Freakonomics: Summary

Nicolas Zuleta-AP English LanguageSubsections 1-4

The Hidden Side of Everything

Levitt introduces the reader to his book by discussing the unexpected drop in crime rate during the 90’s. In a country where crime is becoming intolerable and predictions horrifying, experts are proved wrong by dropping rates. Immediately after, logical arguments about rates assure that the bettering economy, higher employment rates and established policies where responsible of the outcome. Reality is that the seemingly insignificant court case of a woman who wanted an abortion truly turned around crime rates. Legalization of abortion resulted in thousands of unborn criminals. Thus, Levitt discusses and presents the idea of how basic economic instincts affect situations we attribute to other more obvious, yet less logical causes.

Further extending the argument, the author introduces another simple yet astounding example. By juxtaposing real estate deals with political campaign, the reader is shown how incentives play an instrumental role in everyday situations. We are demonstrated that money is not a significant factor for political campaigns and that if personal gain is not strong enough, a real estate agent will not maximize the sell price of his clients property. Two unrelated things are brought together by economic principals that reveal a greater truth about the intricacies of our systems. The point being that is is necessary to look at things in another way, so that we may find the hidden side of how things actually work.

The Hidden Side of Everything

What do Schoolteachers and Sumo Wrestlers have in Common ?

The power of incentives is discussed. As Levitt defines them, incentives are “how people get what they want, or need, specially when other people want or need the same thing.” The public education system serves as an example of how teachers were willing to cheat, thus manipulating their students test results in order to obtain money compensations and prestige. Teachers put in risk the learning of children if the opportunity of bettering their conditions is present. Similarly, the Japanese mafia and sumo wrestlers agree upon fixing fights when there is enough incentive for fighters to loose without harming their ranking. Here, even the most moral situations induce people to cheat if the stakes are right, proving that, as argued by Levitt, “cheating after all, is a primordial economic act: getting more for less.” Therefore, making incentives a tremendously powerful tool.

The debate regarding incentives within teachers and sumo wrestlers makes us questions if humans intrinsically cheats. To answer this economically based inquiry, Levitt describes an example of a man who sold bagels to company employees in an honor system. Here the subject of morality in economics becomes primordial because of the overlapping and contradictory systems. As Dubner explains, “morality represents the way we would like the world to work and economics represents how it actually works.” Surprisingly enough, a humble bagel seller demonstrated us that as written by Smith, “how selfish so ever may man be supposed, there are evidently some principals in his nature, though he derived nothing from it.” To our astonishment a vast majority paid for the bagels, despite the high incentives to cheat and steal the food or the money.

What do Schoolteachers and Sumo Wrestlers have in Common ?

The Ku Klux Klan& Real Estate AgentsAfter arguing the importance of incentives and the

intrinsic human behavior in seemingly banal yet economic scenarios, Levitt proposes a parallel between the organizational scheme of violent marginal groups and aspiring businessmen in the capitalist economy. The author argues that the underlying purpose of such organizations is maximizing ideals and views that be come more powerful when held by larger groups. The key lies in the value of information, as proved by the data posed by Levitt, “once that information falls into the wrong hands, much of the group’s advantage disappears.” Anyhow, a contradiction is presented with the evidence that 87% of the time people act according to a higher moral standard. In economic terms, negative behaviors are justified within groups, may it be in political, criminal or monetary aspects, thus providing “incentives” to break such previously stated paradigms.

Fourth 1/4

Subsection 7 & 8Why Do Drug Dealers

Still Live with Their Moms?

Throughout the fourth chapter, Levitt questions the odd reality of why drug dealers live with their moms. Although, before revealing the statistical data leading to his conclusive evidence, the author discusses the nature of questions and conventional wisdom. Thus, Levitt introduces John Kenneth Galbraith, an economic sage, who suggested the term for the first time. Galbraith suggests “we associate truth with convenience, with what most closely accords with self-interest and personal well-being or promises best to avoid awkward effort or unwelcome dislocation of life”. With such discourse Galbraith, proposes a theoretical paradigm shift on economic thinking in terms of conventional wisdom. This wisdom better known as street smart knowledge, proves of great importance in modern economic trends. Thus, Levitt concludes that in scenarios like the drug dealers living alongside their mothers, the “savvy” factor becomes crucial in understanding the functionality of the system itself.