Freakonomics: A Rogue Economist Explores the Hidden Side of Everything
Authors: Steven D. Levitt and Stephen J. Dubner
This book is all about the negative aspects of human nature such as cheating, corruption, and crime. The authors call these ‘the riddles of everyday life’ which seem to determine ‘how the world really works’ (page x). The book particularly focuses on the incentives that drive bad behaviours (page xi). The authors argue that we are all influenced by incentives to break rules, and we do this in very predictable ways. The book however also shows that incentives, properly applied, may serve to promote good behaviours. The central message throughout the book is that ‘humans respond to incentives‘, and the authors illustrate this with almost all the subjects they tackle (page 5).
The major theme of the book is the nature of cheating and how it manifests in diverse fields of life. The authors assert that ‘cheating is a primordial economic act: getting more for less’, and they stress that most people will cheat ‘if the stakes are right’ (page 20-21). They go on to illustrate how this disheartening fact operates universally. They, for example, use the bagel stealing studies of Paul Feldman to reveal the ubiquitous nature of white collar crime, and the incentives that promote and mitigate them (pages 43-47). They similarly analysed cheating in other fields such as the sports of basketball and sumo wrestling. The book however reassuringly notes that the extreme urge to cheat exists only in dishonest people who, ‘whatever the incentive, whatever the situation… will try to gain an advantage by whatever means necessary’ (page 20).
Another pervasive form of cheating is the fraudulent way experts shortchange their customers depending on how their incentives are set up. The authors illustrated this with several examples, such as their observation that estate agents get 3% more on the sale of their own houses than when they sell their customers’ houses, and they do this by keeping their own houses just a little bit longer on the market (page 7). They authors use this, and other examples, to argue that experts inevitably ‘use their informational advantage to serve their own agenda’ (pages 5 and 12).
They book contends that information asymmetry also drives many criminal activities. The authors demonstrate this with the very interesting example of the Ku Klux Klan, whose members, the book says, are ‘much like politicians or real estate agents or stockbrokers…whose power was derived in large part from the fact that it hoarded information‘ (page 59). The authors reveal how the Klan behaved just like any other group of experts who use their information advantage to wield ‘a gigantic, if unspoken, leverage: fear‘ (page 64). They also showed how exposure of the inner workings of the Klan removed the information advantage it had and led to its fall. The book makes an analogy here with how the internet has diminished the power of experts by shrinking the gap between their knowledge and that of the lay public (page 61).
The book discusses three main types of incentives-economic, social, and moral, and it demonstrates how a small incentive may produce ‘drastic and unforeseen results‘ (page 19). The book describes an incentive as ‘a bullet, a lever, a key… with astonishing power to change a situation’ and as ‘a means of urging people to do more of a good thing and less of a bad thing’ (pages 16-17). The authors illustrated this power of incentives with their case study of Chicago schoolteachers who resorted to inflating their students’ scores when their pay was linked to performance (page 25-33). Whilst incentives drive a lot of bad behaviour, the authors also see them as powerful tools for promoting laudable behaviour, and they suggest many ways to use incentives for the greater good.
With almost all the issues they discussed, the authors succeeded in demonstrating that ‘the conventional wisdom is often wrong’ (page 11). They repeatedly dispelled many accepted beliefs such as the wrong perception that the sudden drop in American crime rate in the 1990’s was a result of crime prevention measures. Rather, they linked it to the Roe versus Wade Supreme Court judgment that decriminalised abortion more than 2 decades earlier (page 124). The authors argue that this judgment made abortion services accessible to poor people, whose children would otherwise have grown up to commit most of the crimes (page 4). The authors used these, and many other examples, to demonstrate that ‘dramatic effects often have distant, even subtle, causes’ (page 11).
The book covers a wide array of other subjects such as prejudice on television game shows (page 72), dishonesty on internet dating sites (page 74-77), the tenuous relationship between crime and gun control (page 111), the lack of correlation between parenting styles and a child’s personality (page 140), and the use of incentives within drug dealing gangs (page 95).
This collaboration between an economist and a journalist is quite unique and worked out very well. The subjects featured are diverse and emphasis the need to observe issues in great detail before arriving at conclusions. The authors used insightful and detailed analyses to show how most issues have hidden details that require exploration. It particularly exposes the power of incentives to promote both good and bad behaviour, and the need to be cautious when implementing policies aimed at incentivising people. The book is well-written and insightful, with interesting stories illustrating the counterintuitive nature of the subjects it covers.
This is an informative book about incentives which is relevant to health care. Many health behaviours and interventions are driven by incentives. It is therefore important to understand how incentives work, and how they may trigger unexpected effects. This book is relevant to doctors in their roles as health care providers and policy makers, and I highly recommend it.
Publisher, Place, Year: Penguin Books, London, 2005
Number of Chapters: 6
Number of Pages: 320
Star rating: 4