1 Economics for Everyone (Econ 19000) Spring 2018 Professor

Economics for Everyone (Econ 19000) Spring 2018

Professor Steven Levitt [email protected]

Overview of the Class:

The field of economics has generated a powerful set of insights which have fundamentally shaped the modern world. Because modern economics puts such a heavy stress on mathematical rigor, the most interesting economic ideas often get pushed to the background. In this course, we will explore these big economic ideas, without the math. Our goal is to make the beauty and power of economic thinking available to everyone. We will discuss what it means to think like an economist, how you can use economic thinking to make the world a better place (or to take advantage of your friends and enemies, if you prefer), and also how sometimes thinking like an economist can get you into trouble.

Logistics:

The class meets Tuesdays and Thursdays from 2:00 PM to 3:20 PM in Kent 107. There is no discussion section.

TA Office Hours - All held in Booth Winter Garden

Anya Marchenko ([email protected]) - Wednesdays 11am - 12:30pm Margaret Decker ([email protected]) - Tuesdays 3:30 - 4:30pm Riddhi Gupta ([email protected]) - Thursdays 3:30 - 4:30pm Ankit Agarwal ([email protected]) - Mondays 3:30 - 4:30

Formal Requirements:

This class will include four problem sets, one midterm exam, one final exam, and several in-class quizzes. We understand that many of our students will pursue summer internships, some of which may conflict with the final exam in this class. In this case, the student may take the senior final instead of the final exam, which will be held at a date to be determined during reading period. In order to qualify for the senior final, the student must submit a letter from their internship which includes the date it begins. At the first class, we will decide the weights for each of the components (in-class quizzes are locked in at 10% of grade).

Required Texts:

The reading material for this course will be in the form of articles and excerpts from popular economics books. The articles and excerpts from books we have written (Freakonomics, Think Like a Freak, The Why Axis, and Economics) will all be linked on the online version of the syllabus. Some other books we think are incredibly useful are The Armchair Economist, by Steven E. Lansburg, The Undercover Economist, by Tim Harford, and Nudge: Improving Decisions about Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein. These are available on Canvas under Files → Readings. You may purchase these if you wish, but it is not required.

Outline of Course Lectures

LECTURE 1: WHY MARKETS ARE GREAT

Lecture 1 (March 27): Course logistics, overview of why markets are great and how economics has played a role in making the world great (Steve & John)

Supplemental readings:

Bettina Bien Greaves, “Why Communism Failed,” Foundation for Economic Education. 1 Mar. 1991 https://fee.org/articles/why-communism-failed/

“Micro Stars, Macro Effects.” The Economist. The Economist Newspaper, 24 Nov 2012. http://www.economist.com/news/21567079-meet-economists-who-are-making-markets- work-better-micro-stars-macro-effects

Chapter 8 from The Armchair Economist

Chapter 12 from The Armchair Economist

LECTURES 2-3: PRINCIPLES AND ECONOMIC WORLDVIEW

Lecture 2 (March 29): The Principles and Practice of Economics - opportunity cost, comparative advantage, incentives, marginal thinking, information, and preferences (John)

Required readings:

Chapter 1, Chapter 2, and Chapter 3 from The Why Axis

Chapter 1 and Chapter 3 from Economics

Relevant podcast: https://www.npr.org/sections/money/2012/12/25/167976196/episode- 238-making-christmas-more-joyful-and-more-efficient

Supplemental readings:

“Massive open online forces.” The Economist. 8 Feb. 2014. http://www.economist.com/news/finance-and-economics/21595901-rise-online- instruction-will-upend-economics-higher-education-massive

“Incentives matter.” The Economist. 24 Nov 2012. http://www.economist.com/blogs/freeexchange/2014/12/measuring-economic-

development

“A dollar now or a hundred dollars later.” The Economist. 30 Oct. 2012. http://www.economist.com/blogs/feastandfamine/2012/10/cost-doing-nothing

Lecture 3 (April 3): The Economic Worldview (Steve) - P-Set 1 posted

Markets, market structure, market failures, incentives, trade/comparative advantage Required readings:

Chapter 1 from Think Like a Freak

Thomas Thwaites’ Toaster Ted Talk: https://www.youtube.com/watch?v=5ODzO7Lz_pw

Supplemental readings:

Becker, Gary; Jorge Elias, Julio. “Introducing Incentives in the Market for Live and Cadaveric Organ Donations.” Journal of Economic Perspectives. vol 21.3. (Summer 2007) pp. 3-24. http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.21.3.3

