Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

Phi Kappa Phi Forum, Winter 2006 by Ekelund, Robert B Jr

Steven D. Levitt and Stephen J. Dubner. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. New York: William Morrow, 2005.242 pages. $25.95.

Precious few books about economics have ever made it to the top of bestseller lists. Freakonomics by economist Steven Levitt (cowntten with journalist Stephen Dubner) is a singular recent exception. In a day when much modern economics ranges from the simply arcane to the unintelligibly irrelevant, Levitt has written a fascinating and brilliant work ("brilliant" is not an adjective I use often). He plumbs - with simple numbers and conclusions drawn from a host of his previous studies - the "hidden causes" of many disparate phenomena. One definite warning: Levitt's conclusions contain something to offend everyone. Levitt's defense for the latter is that "Morality . . . represents the way that people would like the world to work - whereas economics represents how it actually does work" (p. 13).

Levitt and his coauthor eschew all technicalities but do use basic economic principles, to wit:

(1) Incentives matter a lot.

(2) Information is often not evenly divided between buyers and sellers, and "experts" often serve themselves.

(3) Dramatic effects often have distant and subtle causes.

(4) Knowing what and how to measure makes understanding "hidden causes" less complicated.

Levitt then tackles myriad interesting issues and the conventional wisdom concerning them with these simple principles. Consider only three of them: crime rates, cheating, and parenting.

Despite virtually all predictions to the contrary, crime rates fell during the 1990s. Why? With numbers and logic, Levitt shows that it was not, as most have argued, the result of more and better policing and more prisons. While these two forces had some positive influence, I.evitt finds that another factor in the data - Roe v. Wade permitting abortions nationwide in 1974 - had a highly significant effect on reduced crime. The children of low-income, single-parent, teen mothers who would have been born if abortion were illegal would have been exactly the ones most likely to commit serious crime in the United States. Further, those states that permitted abortions before Roc v. Wudc had significantly lower crime rates than the U.S. average. Incidentally, this effect also helps explain the demise of Nicolae Ceausescu in Romania. Ceausescu outlawed all abortion in 1966 and was overthrown and executed principally by the young in 1989.

Who cheats? Under the right set of circumstances, practically everybody. Students cheat, hut so do some teachers, those whose jobs depend on high standardizedtest scores. Levitt, using a massive data set, reveals that a good number of teachers were cheating in the Chicago public schools. How about real-estate agents? Agents have an economic incentive to close deals quickly with both buyers and sellers. Their gain to waiting for a better deal is small compared with your potential gain as a buyer or seller for a longer wait. The proof: Levitt shows that on average real-estate agents leave their own properties on the market ten days longer.

"Cheating" is often practiced on the basis of what economists call "asymmetric information" - that is, when one party to an exchange has significantly better information than the other. Bypass and other heart operations are performed far in excess of the statistical benefits from such procedures, and doctors know it. The same goes for cesarean births that are, for example, disproportionally performed on Fridays according to a Canadian study. Then, there are dating Web sites on which women are disproportionally blonde and men are disproportionally high-income earners. And practically everybody lies about weight!

Parenting is yet another of Levitt's major concerns. Does reading to your children or softly introducing them to Bach or Mozart make a difference? Does giving them ethnic or "low-income" sounding names (Jasmine) or "upper-income" names (Benjamin) make a difference in test scores? It is the old nature versus nurture argument, and from a massive data set Levitt makes a strong case for nature. He carefully argues that for the mass of variables studied, what parents do is far less critical for children's academic scores than who they are. And, what's in a name? Nothing! If you think this is controversial, consider that a swimming pool is a hundred times more likely to kill your child than a gun in your house. Parenting matters, of course, but not in the way that most people think.

There is much more to this book. It helps explain, for example, how Superman comics helped to defeat the KIu Klux Klan, how and why Sumo wrestlers cheat, and how the Internet is making some "experts" more honest. It is an amazing and tantalizing tour de force, and I recommend it to all. A final note: Levitt, still in his thirties at the University of Chicago, is one of just a few of contemporary economists who are revolutionizing the profession. If a part of genius (another word to he used sparingly) is the ability to find and analyze the right questions, Levitt and his book fit the bill. This book makes you think, and it is fun, too.