Freakonomics

What are the big ideas?

1. Everyday life riddles and hidden stories in data: The book approaches economics from an unorthodox perspective, focusing on unique questions and using personal observations, anecdotes, and storytelling to gain insights. This sets it apart from traditional economic literature by providing a more relatable and engaging way to understand complex issues.
2. Incentives drive human behavior: The authors emphasize the importance of incentives in understanding human behavior and decision-making across various domains, including economics, politics, education, and interpersonal relationships. This theme challenges conventional wisdom and encourages readers to critically evaluate situations from an incentive perspective.
3. Correlation does not imply causation: The book stresses the importance of recognizing that correlation between two variables does not necessarily mean causation. This idea encourages readers to consider alternative explanations for observed relationships and to be cautious in drawing conclusions based on limited data.
4. Parents' influence on children's success: The study on school test scores reveals that parents' actions or techniques have less impact on their children's academic success than their inherent qualities, such as intelligence and socioeconomic status. This finding challenges the common belief that overbearing parenting significantly influences children's outcomes and encourages readers to reconsider their assumptions about parental influence.
5. Name trends and social signaling: The book explores how parents choose names based on social expectations and a desire to signal success, with trends influenced by upper-class naming trends. This insight sheds light on the role of social status and identity in name selection, offering a unique perspective on human behavior and cultural trends.

Chapter Summaries

An Explanatory Note

Takeaways

• Economist Steven D. Levitt approaches economics in an unorthodox way, focusing on everyday life riddles rather than traditional monetary issues
• Levitt is known for asking unique questions and using personal observations, anecdotes, and storytelling in his work
• His curiosity and ability to find hidden stories in data have attracted attention from various individuals and organizations
• Levitt believes the modern world is knowable if the right questions are asked
• In 2003, Levitt collaborated with journalist Stephen J. Dubner on a book project titled "Freakonomics".

Quotes

“Knowing what to measure and how to measure it makes a complicated world much less so.” “Congress passed legislation requiring a five-year mandatory sentence for selling just five grams of crack; you would have to sell 500 grams of powder cocaine to get an equivalent sentence. This disparity has often been called racist, since it disproportionately imprisons blacks.”

Introduction

Takeaways

• Incentives are crucial in understanding human behavior, including why real estate agents may not sell their own homes as effectively as they sell others', and why politicians spend large amounts of money on campaigns even if the spending has little impact on the election outcome.
• The correlation between two variables does not necessarily imply causation; other factors could be at play. For example, cities with high police presence may also have higher crime rates due to other reasons.
• Money is a significant factor in many aspects of life, but its impact on elections is often overstated. The key to winning elections lies more in personal appeal and voter sentiment than in campaign spending.
• Economic principles can be applied to various situations beyond traditional economic domains to gain insights into complex issues.
• Incentives drive the actions of individuals and organizations, and understanding them can lead to surprising discoveries.
• Conventional wisdom is not always accurate and should be evaluated critically using data and evidence.
• The power of numbers and data analysis can uncover hidden patterns and relationships in the world around us.

Quotes

“Morality, it could be argued, represents the way that people would like the world to work, wheareas economics represents how it actually does work.” “But as incentives go, commissions are tricky. First of all, a 6 percent real-estate commission is typically split between the seller’s agent and the buyer’s. Each agent then kicks back roughly half of her take to the agency. Which means that only 1.5 percent of the purchase price goes directly into your agent’s pocket. So on the sale of your $300,000 house, her personal take of the $18,000 commission is $4,500. Still not bad, you say. But what if the house was actually worth more than $300,000? What if, with a little more effort and patience and a few more newspaper ads, she could have sold it for $310,000? After the commission, that puts an additional $9,400 in your pocket. But the agent’s additional share—her personal 1.5 percent of the extra $10,000—is a mere $150. If you earn $9,400 while she earns only $150, maybe your incentives aren’t aligned after all.” “Despite spending more time with themselves than with any other person, people often have surprisingly poor insight into their skills and abilities.” “Turns out that a real-estate agent keeps her own home on the market an average of ten days longer and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house.” “It is well and good to opine or theorize about a subject, as humankind is wont to do, but when moral posturing is replaced by an honest assessment of the data, the result is often a new, surprising insight.”

What Do Schoolteachers and Sumo Wrestlers Have in Common?

