THE TEACHING ECONOMIST - William A. McEachern                 

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Issue 29, Fall 2005

William A. McEachern, Editor

Freakonomics

"Prepare to be dazzled," writes Malcolm Gladwell on the cover of Freakonomics: A Rogue Economist Explores the Hidden Side of Everything ( Morrow, 2005), by economist Steven D. Levitt and journalist Stephen J. Dubner. The book, which shows the power of some simple economic propositions, has caught fire, hanging around the top of the best-seller list for months. Written mostly by Dubner and inspired by Levitt's research, Freakonomics has created a cottage industry for the authors, with speaking tours, websites, blogs, T-shirts, mugs and a regular column in the New York Times. The authors claim the book supplies enough interesting material for a thousand cocktail parties. I don't know about that, but because this may be the most successful general-audience economics book in years, it's worth an extended look in this issue.

The book has a swagger, an attitude, and a sense of humor. The authors try to make a virtue of necessity by emphasizing that because Levitt's research has no grand theme, a book about his work has none either. Still, some themes emerge. One is that economics strips away moral posturing to look at the world as it is. An "Introduction" previews some key findings and offers some "fundamental ideas:"

    Incentives are the cornerstone of modern life... The conventional wisdom is often wrong... Dramatic effects often have distant, even subtle, causes... "Experts" use their informational advantage to serve their own agenda... Knowing what to measure and how to measure it makes a complicated world much less so (pp. 13-14).

I don't find anything here that would put the Freak in Freakonomics. The key idea is that incentives matter—this is bread-and-butter economics. Levitt has become a star by showing how incentives matter in oh so many ways. That speaks both to his genius and the power of economics. But he is hardly the first to uncover some stunning effects of incentives. .

Each of the book's six chapters poses a simple question. Here is each question along with my sketch of their answer:

Chapter 1: What Do Schoolteachers and Sumo Wrestlers Have in Common? Some from both groups cheat when they have the incentive and the opportunity. The interesting part is how Levitt uncovers the cheaters.

Chapter 2: How Is the Ku Klux Klan Like a Group of Real-Estate Agents? Both groups hoard information at the expense of those without it.

Chapter 3: Why Do Drug Dealers Still Live with Their Moms? Because they accept a low wage for a dangerous job in return for the small chance of becoming a drug kingpin.

Chapter 4: Where Have All the Criminals Gone? The legalization of abortion reduced the number of unwanted children, who were more prone than other children to later commit c r i m e s .

Chapter 5: What Makes a Perfect Parent ? A child benefits not so much from what parents do for that child, but from what parents have done to make themselves better people (such as getting educated, not having children as unmarried teenagers, etc.)

Chapter 6: Perfect Parenting, Part II; or: Would a Roshanda by Any Other Name Smell as Sweet? Probably. A child with a certain name may have a harder life, not because of the name, but because the parents who selected that name were likely poor, unmarried, and with little education.

Levitt has a remarkably fertile mind, but one of the book's contributions is giving a wider audience to the research of others. Here are my candidates for the ten most interesting nuggets, not all of which spring from Levitt's research. They are listed by order of appearance in the book:

A losing record in a tournament would drop an elite sumo wrestler from the top ranks, cutting his status and income immensely. Consequently, an elite sumo who is already assured of a winning tournament record is inclined to throw the match if his opponent, by losing, would end up with a losing tournament record and would thereby drop from the elite ranks. Payback comes the next time they meet. (pp. 40-41). (A question: wouldn't betting lines reflect match fixing?)

Realtors communicate with each other through real-estate ads. The five expressions that signal higher prices are: granite, state-of-the-art, Corian, maple, and gourmet. The five expressions that signal lower prices are: fantastic, spacious, great neighborhood, charming, and an exclamation point (!). Note the higher price signals address specific attributes of the house; the lower price signals are vaguer (pp. 74-75).

Based on Levitt's analysis of more than 160 episodes of the TV game show The Weakest Link, only elderly contestants seem to be victims of taste-based discrimination. They were eliminated not because of their game skills but because younger players didn't seem to want them around (p. 79).

A study of an online dating service found that 23 percent of women and 57 percent of men received not a single response to their posted ads. The biggest mistake is not posting a photo. A low-income, poorly educated, unattractive, slightly overweight, balding man who posts his photo stands a better chance of getting a response than a man who says he earns $200,000 a year and describes himself as drop-dead handsome but doesn't post a photo (p. 82).

The Chicago drug trade was carved up into about 100 neighborhoods. The head of each neighborhood gang paid a citywide "board of directors" for the franchise, and was then free to allocate remaining drug revenue. The fifty or so foot soldiers selling drugs in the profiled neighborhood earned an average just $3.30 an hour (pp. 90-109).

There are so many guns in the country relative to the number of gun murders that the likelihood that a gun chosen at random was used to kill someone in a given year is about 1 in 10,000. A gun buyback program brings in about 1,000 guns at most, which might reduce homicides on average by one-tenth of a murder per year (p. 132).

"If you both own a gun and have a swimming pool in the backyard, the swimming pool is about 100 times more likely to kill a child than the gun is" (p. 146).

"Blacks and whites watch different TV shows." The most popular sitcom in history, Seinfeld, never reached the top 50 shows among black viewers (p. 182).

Most parents try to select a baby's name that sounds "successful." Once a name catches on among high-income, highly educated parents, it starts working down the socioeconomic ladder. Eventually the name becomes overexposed and loses its cache (p. 201).

George Akerlof's "lemons" paper, which won him the Nobel Prize, was rejected by three journals before the Quarterly Journal of Economics published it in 1970 (endnote, p. 214). Freakonomics does not identify the rejecting journals, but Akerlof's Nobel essay does (http://nobelprize.org/economics/articles/akerlof/). Editors of the American Economic Review and the Review of Economic Studies told him that they "did not publish papers on subjects of such triviality." The Journal of Political Economy told him if he was right then "economics would be different."

Freakonomics was nominally coauthored, but apparently was written mostly by Dubner (Levitt claims not to be much of a writer). Outsourcing the writing to a journalist comes at a cost. One cost is some loss of the investigative back-story, such as how Levitt gets his research ideas. For example, we learn that in 1996 whistleblowers died mysteriously after charging that sumos fixed matches. Is that what sparked Levitt's interest? And we learn that in the early 1990s a politician was lambasted for suggesting that legalized abortion reduced the crime rate. Did that put Levitt on the trail? We also hear little about research that challenges Levitt's findings. For example, Akerlof, Yellen, and Katz argued that legalized abortion actually increased the number of out-of-wedlock births (Q J E, 1996), but that research is not mentioned. Levitt relies a lot on his state-by-state evidence linking legalized abortion to falling crime rates, but critics claim that states with abortion bans had exceptions for the health of the mother and ended up with higher abortion rates than some states without bans.

Another cost of outsourcing the writing is a bit of confusion. According to Freakonomics, Isaac Erlich found that "executing 1 criminal translates into 7 fewer homicides that the criminal might have committed" (p. 125). That would make every convicted murderer a would-be serial killer on average. I believe what Erlich concluded was that 1 execution has the deterrent effect of reducing murders in general by 7. Another mix-up is when the authors write "But information asymmetries everywhere have in fact been mortally wounded by the Internet" (p. 68). When I read that, I thought "No they haven't—how about the lemons problem, for example." But never mind, on the very next page we read "The Internet, powerful as it is, has hardly slain the beast that is information asymmetry" (p. 69).

