Score: 10/10
Freaknomoics (2005) and its sequel Super Freakonomics (2009) are collaborations between University of Chicago economist Steven D. Levitt and author and New York Times journalist Stephen Dubner. I could not stop reading either of the books. They are great because they are quirky, provocative, yet are intelligent enough to force you to look at and perceive something in a way you normally would not. An example of all these elements occurred when I was reading Freakonomics on the subway on my way to work. I was reading the chapter about socioeconomic patterns of naming children. Specifically, I was reading the pages going over common names for each ethnicity group and how names are cyclical in nature and reused. As I was reading that chapter, I was dreading someone taking a glance at what I was reading, taking it out of context, and thinking I was a racist. When I got to the pages about common Caucasian names, another passenger tapped me on the shoulder and said “Excuse Me”. At that moment, I thought the worst of my fears have come true. He was going to tell me how offended he is and I may even get into a fight on the subway. To my relief, he smiled and said “I was reading it and I have to say, they [authors of Freaknonomics] really know us pretty well”. That reaction sums up the greatness of these two books. They take a look at the world in a unique manner that may be a little weird and on the brink of being offensive. However, when you take a look at it from their perspective, you say to yourself, “Interesting. I never looked at it like that. There is a lot of truth to it.” As such, I highly recommend both books if you want to have fun having your mind mesmerized.
The unifying theme of Freakonomics and Super Freakonomics is how incentives influence decisions and behaviors. However, another theme in the books is that the most popular and obvious answers may not be the actual or best answers. This point is illustrated by an orange interior for an apple on the cover of Freakonomics and an exploding orange apple on the cover of Super Freaknomics. Below are some of the most interesting chapters of both books that illustrate those themes.
1. Israeli day care
An Israeli day care in Haifa, Israel was having trouble with parents picking up their children on time. In order to give an incentive for parents, the day care fined the parents $3 for each incident in which they picked up their children late. However, the number of tardy parents actually increased due to the implementation of the fine. The fine was unsuccessful for a couple of reasons outside of the most obvious answer that the fine was too small. First, the parents could pay $3 to get rid of their guilt. Next, the small fine signaled to the parents that the tardiness was not that big of a deal. (Freakonomics 15-20)
The first important part of this experiment is that aligning incentives with desired behaviors is very important and not straightforward. In the case of the day care, the fine did not create the preferred result because it was a small price to pay for the extra service. Before the fine was implemented, the parents may have felt a moral obligation to pick their children up on time to avoid guilt from forcing the day care to watch their kids without compensation. However, the fine can be viewed as compensation. Since it is very small, it actually is an incentive to be late because the parents will feel the day care is being paid for the extra time and that pay is minimal and thus acceptable to the parents.
Another important part of the experiment is signaling. In this case, the incentive was not in line with the motivation of the day care. As a result, it also sent the wrong signal to the parents that the tardiness was not a serious problem. Once that message was sent, it could not be taken back. In this situation, the removal of the fine did not lower the late pickups back to the levels before it was in place as the signal was already delivered to the parents that it was no big deal to be late. As one could see, poor incentives can hurt instead of help a situation. Consequently, ensuring that incentives are properly aligned with the wanted outcome is critical.
2. Chicago School Teachers
The Chicago Public School system started high stakes test taking in 1996. Moreover, President Bush’s No Child Left Behind law mandated high-stakes testing. In this system, students need to obtain a minimum score on a standardized test before advancing to the next grade. In addition, teachers could be penalized for poor scores as they could be censured or passed over for a raise or promotion. If a school does poorly, federal funding can be withheld. For those reasons, teaches have incentive to cheat because of the system. As it is also difficult to catch cheaters, there is also a lack of incentive not to cheat. The authors also devised a system to catch cheaters by understanding how one would cheat. They realized that cheaters only had a short amount of time to commit the crime. As a result, the most effective form of cheating would be to change a row of answers for as many tests as possible. Based on this knowledge, they were able to create an algorithm to look for these patterns and catch the cheaters. (Freakonomics 22-30)
While the idea of compensating good teachers and getting rid of lousy teachers is a good idea, No Child Left Behind and high stake testing is a lousy method to try to accomplish those goals. Having one standardized test per year to gauge teachers is a terrible idea. It forces teachers to teach to one standardized tests. The best teachers I have had in the past are the ones that challenge how their students think and can bring more to students than the standard knowledge base. By measuring teachers based on how well their students perform on a standardized test, it creates an incentive for teachers to ensure that the students know the material for the test but nothing more than is covered by the test. The best way to gauge teachers is to quantify how their students perform in the future. However, properly assessing educators through this method would take time and money. In a world where the most immediate and cheapest solutions are valued more than effective solutions, high stake testing emerged as the lousy quick fix. Moreover, as most teachers feel it is an unfair system, it creates an attitude that it is fine to cheat the system.
