Freakonomics
In September a friend of mine lent me a book called Freakonomics saying that it’s a very interesting read. I don’t normally trust her judgement in books and more often than not I end up returning them after a few weeks with no more than a chapter complete. This book however was different. I read the first chapter the day I got it and I was hooked. Unfortunately I was flying to England that night so I couldn’t continue till I got back. I finished it in a couple of sittings bc it’s extremely readable. It’s written by Steven Levitt an economist at Uni of Chicago and Stephen Dubner a writer for NY Times. The idea of the book, I think, is to show that empirical data is not what it seems to be at first glance. They question conventional wisdom by taking a closer look at empirics, and they explore some very interesting ideas by asking some very interesting questions. The best part about the book is that it’s a breath of fresh air to anyone who loves economics. I’m sure there are plenty of others who did A/L economics and loved it, but then went to university and got utterly and completely put off by the mathematics involved. Well, after reading Freakonomics I got a reminder as to why I loved econ in the first place.
The book starts by taking a look at the wonderful things we call incentives. The first question they ask is what do sumo wrestlers and school teachers have in common? and go on to discuss the incentives behind cheating. If a day care centre starts to fine parents who get late to pick up their kids, you’d expect the amount of parents getting late to reduce right. Right? Maybe not. In Israel a day care centre imposed a fine of $3 per hour of lateness and found that the incidence of parents getting late increased. There are two incentives at work here, the incentive from the fine and the guilt incentive. The fine allowed parents to “buy” away the guilt incentive and $3 per hour was not high enough a fine to override the guilt incentive.
The second question asked is how real estate agents are similar to the Ku Klux Klan. In this chapter they look at the role of information in reducing the power of “experts” and the role of the internet in this. The KKK was brought down by a guy going undercover and exposing their often child-like secret codes to the public and causing much humiliation to members. They show that there is racial and age discrimination in the Weakest Link (a show on daytime tele in England and for a while in the States). The third chapter asks why drug dealers live with their mothers despite the fact that the media portrays crack dealing as one of the most profitable jobs. They tell the story of an economist who lived with a Crack gang to discover the similarities between the Coccaine industry and McDonald’s.
One of the more controversial arguments of the book suggests that crime rates dropped in the States in the 1990s due to the legalization of abortion in the 70s. The argument is interesting, the theory is that kids who would have been aborted were the ones who are most likely to be unwanted kids. The parents were either not ready, not willing or not able to raise a child appropriately, and therefore naturally the kid wouldn’t have the most stable and solid upbringing and make him/her more likely to be a criminal. Furthermore abortion used to be very expensive resulting in only middle and upper class parents being able to afford one, and poorer ppl being less able to do so. As abortion became cheaper more poor ppl were able to afford it, reducing the number of kids born into poverty and therefore reducing the number of kids likely to engage in crime. The legalization of abortion meant that these unwanted kids did not make an appearence in this world and therefore the crime rate fell 20 years later. It seems a fairly water-tight argument, but it was challenged in The Economist last week. I haven’t as yet read that article but i’m sure it’s worth a look.
Finally the authors explore the art of parenting. Would you be happier to have your kid go to play in a house where the parents keep a gun, or in a house which has a swimming pool but no guns? The answer would naturally be the latter, but statistics show that more kids die in swimming pool accidents than as a result of gun related incidents. So why do we fear guns more than swimming pools? Bc our notion of risk is a combination of outrage and hazard, guns have a high outrage factor but low hazard factor whilst swimming pools have a higher hazard factor but minute outrage factor. Outrage trumps hazard when it comes to affecting our assesment of risk. This chapter also looks at the nature vs. nurture argument in the resultant lives of children and questions obsessive parenting.
Overall, the book provides some very interesting and compelling arguments. You don’t have to go away buying everything the writer’s say, but what you are likely to do is to go away being a bit more curious about the world and a bit more sceptical of conventional wisdom. For me the most important lesson was in differentiating causation and correlation when it comes to data. I find myself easily persuaded by statistical analysis and far too easily infer causation from correlation, a grave error as has been pointed out by Steven and Stephen. I strongly recommend Freakonomics of economists and non-economists, it’s got something in it for both parties. The book’s website can be found here. It includes a blog by the writers. Happy reading.
