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Freakonomics: a Rogue Economist Explores the Hidden Side of Everything

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Freakonomics: a Rogue Economist Explores the Hidden Side of Everything Freakonomics: A Rogue Economist Explores the Hidden Side of Everything By Steven D. Levitt and Stephen J. Dubner New York City, William Morrow 2005 242pp, $51.95, ISBN 0 06 073132X The University of Chicago has a tradition of producing economists that push the boundaries of the discipline. This is the school that nurtured innovative and iconoclastic thinkers such as Milton Friedman (on macroeconomic stabilisation policy), Robert Lucas (on the use of ‘rational’ rather than Keynesian ‘adaptive’ expectations) and Gary Becker (on the economics of the family). Steven Levitt and his journalist co-author, Stephen Dubner, appear to be following this tradition by publishing a book that deals with a range of topics that do not fall within the realm of mainstream economics—hence the book’s title. Freakonomics can best be described as a sort of Bill Bryson guide to applied social science. It considers a number of disparate behavioural phenomena and seeks to make sense of them, sometimes drawing on economic hypotheses but always relying heavily on data. It is the emphasis on data that is the book’s strongest feature. Levitt and Dubner discuss innovative techniques for identifying match-rigging by sumo wrestlers, cheating by Chicago school teachers, the impact of parents on children’s school test scores and other diverse topics. The approach used to test sumo match-rigging is especially fascinating and is compulsory reading for anyone planning to sit a graduate job interview for McKinsey. Levitt and Dubner explain that the top wrestlers compete in tournaments six times a year. Each tournament comprises fifteen matches. A result of at least eight wins increases a wrestler’s ranking while seven wins or fewer causes his ranking to fall. Wrestlers’ income and status are based heavily on ranking, so a wrestler’s eighth win in a tournament is critical. Levitt and Dubner show that the probability of success of wrestlers sitting on a 7 win-7 loss record on the last day of a tournament is far higher than one would expect based on the relevant wrestlers’ past records and, more importantly, is reversed in the following match between the same two men. This suggests that many wrestlers come to an agreement or understanding for one to throw a match crucial to his opposition in return for quid pro quo treatment the next time around. A chapter that has attracted considerable controversy attributes the dramatic fall in US crime rates in the 1990s to the availability of abortion from 1973, following the landmark Supreme Court decision in Roe v Wade. Contrary to many experts’ predictions, violent crime rates fell dramatically across the United States from 1991, after rising strongly for the previous several decades. Levitt and Dubner systematically go through a number of conventionally cited reasons for the crime rate fall, but conclude that while some—tougher penalties, more police and lower profits from selling crack cocaine—played a part, none could explain the extent of the fall. The most important reason was apparently the wider availability of abortion from approximately 18 years prior to the start of the crime rate reversal, 18 being about the age young people enter their ‘criminal prime’. Women in difficult circumstances who would otherwise be giving birth to children who would later develop anti-social tendencies were no longer doing so. Levitt and Dubner discuss a range of correlations that back up their hypothesis. The most compelling of these is that those US States that first legalised abortion were those in which the crime rate fell first. Interestingly, Levitt and Dubner go one step further by pointing out that even if legalised abortion lowers crime, it does so in a costly manner: more than 100 foetuses are lost for each life saved from homicide, a trade-off the authors refer to as ‘terribly inefficient’. The crime-abortion chapter has attracted criticism on empirical (as well as moral) grounds, but there is no doubt it has stimulated debate. Certainly, it is refreshing to read an American discussion of one aspect of abortion that looks at the issue from a non-absolutist perspective. As to whether Levitt is a ‘rogue economist’, there is little unusual (for an economist) in the book’s emphasis on incentives and empirical analysis. The main aspect in which the book departs from standard economics is the broader way in which it conceptualises the motivations for human behaviour. While standard neoclassical economics begins with the assumption of a rational agent with given preferences, Freakonomics draws liberally from a variety of motivations including wealth, status, shame and even self-preservation! Sometimes this works well. For example, Levitt and Dubner hypothesise that the reason why parents using an Israeli child-care centre increased their lateness in picking up their children was because the centre began charging a small ‘late fee’. According to the authors, this fee relieved parents’ consciences for turning up late, so that they were able to manage their arrival time to suit their own fee-time trade-offs rather than to aim for promptness out of a sense of obligation. However, in other cases, the authors risk losing their readers’ faith or comprehension with their brainstorming-style commentary. When Levitt and Dubner tell the story of Paul Feldman, a former bureaucrat who began a bagel office delivery business working on an honesty payment system, they explain how Feldman found that the honesty of customers varied according to a range of factors. Customers in smaller companies tended to leave the right payment more than customers in larger companies, because, the authors say, of the higher risk of being caught not paying in a small company. The type of money container was also a factor—people were more inclined to steal from open baskets than a sealed box. Even morale and weather seemed to play a part. All of this makes sense. But in the conclusion to the chapter, Levitt and Dubner change tack to argue that people are innately good most of the time, citing Adam Smith’s The Theory of Moral Sentiments. Yet this is straight after pointing out how cash from Feldman’s open money baskets was frequently stolen and straight before discussing the prevalence of cheating amongst schoolteachers. Another example of literary hand waving occurs in the final chapter on children’s names. The chapter’s ostensible purpose of asking whether names determine destiny seems to be an excuse to showcase some interesting Californian data on the baby-naming practices of different racial and socio-economic groups. We are told that blacks choose ethnically specialised ‘black names’ so that their children are not persecuted for ‘acting white’. At the same time, whites choose names first popularised by the well-educated. But no explanation is offered for why blacks choose names to save their kids from being beaten up but whites choose the names of their socio- economic superiors. The drawback with such a free-wheeling approach is that particular data may be consistent with a range of hypotheses. Picking a hypothesis to suit the data rather than testing previously- formulated hypotheses may happen regularly in the academy, but written up so breezily, it smacks of ex post rationalisation. But perhaps this is excessively picky. There are plenty of books on the market that prefer to opine without considering facts at all. Freakonomics provides some intriguing pop-social science and is perfect for those who love to theorise. Just ignore the annoying chapter introductions (no doubt courtesy of Mr Dubner) and read it in the lounge rather than the study. Reviewed by Rajat Sood .
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