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Steven D. Levitt is a professor of economics at the University of Chicago and the recipient of the John Bates Clark medal, awarded to the most influential economist under the age of forty. He was chosen as one of Time magazine’s “100 People Who Shape Our World” in 2006. A 2011 survey of economics professors named Levitt their fourth favorite living economist under the age of 60, after Paul Krugman, Greg Mankiw, and Daron Acemoglu.
Levitt earned his reputation as a researcher by applying innovative empirical strategies to analyze data in new ways. In so doing he was able to clear up long-standing puzzles by establishing solutions that had previously been difficult to prove. “Morality, it could be argued, represents the way that people would like the world to work, whereas economics represents how it actually does work.”― Steven D. Levitt, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything.
Chapter 1: The Power of Incentives
Chapter 2: Information Asymmetry
Chapter 3: Trust the Data
Chapter 4: Big Effects Can Have Small Causes
Chapter 5: Correlation vs. Causation
Chapter 6: What Data Can Teach Us
In the first chapter, what a teacher and a sumo wrestler have in common is that they cheat if they get an incentive. The authors argue that humans often make decisions based on incentives for what they do. The incentives are divided into three parts, namely: economic incentives, moral incentives, and social incentives. Economics is basically about incentives to get what they want. We learn to perceive incentives in both positive and negative terms and incentives are really just a means of urging people to do more of the good and less of the bad.
In the second chapter of this book, Prof. Levitt tells the history of the Ku Klux Klan which has enormous power in the South American region. The Ku Klux Klan has something in common with today’s real estate agents because it has more information than other parties. This is an example of information asymmetry. The Ku Klux Klan has a lot of personal information and passwords that only members of the Klan understand, as well as real estate agents. They have perfect information about the quality of the property compared to potential buyers. In fact, the real estate agent’s main goal is to sell the house quickly using information only he knows. That’s why information is so important.
In the third chapter, the author makes an analogy as to why drug dealers still live with their mothers, while a lot of money is made from this drug business. The history of crack epidemics in the United States increased as demand increased from people who could not afford cocaine, so they switched to a cheaper alternative, crack cocaine. Because it was in great demand, there were many small gangs selling crack cocaine. However, this business is like a franchise in that they have to give a few percent to their superiors in a larger organization. So, this crack cocaine seller will not take home all the money he receives from the sale. In addition, crack cocaine dealers have the possibility of being killed and jailed. The crack cocaine epidemic quadrupled the increase in the number of young blacks in urban areas. So actually the income from selling crack cocaine is not as big as we imagine.
In the fourth chapter, Levitt expands on crime and abortion. He starts with a case study on Romania. When Nicolae Ceaușescu became the communist dictator of Romania, he made abortion illegal. The aim was to boost Romania’s population in order to strengthen the nation. Before that point, abortion rates were high in Romania, with four abortions for every live birth. Levitt and Dubner state that the Romania abortion case is the opposite of the American crime situation. While the crime rate in Romania was increasing, the United States was experiencing a drastic decline in crimes like homicides. Contrary to what analysts had predicted, the country’s crime rate was diverting
In the fifth chapter, Levitt seeks to answer the question, what makes a perfect parent?, using various research. Despite the conventional wisdom on childrearing shifting by the hour, both experts and parents have their viewpoints about parenting, and these views often conflict with one another. For an expert to ensure that their theory remains a conventional wisdom, Levitt asserts that an expert engages public emotions, which is a great enemy of rational thinking. Apparently, fear is a primary component of the responsibility of parenting, and this makes parents more vulnerable to experts’ fear mongering. The main question of this chapter, though, comes when Levitt asks how much parents actually matter. After examining the link between abortion and crime and seeing the effects of an unwanted child subject to neglect and abuse being born, it is clear that bad parenting matters.
In the final chapter of this book as a continuation of the previous chapter, Levitt claims that every parent hopes that they can impact their child’s future in every decision they make in raising them, starting with the action of naming their offspring. Levitt includes a sociological component to his writing, showing how closely the field of sociology is related to economics. By presenting the work of Roland G. Fryer, Jr., Levitt is able to show how names are a reflection of the racial divide in society. Traditionally black names are typically given by low-income, low-education parents, partly in fear of repercussions for “acting white”. In part because of their names, these children are often not afforded the same opportunities to move up in society.
Which is more dangerous, a gun or a swimming pool? What do schoolteachers and sumo wrestlers have in common? Why do drug dealers still live with their moms? How much do parents really matter? How did the legalization of abortion affect the rate of violent crime? These may not sound like typical questions for an economist to ask. But Steven D. Levitt is not a typical economist. He is a much-heralded scholar who studies the riddles of everyday life-from cheating and crime to sports and child-rearing—and whose conclusions turn the conventional wisdom on its head. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything applies the tools of economics to explain real-world phenomena that are not conventionally thought of as “economic.”
Levitt, Steven D. (2006). Freakonomics : a Rogue Economist Explores the Hidden Side of Everything. New York :HarperAudio.