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Freakonomics by Steven D. Levitt & Stephen J. Dubner

Intro

As this book is reaching its second decade of being published it sure can relate to what’s going on today in 2022. The very first page of the introduction in the book speaks to what I believe is a very valid and consistent ideology in act today. The first sentence alludes to the possibility of any U.S. citizen being thoroughly terrified solely by paying attention to the nightly news and daily papers in the early 1990s. The culprit is crime. Which seems to be what these media outlets stress more than anything else. The rest of the introductory chapter lays out what else to be expected in the book, however I thought the first sentence was noteworthy.


Incentives & Homicides

“Economics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing. Economists love incentives“(16). Unsure of how to kick off a definition for economics - which is a commonly used and referred to word and concept in this book - what better way than to use the definition from the authors on the second page of chapter one? Very fitting, I must admit. as human beings we all have gained some awareness in responding to the negative and positive incentives of life. Some incentives mentioned in the following paragraph that we do have familiarity with is: getting gifts for good grades, if you touch a hot stove, you burn a finger, pick your nose in class you're ridiculed, breaking curfew gets you grounded, speeding gets you a ticket, and so on.




Incentives are simply a way of urging people to do more of a good think and less of a bag thing. However, all incentives are not born organically. Someone, bring an economist, politician, supervisor, or parents. According to the book, there are three categories of incentives: economic, social and moral. It is pretty common that a single incentive scheme will have all three categories. The most intriguing incentives invented over time seem to be put in place to deter crime. “After all, every one of us regularly passes up opportunities to maim, steal, and defraud. The chance of going to jail—thereby losing your job, your house, and your freedoms, all of which are essentially economic penalties—is certainly a strong incentive. But when it comes to crime, people also respond to moral incentives (they don’t want to do something they consider wrong) and social incentives (they don’t want to be seen by others as doing something wrong.)” (18). My thoughts and response to this quote: To all my honest and generous people the world that really needs you, thanks you! As do I!


Cheating


Chapter One kicked off about a study of Israeli day care centers, where the solution to the dilemma of parents picking up their kids late would be a fine. The study took up 20 weeks and the fines didn’t begin at the start. The first four weeks it was noted what parents were showing up late. The fifth week the fines began, and data showed that more parents showed up tardy with the fines enacted. For the sake of inflation and since this book was first published in 2005, I won’t both to get into the numerical figures involved in this scenario lol.


Now of course if the late fees were astronomical, then parents would less likely be late. In the 1970s, there was a similar study to the day care example which simply pits a moral incentive against an economic incentive. This study was conducted with donating blood. The more you charge for blood the more people would sign up, right? Also, is there a likelier chance that people hold you at knifepoint for your blood? Or what about the people who attempts to get paid for some other animal's blood?


Needless to say, every incentive has its dark side. Quick quote from the book to say things plain and simple: “Or, as W.C. Fields once said: a thing worth having is a thing worth cheating for” (21). According to the text, if the stakes are right, just about any individual will cheat. There is a nice chunk of this page I’m dying to quote for context, and I shall lol. “And then you might remember the time you cheated on, say a board game. Last week. Or the golf ball you nudged out of its bad lie. Or the time you really wanted a bagel in the office break room but couldn’t come up with the dollar you were supposed to drop in the coffee can. And then took the bagel anyway. And you told yourself you’ll pay double the next time. And didn’t” (21). Leading into the next paragraph, the authors make a great point to speak on the fact that every person that creates an incentive scheme there is another group of people spending their time to evade it. “Cheating may or may not be human nature, but it is certainly a prominent feature in just about human endeavor. Cheating is a primordial economic act: getting more for less” (16). Well, that wasn’t as bad as I thought lol. Very eloquently spoken, I believe.


Inter-looping into the next topic, the authors mention the possibility of: inside trading, perk-abusing politicians, waitress who pockets tips instead of pooling them, certain managers shaving their employees' hours to improve the look of his/her production, or the elementary school teacher improving their students' grades.





Or maybe on Tax Day in the U.S. in 1987 when 7 million children suddenly disappeared. The IRS changed a rule where parents were required to list the child’s social security number rather than just their name. I’m sure there's no need to infer here any further lol.


Going back to the schoolteachers that alter grades, the chapter goes into a nice detail of a study done in the Chicago Public School system. I believe it is worth mentioning because the No Child Left Behind law, signed by President Bush in 2002, mandated high stakes testing. However, there were states that gave standardized tests annually to elementary and secondary school children. Being one of the cons of this scenario in my opinion, is the federal government can withhold funding if the schools don’t perform well. I’m personally not an economist or sit on any boards but I’d like to think maybe giving more funding would help advance these students? “Schoolchildren, of course, have had incentive to cheat for as long as there have been tests. But high-stakes testing has so radically changed the incentives for teachers that they too now have added reason to cheat. With high-stakes testing, a teacher whose students rest poorly can be censured or passed over for a raise or promotion. If the entire school does poorly, federal funding can be withheld; if the school is put on probation, the teacher stands to be fired” (22). Sounds slightly harsh but of course there are also the positive incentives for these teachers that come with raises and promotions.


To close this topic, I’ll quickly grab one smaller quote. “If economics is a science primarily concerned with incentives, it is also—fortunately—a science with statistical tools to measure how people respond to those incentives. All you need are some data” (23). Also sounds like the counter to the group of people that likes to “bypass” these incentives that we just spoke of lol.