Horan, Richard; Bulte, Erwin; Shorgren, Jason. “How trade saved humanity from biological exclusion: an economic theory of Neanderthal extinction.” Journal of Economic Behavior and Organization. Vol. 58 (2005) 1-29. http://ac.els- cdn.com/S0167268105000284/1-s2.0-S0167268105000284-main.pdf?_tid=c9389854- fdda-11e6-af1a- 00000aacb35f&acdnat=1488302860_af0099ad7831da390367b4b99dd1e610

“How rich we really are.” The Economist. 11 Dec 2014. http://www.economist.com/blogs/freeexchange/2014/12/measuring-economic- development

“A Tightening grip.” The Economist. 12 Mar. 2015. http://www.economist.com/news/briefing/21646180-rising-chinese-wages-will-only- strengthen-asias-hold-manufacturing-tightening-grip

Bershidsky, Leonid. “Fake news is all about false incentives.” Bloomberg. 16 Nov. 2016. https://www.bloomberg.com/view/articles/2016-11-16/fake-news-is-all-about-false- incentives

“Dear economist, I need a date” NPR. 2014 Jan 29. http://www.npr.org/templates/transcript/transcript.php?storyId=268422490 (listen or

read)

Chapters 6, 8, and 9 from Think Like a Freak

LECTURES 4-6: BASICS OF ECONOMICS

Lecture 4 (April 5) - (John) Lecture 5 (April 10) - (John) - P-Set 1 DUE, P-Set 2 posted on Canvas Lecture 6 (April 12) - (John)

Required readings:

Chapter 4 and Chapter 8 from Economics

Acemoglu, David; Laibson, David; List, John. “Do companies like Uber make use of the invisible hand?” Microeconomics, 2nd edition, 2018. pp. 157-160. https://www.dropbox.com/s/fwaiwfu65nb9kxy/Uber%20Invisible%20Hand.pdf?dl=0

Uber’s consumer surplus: http://freakonomics.com/podcast/uber-economists-dream/

Supplemental readings:

Chapters 7 and 16 from The Armchair Economist

Chapter 3 from The Undercover Economist

Matthews, Chris. “The ‘invisible hand’ has an iron grip on America” Fortune. 13 Aug. 2014. http://fortune.com/2014/08/13/invisible-hand-american-economy/

Moore, Tyler; Clayton, Richard; Anderson, Ross. “The economics of online crime.” Journal of Economic Perspectives vol 23.3 (2009): pp. 3-20 http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.3.3

Smith, Noah. “An econ test question we shouldn't get wrong.” Bloomberg. 18 Oct. 2016 https://www.bloomberg.com/view/articles/2016-10-18/an-econ-test-question-we- shouldn-t-get-wrong

Smith, Noah. “Economics has a major blind spot.” Bloomberg. 26 Sept. 2016. https://www.bloomberg.com/view/articles/2016-09-26/economics-has-a-major-blind-spot

“MP3 player “sale” exposes Amazon’s flexible prices.” CNet.

https://www.cnet.com/news/mp3-player-sale-exposes-amazons-flexible-prices/

LECTURE 7: HOW ECONOMISTS USE DATA TO UNDERSTAND THE WORLD

Lecture 7 (April 17) (Steve)

Supplemental readings:

Chapter 2 from Economics

Chapter 4 from Freakonomics - Where have all the criminals gone?

Relevant podcast on big data: http://freakonomics.com/podcast/big-penis-things-ask- google/

Smith, Noah. “Data geeks are taking over economics.” Bloomberg. 25 Aug 2016. https://www.bloomberg.com/view/articles/2016-08-25/data-geeks-are-taking-over- economics

Athey, Susan. “How do academic economists use A/B testing?” Forbes. 25 Apr 2016 http://www.forbes.com/sites/quora/2016/04/05/how-do-academic-economists-use-ab- testing/#787f6e8b3282

LECTURES 8-9: BEHAVIORAL ECONOMICS

Lecture 8 (April 19): How to get people to do what you want: incentives, mandates, education, persuasion, nudges (Steve) - P-Set 2 DUE

Required “readings”:

HiddenBrain:https://www.npr.org/2016/01/12/462386252/richard-thaler-why-most- economists-might-as-well-be-studying-unicorns

Supplemental readings:

Introduction and Chapter 17 of Nudge

“The Cubs and the Comfort of Defeat.” The Economist. 4 July 2011. http://www.economist.com/blogs/prospero/2011/07/behavioral-economics-and-sport

Harford, Tim. “The odds are you won’t know when to quit.” Financial Times. 6 May

2016. https://www.ft.com/content/7dd53a96-117e-11e6-839f-2922947098f0

Chapter 8 from The Why Axis

Lecture 9 (April 24): How to take advantage of people (for better or for worse): (Steve)

Supplemental readings:

Harford, Tim. “Raising the stakes on life’s big choices”. The Financial Times. 8 February 2013. https://www.ft.com/content/ab5a6c96-6ffd-11e2-8785- 00144feab49a#axzz2KPLsR9wA

