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Freakonomics


  1. Which is more dangerous, a gun or a swimming pool?
  2. What do school teachers and sumo wrestlers have in common?
  3. How much do parents really matter?
  4. Has your name any influence on your career opportunities?
  5. What has nylon stockings in common with crack cocaine?
  6. Why did the crime rate in America fell in 1990s? Has the legalization of abortion to do anything with that?
  7. What is information asymmetry and experts use it to their advantage?
  8. How the Internet has reduced the information asymmetry by giving information to the customers, thus improving their negotiating power?

If you want answers to these and more interesting questions, you should read Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner. Through forceful storytelling and wry insight, Levitt and Dubner show that economics is, at root, the study of incentives—how people get what they want, or need, especially when other people want or need the same thing.

In Freakonomics, they explore the hidden side of everything. The inner workings of a crack gang. The truth about real-estate agents. The myths of campaign finance. The telltale marks of a cheating sumo wrestler. The secrets of the Ku Klux Klan.

The three fundamental ideas embodied in this book are incentives are the cornerstone of modern life, the conventional wisdom is often wrong, and dramatic effects often have distant, even subtle, causes. What unites all these stories is a belief that the modern world, despite a great deal of complexity and downright deceit, is not impenetrable, is not unknowable, and—if the right questions are asked—is even more intriguing than we think. All it takes is a new way of looking. The book establishes the fact that while morality represents how we would like the world to work, economics represents how it actually does work.

But some of the findings in the book can only be taken with a pinch of salt. For example, there are good teachers who inspire students to achieve more and when they are gone, students go back to their normal style, at least most of them. So in one year, the class results will be good while the results of the previous and next years would be bad. The book does not take this into account—the fact that same results could be used to identify teachers who are exceptional and who are cheating and there is no way to find out the exceptional ones unless one follows all of them at least for a couple of years to see whether they are cheating or motivating to excel.

But the book, even though uses questionable data sources, manipulates data, or even omit data is an entertaining read. Two cases that I found very interesting are about drug trafficking (Why do drug dealers still live with their moms?) and about impact of the legalization of abortion on crime rate (Where have all the criminals gone?). There are also many interesting facts that will certainly the way we see and analyze things. This single fact—changing our way of thinking—is the most important contribution of the book.

The book is written very nicely and neatly. Cases are told interestingly and there is not much of jargon. And the authors do have a sense of humor. Here is a sample:

When there are a lot of people willing and able to do a job, that job generally doesn’t pay well. This is one of four meaningful factors that determine a wage. The others are the specialized skills a job requires, the unpleasantness of a job, and the demand for services that the job fulfills.

The delicate balance between these factors helps explain why, four instance, the typical prostitute earns more than the typical architect. It may not seem as though she should. The architect would appear to be more skilled (as the word is usually defined) and the better educated (again, as usually defined). But little girls don’t grow up dreaming of becoming prostitutes, so the supply of potentially prostitutes is relatively small. Their skills, while not necessarily “specialized,” are practiced in a very specialized context. The job is unpleasant and forbidding in at least two significant ways: the likelihood of violence and the lost opportunity of having a stable family life. As for demand? Let’s just say that an architect is more likely to hire a prostitute than vice versa.

Levitt is a professor of economics at the University of Chicago and a recipient of the John Bates Clark Medal, awarded to the most influential economist under the age of forty. Dubner is a former writer and editor at The New York Times Magazine and author of three books.

A MUST read; very entertaining and informative.

Book Details:

  • Author: Steven D. Levitt and Stephen J. Dubner
  • Publisher: William Morrow
  • Year: 2005
  • ISBN: 9780060731328
  • Cover & Page Count: Hardcover, 242 pages