Freakonomics
by
Steven D. Levitt & Stephen J. Dubner
ISBN-13: 978-0061234002
I bet that 90% of you have seen Freakonomics in one of the zillion bookstores around you. To be honest I was slightly disappointed since I didn’t find any firm, solid knowledge explaining today’s economics but rather a collection of random interesting economics-related facts. I did like some of them though so here we go:
- Crack dealers actually have extremely bad jobs – they make anywhere between $3.3 and $7 with a chance of getting killed of 1/4th! Why do they keep doing it? They play in a highly competitive field where the sweet life is only the top 1%, which is what everybody wants. Sounds familiar, doesn’t it?
- We often seem to oversimplify the situation. That causes us to be wrong, because the simplest explanations doesn’t get to the root of problems. When crime went down significantly in the 1990 (NY) people thought this is the result of random things – “gun control”, “clever police strategies”, and “better paying jobs”. However truth now discovered is quite unexpected: since most crimes were committed by teenagers and kids in their 20’s that were badly raised with no families and future, it was the Supreme Court’s legalization of abortion in 1973 that drastically reduced unwanted children so by 1990’s crime suddenly disappeared for unknown reasons. If you don’t step back to look at a huge picture, collect massive data, and analyze to the last detail you keep thinking that it was the “clever police strategies” that killed the crime in New York City.
- Authors make a good note on people’s incentives for… uh…anything. So basically if you want to motivate someone, you have to attack in all three areas:
- Economic motivation…paycheck, duh!
- Moral – you have to make someone believe that what they are doing is right and good for everybody. Painful example – Army.
- Social – we want to be approved by other people so it is important that they accept our actions. Bring A’s from school and your parents are happy and you feel good about that.
That being said now, we have to be careful not to create wrong incentives through others. Ex. In a daycare center, parents that are late picking up their kids started being charged $3. Surprisingly, after that surcharge was introduced many more parents started coming late. Why? Because the moral incentive has been replaced by the economic, but the economic wasn’t large enough to hold. So parents basically assumed that it is OKay to leave the kid longer and pay the money – “daycare center makes more”
- Somewhere around the book I saw a wonderful analysis of risk and people’s reactions to it. It looks like that:
RISK = HAZARD + OUTRAGE
(How dangerous) + (how much people are excited about it, and talk about it)
OUTRAGE is significantly higher if risk occurs NOW – terrorist attack vs heart attack (more people die from heart attack, i don’t have to say it)
OUTRAGE is significantly higher if we have NO CONTROL – plane accidents vs car accidents (as you might expect, chances of being in a car accident are many times higher than being in an airplane accident)
So if the hazard is high and outrage is low – people under react
But if the outrage is high and hazard is low, then people overreact
So here is another fascinating example – rate of kids drowned in a residential pool is much higher than kids that shot themselves with guns. More specifically 11,000 to 1! So why are parents freaking out about guns and barely caring about their own swimming pools?
As a whole it was fun to read, but little helpful knowledge to be learned except this one lesson: Dig deep when you research, you’ll find amazing answers…