The second part of the study was related to developing a method to catch the cheaters. Understanding the incentives to cheat and thinking like a cheater, the authors were able to identify cheaters. Based on the algorithm, the Chicago public school system was able to re-test the classes of suspected teachers with independent test administrators. Based on this process, the school system could verify that the teachers cheated as the classes performed significantly poorer when the teachers did not administer the test. This part of the study is similar to game theory. First, you need to understand the incentives of your competition. Next, you need to understand how your competition can beat or cheat you. Once you figure out this information, you can develop strategies to prevent your competition from cheating or to outperform them.
3. Roe v. Wade and the Legalization of Abortion as the Reason for Reduced Crime
There have been many explanations for the decrease in crime rates that include innovative police strategies, more prisons, changes in crack and other drug markets, aging of the population, tougher gun-control laws, a strong economy, and increased number of police. However, many of these reasons could be results of increased crime rather than the cause of decreased crime. Freakonomics presented an original explanation: the legalization of abortion by Roe v. Wade eliminated many of the candidates who would become criminals and crime decreased when those aborted fetuses would have been adult criminals. Based on data from the study, there was strong evidence supporting the thesis as states with higher abortion rates had the greatest decrease in crime rates. (Freakonomics 119-141)
This case was the best example of how the most popular answers are not always the best answers. When politicians pointed out the standard reasons for a decrease in crime, they made the reasons appear obvious as they identified new incentives not to commit crime. However, abortion was never addressed until Freakonomics, whether it was not obvious or politically unwise to do so. While it may be controversial, Freakonomics presents a lot of logic in its argument. The other reasons appear more like responses to the problem and not the solution after reviewing the logic in Freakonomics. Abortion is the only reason that directly reduces the supply of criminals. Strong and wealthier families are not likely to have abortions because accidental pregnancies are less likely since they can afford birth control easier, pregnancies are planned, and they have the money to support the child with a decent lifestyle which includes a good education. Abortions are more likely to be used by poorer individuals with criminal backgrounds and who would thus be more likely to raise a criminal adult. Whether someone believes abortions are moral or not, it may have had a direct effect on reducing the number of criminals.
4. Why Should Suicide Bombers Buy Life Insurance?
Algorithms are being used by countries to find terrorists. Algorithms look for positive indicators such as owning a cell phone, being a student, and renting rather than owning a home. Negative indicators include having a savings account, withdrawing money from an ATM on a Friday afternoon, and buying life insurance. As insurance companies do not pay out insurance to policyholders for suicide, a person who is planning on blowing themselves up would not buy insurance. As a result, a potential terrorist could cover his tracks by buying life insurance. (SuperFreakonomics 93-94)
This idea is also related to game theory. If you know what your opponent is looking for to identify you or reveal your intentions, you can send them a fake signal to throw them off. For example, in business, you could send false signals to your competition in order to throw them off your business strategy. In addition, baseball is a good example. Every offseason, teams bid for free agents. A baseball team could send some fake signals to its competitors that it is pursuing a free agent when it actually has no interest. This tactic is used to bait competition into overpaying for a particular player.
5. What do Al Gore and Mount Pinatubo have in Common?
This section challenges the most popular idea to fight global warming: carbon credits. First, livestock such as cows and sheep produce 50% more greenhouse gas than transportation. Next, establishing carbon credits in the United States will be irrelevant as China and India grow and emit far more carbon emissions than could possibly be reduced in the United States. As a result, SuperFreakonomics presents a novel solution. The eruption of Mount Pinatubo emitted 20 million tons of sulfur dioxide. The resulting haze protected the region with a sort of sunscreen that cooled the region. As it will be difficult to convince China and India to reduce emissions as it would hurt their growth, SuperFreaknomics suggests emitting chemicals in the air to create a similar shield to cool the Earth. (SuperFreakonomics 167-203)
While I do not know whether a shield would work, the carbon credits will not create enough of an impact on global warming. Creating a market for companies to buy the right to pollute is not a great solution. The market will not magically solve the situation especially when China and India would dwarf any positive effect with negative effects. However, global warming is a big enough problem to warrant the exploration of other options instead of jumping on the bandwagon of the first solution with a catchy slogan.
Those chapters are only a small sample of the unique topics Levitt and Dubner touch upon. They also cover their unique perspectives on matters such as the economics of drug dealing, sumo wrestlers, whether there is a direct effect of parenting on education, patriotic prostitutes, etc. Whether you agree with their conclusions or not, they are very thought provoking and entertaining.
About Pat Wong
Patrick is a contributor for Rookerville. He is an avid sports fan. Before joining Rookerville, he was part of a defunct New York Yankees message board, NYYankeefans, where he was its top poster and was inducted in its Hall of Fame for his contributions. Patrick is also a passionate fan of movies. He has enjoyed reading movie reviews over the years and is excited about the opportunity to review movies.