Takeaways

• Sumo wrestlers, schoolteachers, and day-care parents have been found to cheat in various ways
• A study of sumo match data identified 29 corrupt wrestlers and 11 incorrupt ones based on whistleblower testimony
• The results showed that corrupt wrestlers were more likely to win when facing each other (80%) compared to when facing a clean opponent (54%) or an unnamed opponent (67%)
• The analysis suggested that most wrestlers who weren't specifically named as corrupt were also corrupt, and the whistleblowers may have been targeted for speaking out
• Paul Feldman's bagel business inadvertently provided data on white-collar crime, revealing that smaller offices are more honest than larger ones, personal mood affects honesty, and morale is a significant factor.
• The data also showed that there are trends such as theft increasing during certain holidays and good weather leading to higher payment rates.
• Feldman believes that employees like their boss and work are factors in office honesty and that executives cheat more than lower-level employees.
• Adam Smith argued that people are generally good despite the presence of opportunities to cheat, and Feldman's bagel business supports this idea as most customers paid honestly even without oversight.

Quotes

“As W.C. Fields once said: a thing worth having is a thing worth cheating for.” “An incentive is a bullet, a key: an often tiny object with astonishing power to change a situation” “There are three basic flavours of incentive: economic, social and moral.” “What Do Schoolteachers and Sumo Wrestlers Have in Common?”

How Is the Ku Klux Klan Like a Group of Real-Estate Agents?

Takeaways

• The Weakest Link contestants discriminate against Latinos based on information (belief of poor skills) and against the elderly based on taste (preference not to interact).
• Online daters often lie or exaggerate their personal information, particularly regarding income, looks, and marital status.
• White women and men who claim race does not matter in their dating preferences largely date within their own race.
• Politicians and voters can and do misrepresent their true feelings or intentions.
• David Duke used his Klan mailing list for personal gain by selling it to the governor of Louisiana, but later used it to solicit donations while claiming financial hardship; in reality, he was using the money to fund his gambling habit.

Quotes

“Information is a beacon, a cudgel, an olive branch, a deterrent--all depending on who wields it and how.” “A woman's income appeal is a bell-shaped curve: men do not want to date low-earning women, but once a woman starts earning too much, they seem to be scared off.” “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.” “Information is the currency of the Internet. As a medium, the Internet is brilliantly efficient at shifting information from the hands of those who have it into the hands of those who do not. Often, as in the case of term life insurance prices, the information existed but in a woefully scattered way. (In such instances, the Internet acts like a gigantic horseshoe magnet waved over an endless sea of haystacks, plucking the needle out of each one.) The Internet has accomplished what even the most fervent consumer advocates usually cannot: it has vastly shrunk the gap between the experts and the public.”

Why Do Drug Dealers Still Live with Their Moms?

Takeaways

• Crack cocaine was a mass-market version of cocaine, created by cooking powdered cocaine with baking soda and water, producing tiny rocks that could be smoked for an intense but short high.
• The invention of crack coincided with a Colombian cocaine glut, making it affordable and widely available to urban populations.
• Street gangs like the Black Gangster Disciple Nation saw an opportunity in the crack boom and became major commercial enterprises, selling the drug to low-income customers.
• The widespread use of crack caused significant societal harm, particularly among black communities, leading to increased infant mortality, decreased educational attainment, and mass incarceration.
• The crime rate in the United States peaked in the late 1980s and early 1990s, but it began to decline unexpectedly and dramatically after that, with some experts attributing the drop to demographic changes and changes in policing strategies.

Where Have All the Criminals Gone?

Takeaways

• The decline in crime in the United States from the late 1980s to the mid-1990s was larger in states where abortion had been legal before Roe v. Wade than in other states, suggesting a causal link between the two.
• Studies have shown that the post-Roe cohort, who were not born due to abortion, would have disproportionately contributed to crime if they had been born.
• Economists have estimated the value of preventing a crime or saving a life, and using this method, it has been calculated that the trade-off between more abortions and less crime is inefficient.
• The link between abortion and crime does not imply that a fetus has no value; rather, it suggests that women make good decisions about whether they can raise a child well and generally choose to have an abortion if they cannot.

Quotes

“When a woman does not want to have a child, she usually has good reason. She may be unmarried or in a bad marriage. She may consider herself too poor to raise a child. She may think her life is too unstable or unhappy, or she may think that her drinking or drug use will damage the baby’s health. She may believe that she is too young or hasn’t yet received enough education. She may want a child badly but in a few years, not now. For any of a hundred reasons, she may feel that she cannot provide a home environment that is conducive to raising a healthy and productive child.”

What Makes a Perfect Parent?

