Book notes: Freakonomics by Steven D. Levitt

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt

Synopsis:

“Which is more dangerous: a gun or a swimming pool? What do schoolteachers and sumo wrestlers have in common? Why do drug dealers still live with their moms? How much do parents really matter? How did the legalization of abortion affect the rate of violent crime?

These may not sound like typical questions for an economist to ask. But Steven D. Levitt is not a typical economist. He is a much-heralded scholar who studies the riddles of everyday life, from cheating and crime to sports and child-rearing, and whose conclusions turn the conventional wisdom on its head. Thus the new field of study contained in this audiobook: Freakonomics.

Levitt and co-author Stephen J. 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…well, everything. The inner working of a crack gang…the truth about real-estate agents…the secrets of the Klu Klux Klan.

What unites all these stories is a belief that the modern world is even more intriguing than we think. All it takes is a new way of looking, and Freakonomics will redefine the way we view the modern world.” -Audible

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Opening thoughts:

My Facebook friend posted a status asking about book recommendations and a lot of his friends mentioned this was one of their favorite books in regards to economics. Actually this recommendation came up several times within the thread so I figured it would be a good book to add. Within the context of this global pandemic and economic crisis, I’m curious to see if the concepts can apply to this sort of context

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Key notes:

Introduction: the hidden side of everything

• A child born into an adverse family environment is more likely then other children to become a criminal
  • The effects of Roe v. Wade on abortion was a contributing factor to a decrease in violent juvenile crime
• Humans respond to incentives
  • How any expert treats you depends on how their incentives are set up
• The data shows that what really matters for a political candidate is not how much you spend, but who you are
• Morality, it can be argued, represents the way people would like the world to work
  • Economics represents the way it actually does work. Economics is above all The science of measurement.
• This book represents a very specific worldview based on a few fundamental ideas:
  1. Incentives are the cornerstone of modern life. Understanding them is the key to solving just about every riddle
  2. Conventional wisdom is often wrong
  3. Dramatic effects often have distant even subtle causes
  4. Experts use their informational advantage to serve their own agenda. However, they can be beaten at their own game because due to the Internet, their information advantage is shrinking every day
  5. Knowing what to measure and how to measure it makes a complicated world much less so

Chapter 1: what do schoolteachers and sumo wrestlers have in common

• Most incentives don’t come out organically, usually someone has to invent them
• Three basic flavors of incentives:
  • Economic
  • Moral
  • Social
• Cheating is more common in the face of a bright line incentive, the line between winning and losing for instance, than a murky incentive
• The man who made a business out of selling bagels two companies found that morale and whether or not employees like their boss made it more likely they would not cheat
  • Also, people higher up in the corporate ladder tended to cheat more
  • At least 87% of the time people tend to do good and the right moral thing

Chapter 2: how is the Ku Klux Klan like a group of real estate agents

• The KKK, much like politicians, real estate agents, or stockbrokers, was a group whose power was derived in large part from the fact that it hoarded information
  • Once that information falls into the right hands, that advantage disappears

Chapter 3: why do drug dealers still live with their moms?

• Conventional wisdom must be simple, convenient, comfortable, and comforting
  • Not necessarily true or always true
  • Journalists and experts are the architects of much of conventional wisdom
• The data shows that drug dealers and soldiers don’t make a lot of money, only the people at the top do

Chapter 4: where have all the criminals gone?

• While there is a correlation between more police, innovative policing strategies, and lower crime rates, the data shows that these aren’t major causes of the lower crime rates
• Reader’s note: Now the author is discussing the connection between abortion rates and crime rates
  • This directly reminds me of Melinda Gates’ discussion about the correlation between women’s access to birth control and poverty in the book The Moment of Lift
• Childhood poverty, single parent households, and mothers education are strong indicators of if a child will become criminal

Chapter 5: what makes a perfect parent?