Thaler, Richard. “The Power of Nudges, for Good and Bad.” The New York Times. 31 Oct 2015. https://www.nytimes.com/2015/11/01/upshot/the-power-of-nudges-for-good- and-bad.html

Jachimowicz, Jon; McNerney, Sam. “Should Governments Nudge Us to Make Good Choices?” Scientific American. 1 Sept 2015. https://www.scientificamerican.com/article/should-governments-nudge-us-to-make-good- choices/

Stillman, Sarah. “Can behavioral science help in Flint?” The New Yorker. 23 Jan 2017. http://www.newyorker.com/magazine/2017/01/23/can-behavioral-science-help-in-flint

Tugend, Alina. “Too many choices: A problem that can paralyze.” The New York Times. 26 Feb. 2010. http://www.nytimes.com/2010/02/27/your-money/27shortcuts.html

Thaler, Richard. “Opting in vs. Opting Out.” The New York Times. 26 Sept. 2009. http://www.nytimes.com/2009/09/27/business/economy/27view.html

MIDTERM - APRIL 26

LECTURES 10-11: GAME THEORY AND STRATEGIC BEHAVIOR: Information, lemons, auctions, bargains, game theory

Lecture 10 (May 1) - (Steve) - P-Set 3 Posted Lecture 11 (May 3) - (Steve)

Supplemental readings:

“What is Nash equilibrium and why does it matter,” The Economist. 7 Sept. 2016. http://www.economist.com/blogs/economist-explains/2016/09/economist-explains-

economics

Bulow, Jeremy; Levin, Johnathan; Milgrom, Paul. “Winning play in spectrum auctions.” National Bureau of Economic Research. March 2009. http://www.nber.org/papers/w14765

Bergstrom, Ted. “Love and spaghetti - the opportunity cost of virtue,” Journal of Economic Perspectives vol 3.2 (Spring 1989): pp. 165-173 http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.3.2.165

Gentzkow, Matthew; Shapiro, Jesse. “Media bias and reputation,” Journal of Political Economy, vol 114.2. (2006). https://web.stanford.edu/~gentzkow/research/BiasReputation.pdf

Akerlof, George. “The market for lemons: Quality uncertainty and the market mechanism,” The Quarterly Journal of Economics, vol 84.3. (Aug 1970) pp. 488-500. http://www.econ.yale.edu/~dirkb/teach/pdf/akerlof/themarketforlemons.pdf

Chapter 7 from Think Like a Freak

Chapter 3 from The Armchair Economist

Chapter 5 from The Undercover Economist

LECTURE 12: WHEN THE FREE MARKET ISN’T ENOUGH

Lecture 12 (May 8): public goods, rule of law, property rights, government intervention, market structure, externalities - (John)

Supplemental readings:

“The new drugs war,” The Economist. The Economist Newspaper, 4 Jan. 2014. http://www.economist.com/news/leaders/21592619-patents-drugs-are-interests-sick-well- industry-protection-should-not

“Universal health insurance is a common good,” The Economist. The Economist Newspaper, 8 Oct. 2009. http://www.economist.com/blogs/democracyinamerica/2009/10/universal_health_insuran ce_is

“Order in the jungle,” The Economist. The Economist Newspaper, 13 Mar. 2008. http://www.economist.com/node/10849115

Chapter 9 from The Armchair Economist

Chapters 2 and 4 from The Undercover Economist

LECTURE 13: CHARITY AND SOCIAL PREFERENCE

Lecture 13 (May 10): Charity and Social Preference (John)

Required readings:

Chapter 9 and Chapter 10 from The Why Axis

Relevant podcast: http://freakonomics.com/podcast/how-to-raise-money-without-killing- a-kitten-a-new-freakonomics-radio-podcast/

Supplemental readings:

Hernandez-Murillo, Ruben; Roisman, Deborah. “The economics of charitable giving: what gives?” St. Louis Fed. Oct 2005. https://www.stlouisfed.org/publications/regional- economist/october-2005/the-economics-of-charitable-giving-what-gives

“Doing good by doing well,” The Economist. 21 May 2015. http://www.economist.com/news/international/21651815-lessons-business-charities- doing-good-doing-well

LECTURES 14-18: APPLICATIONS

Lecture 14 (May 15): Crime (Steve) P-Set 3 DUE, P-Set 4 Posted

Required readings:

Chapter 4 from Freakonomics - Impact of Legalized Abortion on Crime

Relevant podcast: http://freakonomics.com/podcast/how-to-think-about-guns-a-new- freakonomics-radio-podcast/

Supplemental readings:

Duggan, Mark. "More Guns, More Crime," Journal of Political Economy, 2001, v109(5,Oct), 1086-1114. http://www.nber.org/papers/w7967.pdf.