Takeaways

• The ECLS study found eight factors correlated with higher school test scores for children: highly educated parents, high socioeconomic status, mother was older at first birth, low birthweight, English-speaking parents, adoption, PTA involvement, and many books in the home.
• Eight factors not correlated with higher school test scores: intact family, recent neighborhood move, mother didn't work between birth and kindergarten, Head Start attendance, museum visits, spanking, frequent television watching, and daily reading to the child.
• Parents' actions or techniques seem to have less impact on children's academic success than their inherent qualities, such as intelligence and socioeconomic status.
• Overbearing parenting may be less effective than commonly believed in influencing children's academic outcomes.
• Adoptive parents can have a significant positive influence on their adopted children's lives as adults, despite the genetic disadvantages they face.

Quotes

“An expert must be BOLD if he hopes to alchemize his homespun theory into conventional wisdom.” “For emotion is the enemy of rational argument.” “The ECLS data do show, for instance, that a child with a lot of books in his home tends to test higher than a child with no books.”

Perfect Parenting, Part II; or: Would a Roshanda by Any Other Name Smell as Sweet?

Takeaways

• California birth records from 1960 to 2003 reveal distinct trends in naming patterns and socioeconomic status.
• The most popular names given to white baby boys and girls have changed significantly over the decades, with some names becoming more common among lower-income families and others gaining popularity among higher-income families.
• High-end names eventually become mainstream, while mainstream names fall out of favor and are replaced by new high-end names.
• Parents often choose names based on social expectations and a desire to signal success, with trends influenced by upper-class naming trends.
• The most popular names given to baby girls in California in 1960 and 2000 show a complete turnover of names.
• The most common white girl names among lower-income families in the 1990s were Amber, Heather, Kayla, Stephanie, and Alyssa, while high-end families favored Alexandra, Lauren, Katherine, Rachel, and Melissa.
• High-end names tend to become mainstream and eventually fall out of favor, with parents then looking for the next high-end names to adopt.
• The names that are most likely to become popular in the future are those that are currently favored by high-income families but are not yet widely adopted. These include Annika, Ansley, Ava, Avery, Aviva, Clementine, Eleanora, Ella, Emma, Fiona, Flannery, Grace, Isabel, Kate, Lara, Linden, Maeve, Marie-Claire, Maya, Philippa, Phoebe, Quinn, and Sophie for girls, and Aidan, Aldo, Anderson, Ansel, Asher, Beckett, Bennett, Carter, Cooper, Finnegan, Harper, Jackson, Johan, Keyon, Liam, Maximilian, McGregor, Oliver, Reagan, Sander, Sumner, Will for boys.
• Parents' choice of a name may not make a significant difference in their child's success, but they often feel better knowing that they have chosen a "smart" or "high-end" name to give their child a head start.

Epilogue

Takeaways

• Freakonomics has no unifying theme but a common thread is thinking sensibly about real-world behavior.
• Thinking in a Freakonomics way doesn't require difficulty or sophistication, just a novel perspective.
• You may become more skeptical of conventional wisdom and seek data to question assumptions.
• Some ideas may be uncomfortable or unpopular but Freakonomics isn't about morality.
• Parents matter in some ways but not others; random effects play a significant role in outcomes.
• The story of Roland G. Fryer Jr. and Ted Kaczynski highlights the impact of upbringing on different life trajectories.

Quotes

“The conventional wisdom is often wrong.” “After all, your chances of winning a lottery and of affecting an election are pretty similar. From a financial perspective, playing the lottery is a bad investment. But it's fun and relatively cheap: for the price of a ticket, you buy the right to fantasize how you'd spend the winnings - much as you get to fantasize that your vote will have some impact on policy.” “If you both own a gun and a swimming pool in your backyard, the swimming pool is about 100 times more likely to kill a child than the gun is.” “Social scientists sometimes talk about the concept of "identity". It is the idea that you have a particular vision of the kind of person you are, and you feel awful when you do things that are out of line with that vision.” “There are three basic flavors of incentive: economic, social, and moral. Very often a single incentive scheme will include all three varieties. Think about the anti-smoking campaign of recent years. The addition of a $3-per-pack “sin tax” is a strong economic incentive against buying cigarettes. The banning of cigarettes in restaurants and bars is a powerful social incentive. And when the U.S. government asserts that terrorists raise money by selling black-market cigarettes, that acts as a rather jarring moral incentive.” “A rogue economist explores the hidden side of everything.” “Experts depend on the fact that you don’t have the information they do. Or that you are so befuddled by the complexity of their operation that you wouldn’t know what to do with the information if you had it. Or that you are so in awe of their expertise that you wouldn’t dare challenge them.” “Levitt admits to having the reading interests of a tweener girl, the Twilight series and Harry Potter in particular.” “As we suggested near the beginning of this book, if morality represents an ideal world, then economics represents the actual world.” “The swimming pool is almost 100 times more likely to kill a child than the gun is.” “When moral posturing is replaced by an honest assessment of the data, the result is often a new, surprising insight.”

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