• People are bad at assessing risk
  • A child is more likely to die from a swimming pool accident compared to a gun accident
  • The control factor and the immediate dread factor influence our risk assessment
  • Hazard vs outrage plays a role in how people over or under react
• The black-white education performance gap is highly correlated with the parents income and education
  • Studies show that it is more likely a good school-bad school gap that causes the test score performance differences
• Eight characteristics that correlate with test scores:
  1. Highly educated parents
  2. Parents have high socioeconomic status
  3. Child’s mother was 30 or older at child’s birth
  4. Child had low birth weight
  5. Parents speak English in the home
  6. Child is adopted
  7. Parents involved in the PTA
  8. Child has many books in his home
• Factors not correlated with tests scores:
  1. Family is intact
  2. Parents recently moved into a better neighborhood
  3. Mother didn’t work between birth and kindergarten
  4. Child attended head start
  5. Parents regularly take child to museums
  6. Regularly spanked
  7. Watches television
  8. Parents read to use them nearly every day
• To generalize, the first correlated list is what parents are, the second uncorrelated list are what parents do
• Parents matter a great deal, it’s just that the things that truly matter in parenting happen before you even pick up a parenting book and have your first child
  • Who you are, whom you marry, what kind of life you lead
  • If you are smart, hard-working, well-paid, and married someone equally as fortunate, your children will be more likely to succeed
  • Nor does it hurt to be honest, thoughtful, loving, and curious about the world
    • As a parent, the most important thing is who you are, not what you do for your kids

Chapter 6: perfect parenting part 2 (Or) Will a rashonda by any other name smell as sweet

• There is a correlation between a child’s name and their economic success, but not a causation
  • Changing your name might be an indicator of motivation to succeed and therefore could be a factor in future success
• Names tend to start in higher and families and work their way down the socioeconomic chain so they become unpopular
  • A name sometimes come and go in cycles or trends

Epilogue: two paths to Harvard

• Reader’s notes: Wow, he just admitted that this book has no unifying theme. I was just about to note that down until he mentioned it. It seems like this book is all over the place and is just basically breaking our assumptions of why things are the way they are based on data
  • The author says the intended effects of this book might be more subtle, such as questioning conventional wisdom and looking for hints for how things are not quite what they seem

Bonus material added to the revised and expanded 2006 edition

• Levitt’s theory on Roe v. Wade and crime reduced to tidy syllogism:
  • Unwontedness leads to high crime, abortion leads to less unwontedness, abortion leads to less crime
• Reader’s note: as I mentioned before, the book by Melinda Gates Moment of Lift makes this correlation less ethically heated as she connects the ability to control when you have a child to improved communities and child success
• Be honest about your weaknesses

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Main ideas / Themes:

• Humans respond to incentives
• Morality, it can be argued, represents the way people would like the world to work
• Economics represents the way it actually does work. Economics is above all The science of measurement.
• Conventional wisdom must be simple, convenient, comfortable, and comforting. Not necessarily true or always true
• People are bad at assessing risk. The control factor and the immediate dread factor influence our risk assessment
• As a parent, the most important thing is who you are, not what you do for your kids

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Closing thoughts:

Overall, I thought this was a very thought-provoking and enjoyable read. However, I wouldn’t say it comes close to one of my top books, of all time or even this year. Perhaps it was because I was expecting much more out of a book a handful of people recommended on economics or finance. However, this book hardly had anything to do with either.

If anything, this book is more like to a Malcolm Gladwell book, but without a strong theme or point. Gladwell does a great job at turning our assumptions upside down with studies and empirical evidence, and directs us towards an idea that might improve the way we look at the world.

This book, however, was basically just a string of random ideas. The central idea I could come up with is that things aren’t what we conventionally think if we actually look at the data. It makes an interesting argument, but not wholly compelling in my mind. It’s basically saying “Hey, don’t believe everything you hear. Look into the data and come to your own conclusions.” It’s a good idea but I think the presentation and execution was lacking in my opinion.

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One Takeaway / Putting into practice:

Despite me not really liking the book that much, I do have a strong takeaway from the book:

• As a parent, the most important thing is who you are, not what you do for your kids

I think this is a great reminder for me when I become a parent, what I do for my kids isn’t as important as who I am. Rather, I think this speaks to leading by example. If you want your (future) kids to succeed, you have to succeed first. Therefore, being my best self will set my kids up for allowing them to be their best selves.

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Nutshell:

Random observations of data that prompt the reader to question conventional wisdom.

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Similar books:

• Talking to Strangers by Malcolm Gladwell
• David & Goliath by Malcolm Gladwell
• The Tipping Point by Malcolm Gladwell
• Outliers by Malcolm Gladwell

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Rating:

2.5/5

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