Freakonomics :: Book Review

I’ve always believed that people don’t find books, books find people; and it seems that every book I read adds another layer of truth to that belief.

Just when my mindset and writing was focused on the topic of critical thinking, Freakonomics, a Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner, found me.

Steven Levitt (the book’s focus) is an economist that specializes in breaking with conventional wisdom and digging deep to find the reasons that people do what they do. I couldn’t have made up a better example of critical thinking.

Steven’s blindness to political correctness and immunity to political ideology resembles the curiosity of a child. His simple, yet powerful explanations show the creativity of a master. When all other scientists are working on the mechanics of a broken machine, Steven is the one who goes behind and plugs it in.

He’s interested in the types of questions that might have crossed your mind, but didn’t seem serious enough for a scientist.

What caused the crime drop in the 90’s?

Does a real estate agent really have your best interests at heart?

If drug dealers make so much money, why do they still live with their moms?

Which is more dangerous, a gun or a swimming pool?

Is Sumo wrestling corrupt?

What are the characteristics of someone who might take a bagel without leaving a dollar in the honor box?

Do teachers cheat to meet high-stakes testing standards?

How does a homeless man afford $50 headphones?

Why do parents give their children the names they do and what does that say about them?

How does a crack gang leader manage his organization?

Do parenting techniques work, or is it all about genetics?

As you can see, Steven dabbles in topics that could easily become politically charged. He’s been accused by conservatives as being a liberal ideologue, and by liberals as being a conservative ideologue. This tells me that he’s on the right track.

Incentives

Steven likes to work from the microeconomic perspective of asking how a single human being goes about getting what he wants. To him, it’s all about incentives. We do what we get rewarded for and don’t do what we get punished for.

Real Estate Agents

Of particular interest to me was the discussion of what motivates real estate agents. On the surface, it would seem as if a real estate agent is motivated to get the highest amount for the sale of your home because of the fact that they work on commission.

Research data shows that real estate agents tend to keep their own homes on the market ten days longer and hold out for a three percent higher sales price than those of their clients.

It turns out that the agent’s incentives are not necessarily aligned with the home owner’s. Given the choice between selling your home today for $300,000 or ten days later for $310,000, they will almost always choose to sell it today.

The reason is they would earn $18,000 today on a 6% commission, but only gain $600 more for selling it ten days later. They would rather just sell your house and get on to their next $18,000 commission as soon as possible.

I’m not necessarily going to cease my relationship with my agent, but I’m definitely going to keep that in mind in negotiations.

Crack Gang Accounting

One of the most fascinating parts of the book was the discussion of how a crack gang works. Levitt ran into an economist who spent several years embedded in a crack gang.

By shear stroke of luck, he happened to pick possibly the only gang in history that kept their own books. Years of accounting records were painstakingly recorded in spiral notebooks and handed over to the economist when the gang was being shut down.

The books gave a rare glimpse into the inner-workings of a crack “franchise.” They told how much money the individual members made, what the hierarchy looked like, what the death rate was, and how much “insurance” was paid to killed members.

Bagel Honesty

Another extremely interesting chapter was the discussion of office worker honesty. A man who was only semi-engaged in his office job began bringing bagels to work and leaving out a basket to help recoup his expenses. He soon found that he could make more distributing bagels to different offices than he was making at his job, so he quit and got into the bagel business.

He kept extremely accurate records of how many bagels were taken versus how much money he collected. Sorting through this data provided an interesting look into which offices were the most honest, which holidays inspired the most or least honesty, and who was more honest between an executive and an average worker.

Another Good One

I would recommend this book to anyone who has an open mind and a curiosity about the world. Prepare to have your world view challenged and be offended on some level. After you have finished, you will have given your critical thinking muscles a strong workout.

Freakonomics, a Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner