, abortion leads to less crime.
The first (and longest) chapters focus on the position of incentives in human conduct. The authors argue that people commonly make choices based on the incentives for his or her actions. These incentives fall into three popular classes: economic incentives, moral incentives (i.e., doing the “proper issue”), and social incentives (i.e., being praised or criticized with the aid of one’s peers).
One of the great methods to apprehend how incentives work is to investigate cheating in extraordinary walks of existence. In the Chicago Public School machine, there are annual standardized tests. The outcomes of these checks — which all public college students need to take — dictate whether or no longer the students’ teachers get increases and promotions, and whether or now not the students could be conventional into sure lessons.
There is an obvious monetary incentive for instructors to cheat at the outcomes of standardized tests, and in certain years, about 5 percent of instructors did cheat. Another case of cheating is sumo wrestling. In 15-spherical sumo tournaments, one’s normal status in the wrestling world depends on getting a fantastic record (i.e., triumphing as a minimum of eight suits). Studies have observed that an unusually wide variety of sumo wrestlers with a 7–7 document will defeat fighters with an 8–6 report.
This might be because the 8–6 wrestler has been bribed to throw the spherical, ensuring that each wrestler ceases the event with a fine document. A very last instance of cheating is the profession of a person named Paul Feldman. Feldman has made a comfy dwelling by journeying to distinctive agencies and bringing them bagels. Feldman asks agency personnel to depart a greenback for each bagel they eat. Surprisingly, Feldman rarely has predominant problems with such an “honor system” — nearly anybody can pay for his or her bagels in place of stealing them.
In the second chapter, the authors observe the records of the Ku Klux Klan. For more than a hundred years, the Ku Klux Klan changed into a powerful opponent of racial equality inside the American South. The Klan is likewise a classic instance of facts asymmetry: i.e., the scenario in which one character or organization has greater statistics than another character or organization. The Klansmen controlled plenty of private statistics: they’d lots of passwords and secret handshakes, for example. In tons the identical manner, actual estate marketers have a secret language of “code words,” which they can use to communicate with one another.
Real estate sellers, one may suppose, have an incentive to sell clients’ houses for as an awful lot of money as feasible. But in truth, actual property retailers’ main incentive is to sell greater homes, speedy — consequently, they’ll every so often deliberately promote a house for a cheaper price to “speed matters along.” There are many other examples of uneven information: for instance, the majority will fudge the information about themselves after they’re on a date or in a job interview.
In the third chapter, the authors have a look at the history of the crack epidemic within the United States. Economically speaking, drug gangs promoting crack aren’t all that different from a McDonald’s franchise. The crack business, just like some other aggressive commercial enterprise in America, is attractive to humans because of its potential rewards. In Chicago, researchers met a drug provider named J.T., who made more than 100,000 dollars per year at the top of his “franchise” of the Black Disciples, a crack-promoting gang. J.T. Hired dozens of “foot soldiers,” who have been accountable for selling crack on Chicago’s South Side. Even though foot infantrymen had a one in 4 chance of being murdered, they persisted in working for J.T., and when they were killed, J.T. Had no hassle locating eager replacements.
Not unlike aspiring actors transferring to Hollywood, foot soldiers were inclined to risk their lives in the hopes that they might “climb the ladder” and grow to be rich and powerful. The chapter additionally details a number of the records of the crack epidemic in the United States. In the Nineteen Seventies, cocaine became an especially popular drug within the U.S. Because most people couldn’t manage to pay for actual cocaine, they turned to a less expensive alternative, crack cocaine. Crack became so widespread that gangs made small fortunes by promoting it. However, the majority of this money went to a small variety of leaders of drug gangs — the foot infantrymen assumed nearly all the danger, in going back for particularly small cuts of the income.
The discussion of American crime is maintained within the fourth chapter, which is ready the fantastic decline in crime in the 1990s. In this bankruptcy, the authors discuss eight hypotheses for why crime quotes went down so dramatically in the mid-90s. Popular theories for the decline include new policing techniques, capital punishment, and new gun-control laws. But the authors refute those explanations, showing how they don’t line up with the information.
The primary causes of the declining crime rates include extended incarceration fees, a developing wide variety of police officers, and — perhaps most important of all — the effect of abortions. Following the 1973 Supreme Court case, Roe v. Wade, abortions became legal in the United States. As a result, after 1973, many women in impoverished communities had abortions where they might otherwise have had unwanted youngsters. Since unwanted kids have an unusually high possibility of developing as much as turn out to be criminals, Roe v. Wade may have substantially decreased the variety of kids who develop as much as commit crimes — an impact that didn’t turn out to be clean till the mid-90s, as the post-Roe v. Wade technology entered its twenties.
The fifth chapter examines the impact of mother and father on their kids and tries to apprehend whether or not nature or nurture is greater important to a toddler’s improvement. Various studies suggest that at a minimum half of a discern’s effect on a baby is genetic in nature. There have even been studies of school structures that endorse that the high faculty a student attends makes little distinction to that student’s educational fulfillment — a statement that would shock many educators. The authors analyze sixteen various factors that are hypothesized to play a position in a child’s development.
Overall, the authors find that parenting strategies that entail particular moves (along with taking one’s child to museums, spanking the kid, reading to the child every night time, etc.) play little to no function in the toddler’s improvement, while there are numerous parental characteristics (which include the mother and father’ stage of education, their age on the time of getting children, etc.) which have a demonstrable have an impact on an infant’s development. Such facts may recommend that genetics performs a bigger position in a baby’s development than parental nurture does.
In the sixth chapter, the authors study the impact of an infant’s name on his or her development. Names can prejudice people in measurable methods. For example, one takes a look at showed that a hypothetical candidate named “DeShawn Williams” — a stereotypically black call — became considerably less likely to get job interviews than every other hypothetical candidate named “Jake Williams,” even when both candidates had the same resume.
Statistical analyses of naming trends recommend a few unexpected consequences. First, in the last 30 years, it’s emerged as increasingly more commonplace for human beings within the black community to present their names distinctively black names — in different phrases, names not likely to be observed out of doors the black community. This trend reverses the trend located inside the black network earlier than the 1980s, perhaps suggesting increased racial unity and black pleasure. Another good-sized trend is that common names tend to “trickle” down from the upper lessons to the working training. Many names that were popular among top-elegance households 40 years ago have now become most popular in working-magnificence households. One can even predict, with a fair degree of accuracy, what infant names can be most common in two decades by reading which baby names are presently the maximum popular amongst upper-class families.
The epilogue tells readers that, while there is no single unifying theme to this book, the main takeaway is a new way of thinking, looking at, and interpreting the world according to the tools of economics discussed in the book’s chapters.
