Freakonomics by Steven D. Levitt with Stephen J. Dubner
Freakonmics might change how you think about economics. It reads more like a Gladwell book reframing interesting questions. While it does not provide the methodology or the deep analysis that an economist might treasure; it does reveal that cause and effect are not always what they seem. Conventional wisdom is often wrong. What appears to be obviously true, may in fact be untrue. And the connections between two very different topics may surprise you.
Freakonomics covers questions such as:
- What do schoolteachers and sumo wrestlers have in common?
- How is the Ku Klux Klan like a group of real estate agents?
- Why do drug dealers still live with their moms?
- Where have all the criminals gone?
- What makes a perfect parent?
Yet, don't think that the writers started with these questions. This is something of a jeopardy game. What schoolteachers and sumo wrestlers and lots of others have in common turns out to be the incentive to cheat. The Klan and real estate agents share a love of information. We do too. Secret information revealed on public radio drastically reduced membership in the KKK. If you only knew that real estate agents code message in house ads and sell their own houses differently then they sell yours! Drug Dealers live with their mom because despite the popular idea that drugs lead to riches, very few dealers and only those at the top make really good money. The rest scrape by. Surprising information comes to the surface when an economist gets a hold of the detailed accounting of a drug dealer. Some very contentious facts get sorted out from their popular fictions in chapter 4. Many parents try to do the right thing for their children, but what we often attribute a child's success to can be rather different from the actual causes. Levitt and Dubner make clear the distinction between correlation and cause. It can be relatively simple to show that that two things are statistically related, but it is a much more complicated matter to prove that one thing leads to another.
Measuring Impact
For those interested in measuring the impact of their giving, Freakonomics may offer hope. If enough data can be compiled, some conclusions can be drawn. However, the right data needs to be availble. And that data needs to help determine the cause and effect clearly, especially if it goes against conventional wisdom. Understanding what data offers good information and what causal relationships can be determined can reduce significant frustration around meeting goals and achieving impact.
Incentives and Economics
Incentives. Complicated. Useful to understand. Economics is the measurement of things in flow. Incentives are the carrots to making flow happen or happen differently. Economics and incentives thus are closely tied. For example, you want to incentivize people to pick their kids up from day care? According a research project referenced in this book, an additional charge of about $3 will not only dis-incentivize late pick-ups. It will incentivize them. The cost is low, and the feelings of guilt that it releases are well worth the small financial cost. People do not necessarily respond to incentives in simple or predictable ways. We create economies when we attempt to incentivize people to donate, volunteer, work harder, or collaborate in a new way. Understanding how these economies work can mean a real difference in the impact you can make.
What is your incentive to read this book?
What will you get from reading Freakonomics? The authors tell us, “You might become more skeptical of the unconventional wisdom; you may begin looking for hints, as to how things aren't quite what they seem; perhaps you will seek out some trove of data and sift through it, balancing your intelligence and your intuition to arrive at a glimmering new ideas….You may find yourself asking a lot of questions.”
Questions may lead to creativity and creativity may lead to innovative solutions. Ask some questions today.
