Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

by Steven D. Levitt

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything Summary

Summary

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything is the result of a partnership between a journalist, Stephen J. Dubner, and a University of Chicago economist, Steven D. Levitt. The two explain that the premise of Freakonomics sprung from an assignment Dubner received from New York Times Magazine to write a profile of Levitt. While interviewing Levitt, Dubner found that unlike other economists whom he had interviewed, he actually understood Levitt’s quirky yet effective way of explaining statistics. The two developed mutual respect, which resulted in their writing the best-selling book.

Introduction: The Hidden Side of Everything

In Freakonomics’s introduction, the authors discuss that statistics and subjects that normally seem dissimilar share commonalities when examined more closely and when the right questions are asked. Near the end of the introduction, a preview of the book’s themes appears, and Levitt and Dubner establish their satirical and conversational tone found in each chapter.

Chapter 1: What Do Schoolteachers and Sumo Wrestlers Have in Common?

According to the authors and the statistics they research and report, the answer to the title’s chapter is cheating, though the entire chapter is not about cheating. It begins by discussing the human need for incentives—categorized as economic, social, and moral incentives. The authors use the examples of a daycare in Israel incorporating a fine to motivate parents to pick up their children on time to define what a typical incentive looks like in everyday life. The discussion then turns to cheating and how incentives can encourage dishonesty. They discuss the Chicago Public School System as their first example of the connection between incentives and cheating. In 1996, the school system instituted bonus pay based on the standardized test scores of teachers’ students. If a teacher’s students demonstrated significant gains on their test scores, the teacher received a monetary bonus. Researchers found after studying score results from 1993–2000 that a spike in cheating occurred in 1996. A three-year study showed that on average cheating occurred in at least 200 Chicago classrooms per year. Levitt and Dubner then compare the number of cheating teachers to sumo wrestlers who work collaboratively to throw matches because, in the end, more of them benefit from having similar records.

The final portion of the chapter focuses on moral incentives and features Paul Feldman, an entrepreneur with a small bagel business. For years, Feldman has delivered bagels to the workrooms of various businesses. He runs his bagel business on the honor system by listing the price of a bagel and providing a moneybox for his customers. Feldman has kept meticulous records of the rate of payment he receives (normally around 87%), the types of businesses that seem to be more honest (small offices), and the times of year when people seem more inclined to take bagels without paying for them (holidays). The authors’ and Feldman’s conclusion is that in general humans are honest even when no one is watching them—thus, the power of a moral incentive.

Chapter 2: How Is the Ku Klux Klan Like a Group of Real-Estate Agents?

Although Chapter 2 in no way suggests that real-estate agents are hooded racists who terrorize the innocent, it does discuss how access to information creates power for the informed. Much of the chapter discusses the history of the Ku Klux Klan (KKK) and an activist’s (Stetson Kennedy’s) efforts to destroy the Klan. Kennedy, the author of a book titled The Klan Unmasked,claimed that he infiltrated the KKK in the 1950s. Even though the authors later discovered that Kennedy worked with a man code-named John Brown, and that Brown was actually the one who attended the meetings, they keep Chapter 2 as it is in the revised edition of Freakonomics because many of Kennedy’s facts about the Klan are true. What Kennedy discovered about the KKK and later revealed to anyone who would listen is that the Klan was not nearly as powerful as it liked to appear. In fact, it was little more than a “slick money-laundering operation” by the 1950s. The KKK relied on an established reputation of violence rather than actually carrying out numerous acts of violence. In truth, the Klan’s power rested in the information it received from members or associates and then hoarded for the benefit of a few. Kennedy was successful in “sharing” most of this information with the public via the radio, which ultimately resulted in a widespread decrease in the Klan’s membership and in its losing the advantage of being able to hoard information.

After concluding the KKK example, Levitt and Dubner use statistics to demonstrate that real-estate agents also make a profit by hoarding information. For example, for a house that sells at a high price, agents use descriptive terms that provide specific information (i.e., granite, state-of-the-art, or Corian). In contrast, lower sales prices are associated with generic terms (e.g., fantastic, charming, or spacious). The agent’s decision about what kind of...

(The entire section is 2144 words.)