Photo: William Morrow
Steven D. Levitt and Steven J. Dubner’s Freakonomics doesn’t so much explore the hidden side of everything as challenge the angle at which we view it all.Like the poor fool in Plato’s cave, they offer to show how much of our reality is but a shadow. With a tilt of the head, things can be seen clearly, the Freakonomic way.
Click on for a bit of what created all the buzz in the first place.
Economics is mostly about incentives, which can backfire if you don't understand how they work. One daycare learned the hard way...
Once upon a time, a daycare was plagued with late pickups. Notes were sent home, making the case for timely pick up in the name of respect for those who had to stay with the children, the children themselves. No change.
Another note was sent home. A financial penalty for late pickups would start effective immediately.
The result? Late pickups increased exponentially. Why? The guilt had been removed and the financial penalty was so low the late pick-up was now a parental perk that was accessible to most of the families.
The lesson: incentives work, just not always as intended.
Incentives lead sumo wrestlers to throw matches, teachers to cheat and office workers to steal bagels
Sumo wrestlers earn their living based on their ranking. The rankings are set by a series of matches that allow agreements between players to distribute higher standards of living to more wrestlers without sacrificing any individual ranking.
Teachers succeed or fail based on standardized tests that often have nothing to do with daily lessons. It isn't hard to grasp the negative incentive of the potential loss in much needed financial support to their school, not to mention individual job loss or demotion. The conclusion a significant number of teachers arrived at was to drive up scores, even if it meant cheating.
People are asked to drop a buck in a jar to pay for their bagel in the break room. The incentive to be honest is self-imposed, to be honest. The results? The more you earn, the more likely you are to take without paying; the worse the weather, the less likely anyone is to pay; Christmas, Thanksgiving, and Valentine's Day all show lower pay rates than their July 4th and President's Day brethren.
The lesson: All incentives have dark sides.
Men will lie about their height on dating websites and insurance premiums plummeted as soon as the industry went online, due to information asymmetry
When there is asymmetry of power - on the one hand there is someone who knows or is thought to know considerably more than another - the ability to awe, intimidate, lie, or otherwise affect the outcome of a decision is vast.
- When access to information is spread broadly, the power balance shifts.
Comparing the price of insurance allowed prices to remain high, until the internet made it possible to comparison shop.
- When consumers are able to compare and contrast, behaviour shifts, but not always in the direction they say it will
When love lives moved from real life to the internet, what was once known up-front became information reported on the honour system. No matter how many women check the box declaring they don't care about height, income, weight, or race, it would seem they ultimately date the party line, as it were.
- Men adjust their responses online accordingly, imagining, I suppose, what they lack in reported stature, they'll make up for with charm and wit in person.
The KKK loses power when their secret handshake is revealed and real estate brokers get more money for their own homes than on behalf of others -- when information stays on the inside it remains powerful
When a civil rights activist tried to bring down the local chapter of the KKK by legal means he failed. But when he found out their secret passwords and names and published them in the local newspaper, and was able to continue doing so no matter how often they changed them, the chapter went belly up.
When a study was done on real estate brokers about discrepancies between the selling prices of houses they owned and those they did not, the assumption was the incentive of profit would be paramount. Wrong. The information they held on to allowed them to leave houses on the market longer and get higher numbers on homes they owned.
'Information is a beacon, a cudgel, an olive branch, a deterrent - all depending on who wields it and how. Information is so powerful that the assumption of information, even if the information does not actually exist, can have a sobering effect.'
Drug gangs and McDonald's have parallel strategy, corporate hierarchy, public relations methods, and distribution of earnings
As the authors ask, have you ever wondered why, if drug dealers make so much money, they live in the projects with their mums?
A sociologist given an all-access pass to a Chicago drug gang's methods, accounting notebooks, and spent time on the corners, in the homes, and at the jail door. His findings?
Only the very top makes any real money, most workers below that have to take second jobs to make ends meet. The mid level dealers have to contend with the day-to-day troubles of working with the public and have no control over quality or presentation of the goods. Good will in communities is engendered by throw-away (and cheap) gestures like neighbourhood parties and paying small death stipends to bereaved families. The majority of the work is done by people who earn nothing, receive no benefits, have no job security, and feel they have nowhere else to go for work. Sound familiar?
The legalization of abortion and not laws, better policing, smarter enforcement or stricter penalties was responsible for the precipitous decline in violent crime in the 1990's
Or, how Freakonomics landed on the front page of every newspaper:
- Examined factors such as improved policing strategies, new prisons, diminished drug demand, an ageing population, stricter gun control, a strong economy, and a number of other possible explanations and found they did not correlate with the available crime data.
- Established variables strongly correlated with criminality, such as poverty or an unstable family environment
- Pointed out these are likely to be the same reasons that compel pregnant young women to seek abortions.
- The drop in violent crime in the U.S. occurred at the same time the first wave of babies conceived after the legalization of abortion were entering late adolescence.
- This led to the conclusion that the additional 1.6 million children who would have been born annually if abortion had remained illegal would have been at high risk for engaging in violent crime.
When experts, presumptive or real, rely on not knowing, failure to fully grasp, or intimidation in the face of possible expertise to make their case, there is not a lot they can't accomplish.
They can sell car seats for $200 when statistics say they do not actually save more lives. They can declare those who maintain a 'family bed' the only parents who really care, after decades of advocating a parenting style that nurtures self-reliance and self-soothing. They can suggest the sophistication of the music heard during pregnancy will affect the intelligence of the not-yet-born, while staring at data that establishes intelligence is one of those largely biological things that can only be brought down, and that by neglect or outright abuse. And sell a whole lot of Mozart for the Womb CDs.
Information allows fear to be leveraged, and there are few groups out there who are more ready to be pushed around than today's parents.
- Highly educated parents
- Parents have high socioeconomic status
- Mother was 30 or older at the time of first child's birth
- Child had low birth weight
- Parents speak English at home
- Child is adopted
- Parents are involved in the PTA
- Child has many books in the home
- Family is intact
- Family's recent move to a better neighbourhood
- Mother did not work between birth and kindergarten
- Child attended Head Start
- Parents bring children to museums regularly
- Child is regularly spanked
- Child frequently watches television
- Parents read to him nearly every day
Risks that scare are very different than risks that kill. 'when hazard is high and outrage is low, people under react. And when hazard is low and outrage is high, they overreact.'
Cherubic four-year-old shot through the chest is nothing less than horrifying; the same child quietly slipping out of her house while dinner is prepared and falling into the pool that lacks gate or cover is tragic.
- There is one drowning for every 11,000 pools, each year. In a country of 6 million pools, 550 children under the age of 10 drown each year.
- One child is killed by gun for every 1 million-plus guns. In a country with an estimated 200 million guns, an estimated 175 children under 10 die each year.
- Death by pool is a far more likely, not to mention extremely preventable.
- Incentives (economic, social, and moral) 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 information advantage to serve their own agenda.
- Knowing what to measure and how to measure it makes a complicated world less so.
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