What are the main ideas of Freakonomics?
The authors' intent, as they describe it, is to present a worldview comprised of five "fundamental ideas," easily expressed in terms of "main ideas": 1. incentive; 2. conventional wisdom; 3. remote, subtle causes for effects; 4. experts' informational advantage; 5. economic tools of measurement.
This book, then, has been written from a very specific worldview, based on a few fundamental ideas. ... Most books put forth a single theme, .... This book has no such unifying theme.
Using the Introduction to Freakonomics, the first idea Levitt and Dubner introduce is that while events may trigger a "scramble" for answers as to causes for the event, conventional wisdom may entirely miss the true cause, selecting logical and easily identifiable reasons instead. The example used is that the Roe v. Wade abortion ruling caused a drop in population in specific demographics resulting in an unexpected drastic, persistent drop in crime rates in the 1990s: "conventional wisdom is often wrong."
The second idea introduced is that all actions are motivated by incentive. The authors call incentives--the things that motivate your choices and actions--the "cornerstone of modern life." They attribute the growth of incentives--"incentives were magnified tenfold"--to the rise of capitalism in the 1700s, leading to Adam Smith's economic philosophy book The Theory of Moral Sentiments published in 1759: "incentives are the cornerstone of life."
The third idea introduced is that causes leading to effects may often, as in the case of Roe v. Wade and crime reduction, be "distant, even subtle." This means that causes for events may be unidentified because remote and seemingly unrelated when in fact they have precipitated events: "Dramatic events often have distant, even subtle, causes."
The fourth idea introduced is that experts have motivation to suppress information--to misuse their "informational advantage"--so as to benefit themselves while not ethically serving the client. The other half of this idea is that the informational advantage can be "beaten" by disseminating industry-specific information being used by experts for personal advantage: "'Experts' ... use their informational advantage to serve their own agenda. ... in the face of the Internet, their informational advantage is shrinking every day."
The fifth idea is that the application of the tools of economics--knowing what to measure and how to measure it--untangles the complexities of the world we live in by demystifying it from the moralistic concept that the world "should work this way" to the economic concept that it "does work this way": "Knowing what to measure and how to measure it makes a complicated world much less so."
If there is one main idea of this book, it is that economics can explain many things. What the authors of the book are trying to do is to promote economic thinking. They are trying to convince us that such thinking can explain much about the world.
Towards the end of the introduction to the book, the authors set out the main points that they want us to understand. Among them are:
- Incentives are important. People's actions are based in part on what incentives they have to act in certain ways.
- Conventional wisdom can be wrong. Instead of taking such wisdom on faith, we should use empirical data to show us the truth.
- Things can have causes that are not immediately obvious. This means that careful study is needed to understand what causes are related to what effects.
- It is important to know what things to measure and how to measure them. This allows you to understand what is going on in a bunch of data that once seemed impenetrable.
What all of these ideas have in common is that they are based on economic thinking. The authors want us to think more like economists and use economic insights so that we can understand everyday life more clearly.