Aiming the book at a wider audience makes marketing sense but reduces the book's usefulness as a course supplement. For example, there is an apparent aversion to anything approaching the scientific method. Instead, the book's pose seems to be: "Hey, we're just talking about interesting stuff here." Readers will learn nothing much about the difference between testing hypotheses and simply explaining outcomes in an ad hoc fashion. The authors also seem averse to most economic terms, believing perhaps that using them would turn off readers. For example, theory, model, hypothesis, opportunity cost, marginal, and cost do not appear in the index, though Madonna , Britney Spears, Grateful Dead, television, self-esteem, and halitosis do, and one footnote contains 121 slang expressions for crack cocaine. One minor point: In a few instances, the book quotes people using the "F" word. These quotes are germane, but instructors considering the book as a course supplement should at least be aware of this small patch of R-rated language.

While the writing is usually lively, at times the book rambles for long stretches. For example, the debate about the importance of parenting wanders for pages as does the chapter on naming children. Another example of journalistic excess is the history of the Ku Klux Klan, which runs for a dozen pages, all to get to this point: "The Ku Klux Klan was a group whose power—much like that of the politicians and real-estate agents or stockbrokers—was derived in large part from the fact that it hoarded information" (p. 66). That seemed a long time in coming. Incidentally, that sentence could be cut by 13 words, or 40 percent, with no loss in meaning to: "The Ku Klux Klan's power—much like that of politicians, real-estate agents, and stockbrokers—stemmed largely from hoarding information."

Sandwiched between chapters of Freakonomics are passages from a 2003 New York Times article Dubner wrote about Levitt, which triggered the idea of collaborating on a book. Dubner uses these passages to characterize Levitt as a dragon slayer of conventional wisdom, noting that some of Levitt's research "managed to offend about everyone." (p. 115). But who gets speared the most in Freakonomics? The Ku Klux Klan, school teachers who cheat, sumo wrestlers who rig matches, criminologists who wrongly predicted a crime wave, Enron energy traders out to fleece a grandmother, corporate felons, game show contestants who discriminate against the elderly, parents with unfenced swimming pools, and real-estate agents focused most on their own commission. For such a dragon slayer, these are pretty small dragons (though Levitt's research on abortion and the crime rate took more courage). Besides, economists in general have a long-standing reputation for challenging the conventional wisdom. For example, in describing Harvard president and economist Larry Summers, Slate critic Stephen Metcalf notes that "Economists live to congratulate themselves on their own brusque candor, by which everyone else's cherished assumptions are revealed to be total bunk. They are bulls in search of fine bone china" (http://slate.msn.com/id/ 2114139/). Levitt may be a bull, but he has company.

In the sandwiched passages, Dubner implicitly sets up most other economists as Levitt's foils. Levitt sees economics as an excellent tool for gaining answers, but with a serious shortage of interesting questions. Levitt's gift is in asking interesting questions. Then "He figures a way to measure an effect that veteran economists had declared unmeasurable" (p. xi). According to this narrative arc, economics can be interesting in the imaginative hands of Steve Levitt. The implication is that most other economists are caught up in abstractions, imprisoned in their narrow imaginations, and too busy bowing to conventional wisdom. This economists-as-foil spin may help explain why some readers who may otherwise dislike economics and economists are drawn to the book. For example, Stephen Bayley, reviewing Freakonomics for the London Observer, calls the book "brilliant," while confessing to what he calls his "near-psychotic loathing of all economists" (7/24/05).

The authors claim that Freakonomics is their "invented field of study" based on their willingness to "follow whatever freakish curiosities may occur to [them] (p. 14). So the Freak in Freakonomics is not a reference to Levitt but to the odd topics his curiosity turns up. I believe the name Freakonomics really represents a marketing effort to brand their book as anything but boring economics. I could suggest some other titles. If they want to emphasize their iconoclastic approach to conventional wisdom, they could call it Iconomics. If they want to emphasize their role of seekers of economic truth regardless of a topic's sensitivity, they could call it Seekonomics . If they want to underscore Levitt's geeky persona (Dubner writes "His appearance is High Nerd," p. 115), they could call it Geekonomics. Or if they want to emphasize the power of some simple propositions to help explain a confusing world, how about ... Economics? Naw, that'll never sell.

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