Agan, Amanda, “Sex Offender Registries: Fear without Function?” Journal of Law and

Economics, February 2011

Keizer, Kess, Siegwart Lindenberg, and Linda Steg, “The Spreading of Disorder,” Science Nov 20, 2008.

Sloan, J.H. et al., “Handgun Regulations, Crime, Assaults, and Homicide: A Tale of Two Cities,” New England Journal of Medicine, vol. 319(19), Nov. 1988, pp. 1256-1262.

Lecture 15 (May 17): Investing and Finance (Steve)

Required readings:

Klein, Ezra. “This 4x6 index card has all the financial advice you need.” The Washington Post. 16 Sep 2013. https://www.washingtonpost.com/news/wonk/wp/2013/09/16/this- 4x6-index-card-has-all-the-financial-advice-youll-ever-need/?utm_term=.db46a7747530

Relevant podcast: http://freakonomics.com/podcast/everything-always-wanted-know- money-afraid-ask/

Supplemental readings:

Chapter 19 from The Armchair Economist

Flood, Chris. “Monkey beats man on stock market picks,” Financial Times, 30 Mar 2013. https://www.ft.com/content/abd15744-9793-11e2-b7ef-00144feabdc0

Ferri, Rick. “Any monkey can beat the market,” Forbes. 20 Dec 2012 http://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the- market/#4ebae0046e8b

Lecture 16 (May 22): Gender and Diversity (John)

Supplemental readings:

Cooke, Cody; Diamond, Rebecca; Hall, Jonathan; List, John; Oyer, Paul. “The Gender Earnings Gap in the Gig Economy: Evidence from over a Million Rideshare Drivers.” Jan. 2018, web.stanford.edu/~diamondr/UberPayGap.pdf.

Relevant podcast: http://freakonomics.com/podcast/what-can-uber-teach-us-about-the- gender-pay-gap/

Bertrand, Marianne and Black, Sandra E. and Jensen, Sissel and Lleras-Muney, Adriana, Breaking the Glass Ceiling? The Effect of Board Quotas on Female Labor Market Outcomes in Norway. (August 12, 2014). https://ssrn.com/abstract=2488955 or http://dx.doi.org/10.2139/ssrn.2488955

Goldin C, Rouse C. Orchestrating Impartiality: The Effect of 'Blind' Auditions on Female Musicians. American Economic Review. 2000;September 2000.

Lecture 17 (May 24): Discrimination (John) - P-Set 4 DUE

Required readings:

Chapter 6 and Chapter 7 from The Why Axis

Relevant podcast: http://freakonomics.com/podcast/gender-barriers/

Supplemental readings:

“No names, no bias?” The Economist. 29 Oct 2015 http://www.economist.com/news/business/21677214-anonymising-job-applications- eliminate-discrimination-not-easy-no-names-no-bias

Agan, Amanda Y. and Starr, Sonja B., Ban the Box, Criminal Records, and Statistical Discrimination: A Field Experiment (June 14, 2016). U of Michigan Law & Econ Research Paper No. 16-012. Available at SSRN: https://ssrn.com/abstract=2795795

Ward, Mark. “Amazon’s old customers ‘pay more’”. BBC News 8 Sept 2000. http://news.bbc.co.uk/2/hi/business/914691.stm

“Caveat emptor.com.” The Economist 30 Jun 2012. http://www.economist.com/node/21557755

List, John; Samek, Anya. “Discrimination Among Pre-School Children: Field Experimental Evidence.” Jan 2017. https://www.dropbox.com/s/mqdz83woqblnie3/annika%20list%20et%20al%20Discrimin ation%20Children%203.docx?dl=0

Lecture 18 (May 29): Education (John)

Required readings:

Fryer, Roland; Levitt, Steven; List, John. “Parental Incentives and Early Childhood Achievement: A field experiment in Chicago Heights,” National Bureau of Economic Research. August 2015 http://scholar.harvard.edu/files/fryer/files/gecc_final.pdf

Relevant podcast: http://freakonomics.com/podcast/early-education-rebroadcast/

Supplemental readings:

Chapter 4 from The Why Axis

Chetty, Raj; Friedman, John; Rockoff, Jonah. “The long term impacts of teachers: teacher value added and student outcomes in adulthood,” National Bureau of Economic Research. December 2011. https://www.rajchetty.com/chettyfiles/value_added.pdf

Levitt, Steven. “Bribing kids to try on tests” Freakonomics Blog. 26 June 2012. http://freakonomics.com/2012/06/26/bribing-kids-to-try-on-tests/

SENIOR EXAM - DATE TBD

FINAL EXAM - Monday, June 4th, 6:30 - 8:30pm (per Registrar)