Freakonomics

Authors : Steven D. Levitt & Stephen J. Dubner
ISBN : 006073132X
Publish Date : April 2005
Publisher : HarperCollins Publishers

The introduction says “The hidden side of everything“, which actually captures the whole theme of this book. The hidden economic reasons in different aspects of life.

Let me briefly describe the best case study in the book, involving an analysis of the hidden reasoning for drop in crime in the US in the early 1990s.

The authors writes “it was not the innovative policying strategies, tough gun control laws or strong economy that led to this drop. Steven argues for and against every such factor and concludes that none could cause such a major drop“.

This is their reasoning, “In 1973, the US supreme court extended legalized abortion to the whole country. In the first year some 750,000 women had abortions in the US. By 1980, the number of abortions reached 1.6 million. Poor and single-parent household is the strongest predictors that a child will have a criminal future. The crime rate fell because an entire generation came of age minus the children whose mothers had not wanted to bring a child into the world.”

This reasoning is sure to evoke extreme reactions and you may totally disagree with this view. But the authors have done their homework and supports their view with a very detailed analysis.

They further write, “typical economists believe that the world has not yet invented a problem that he cannot fix if given a free hand to design the proper incentive scheme. There are three basic flavors of incentives: economic, social and moral.

economic : an overhead “sin-tax” on cigarettes
social : “shaming offensive” with pictures on tv against prostitution
moral : asserting that terrorists raise money by selling black-market cigarettes”

I found this to be a very unique and promising idea.
But he then gives a caution, “an improperly designed incentive can also cause havoc”. He illustrates this with a case study of high-stakes testing for teachers. “If a teacher’s students are found scoring poorly, the teacher’s promotion/raise was to be withheld and on scoring well, the teachers stand to earn bonuses of upto $25,000. This became a powerful combination of incentives for the teacher to cheat or help the students while they are taking exams.”

Few interesting case studies covered:

• Ku Klux Klan, superman and real-estate agents !!
• Quid Pro Quo agreements between Sumo wrestlers in Japan
• Life of drug dealers
• Parenting: what is more dangerous: a gun or a swimming pool
• The science of naming a child : trends in the names of the white and the black/ names of the the rich and the poor.

Few of my favorite book stores in Bangalore:

• Book paradise, 75, 8th E Main, NIIT Tower, 4th Block, Jayanagar, Ph: 080-26637466
• Landmark, Forum Mall, Ph: 080-2206-7777 / 78 / 80
• Blossom, #84/6, Opp. Amoeba, Church Street, Ph: 080-25320400