Information, The Internet & Realtors


With the advent of the internet in 1996, it made a lot of processes quicker and cheaper. The internet also made it much simpler to gather information, or lack thereof. “Information is a beacon, a cudgel, an olive branch, a deterrent—all depending on who wields of and how. Information is so powerful that the assumption of information, even if the information does not actually exist, can have a sobering effect” (63). The most powerful words from that excerpt is “all depending on who wields it and how” not only because people can be steered in any which way by the information that relates to them the most, but it can change nations, as history has showed.





It is fairly recognized that one party has better or more information than another party. In economic jargon this case is known as information asymmetry. “We accept as a verity of capitalism that someone (usually an expert) knows more than someone else (usually a consumer). But information asymmetries everywhere have in fact been gravely wounded by the internet” (64). Intriguingly enough, in the last few days my mind has been pondering this very word and idea. Weren’t the words I was reaching for lol, but this is a monumental statement! Some people just default to that person's “experience” whether it be the news anchor or some regular Joe. In short, information is the currency of the internet. It supplies information to those who don’t have it and need it.


Now as the authors venture into a topic that I happen to specialize in, I cannot sit this part out lol. As a licensed realtor in Maryland, I would appreciate to opine on this. They begin with the idea that the average home seller or buyer would potentially be making the biggest financial transaction of their life, to which I can concur is a common possibility. Not to mention the emotional attachments or fears tied in with a home seller, or even home buyers as well. The homeowner also gets the last say so in the business with their realtors because as fiduciaries we work to serve the client! So, setting the price of your home is your decision with only our advice. The home buyer also has the final decision in planning to purchase or not.





The argument in the book is that the typical buyer/seller would be a "mark" to us as agents because the client would be taken advantage of not knowing much about the process. Or the idea that a realtor would make out better selling their own home versus their client's. While I am sure that there are people like that, I feel the book painted the scenario as that being more common than not. There is data that shows a lot of realtors do not own homes. While that may sound odd, owning and renting is different to every single individual's needs and wants in life. Plus, small fluctuations in asking/selling prices of the homes won't alter our commissions too drastically. Ultimately, the consumer can still gather just about as much information as we can regarding home sales.


As this chapter concludes, the authors point to the fact that a lot of different professions have had their advantage hi-jacked because of the information load on the internet. To finish this section with one fair and intriguing quote: "It would be naive to suppose that people abuse information only when they are acting as experts or as agents of commerce. After all, agents and experts are people too--which suggests that we are likely to abuse information in our personal lives as well, whether by withholding true information or editing the information we choose to put forth" (73). This also strikes a chord because I randomly and recently thought a few nights ago, "is it fair to believe that human nature is the willingness to not want to 'tell on' oneself?" (No matter what situation or degree) Or "would the opposite and willingness to want to be integrity and honesty?


Questions for Conventional Wisdom


Going to jump right into a striking and motivational quote that kicks of Chapter 3. "The first trick of asking questions is to determine if your question is a good one. Just because a question has never been asked does not make it a good one. Smart people have been asking questions for quite a few centuries now, so many of the questions haven't been asked are bound to yield uninteresting answers" (85). If you can raise questions and answers to things people care deeply about and it surprises them, that could be the start of something special.




John Kenneth Galbraith was an economic sage who came up with the term "conventional wisdom." John believed that we associate truth with convenience and what most closely aligns with self-interest and personal well-being. He also thought that we find high acceptable what contributes most to our self-esteem. However, it would be naive to argue that conventional wisdom is never true, but noticing where it could be false, sloppy, or of self-interested thinking would be a great place to start asking questions.


Advertising is a vital tool used for creating conventional wisdom. The authors quickly referred to the history of Listerine, which was invented in the 19th century as a surgical antiseptic. It was then sold, in distilled form, as a cure for gonorrhea and as a floor cleaner. Listerine was not successful until the 1920s when it was promoted as a cure for chronic halitosis. Before this, bad breath, was not conventionally considered such a tragedy.


There's a saying that goes with conventional wisdom which is: one side wins the war of conventional wisdom. "Women's rights advocates, for instance, have hyped the incidence of sexual assault, claiming that one in three American women will in her lifetime be a victim of rape or attempted rape. (The actual figure is more like one in eight--but the advocates know it would take a callous person to publicly dispute their claims.) Advocates working for the cures of various tragic diseases regularly do the same. Why not? A little creative lying can draw attention, indignation, and--perhaps most important--the money and political capital to address the actual problem" (88). The latter portion of that quote sounds eerily similar to the current landscape of the world. This however is an absolutely pivotal scenario to be considered, nonetheless.


Abortion Deters Crime?


In Romania, in 1966, Nicolae Ceausescu was a communist dictator, one year in he made abortion illegal. He stated that "the fetus is the property of the entire society". As expected with any dictator, he built places for himself while neglecting and brutalizing the Romanian citizens. He gave government positions to forty family members, including his wife. Madame Ceausescu was formally known as the Best Mother Romania Can Have, although she was nothing but. She made comments against the citizen's complaints about her husband's mismanagement with food shortages.


One of Ceausescu's chief aims with the abortion ban was to rapidly strengthen Romania's population. Until 1966, Romania was one of the most liberal places in the world when it came to abortion. It was actually the main form of birth control, with 4 abortions for every live birth. There were two exceptions, mothers who already had 4 children or women with strong standing in the Communist party. Simultaneously, all contraception and sex education were banned. Government agents regularly administered pregnancy tests at their workplaces and if she repeatedly failed, she was forced to pay a steep "celibacy tax."


However, Nicolae achieved his goal after a year and the Romanian birth rate had doubled. Unless you were born into the Ceausescu clan or the Communist elite, your life was miserable. The children born after his abortion ban would fare worse, such as, testing lower in schools, less success in the labor market and higher chance to be criminals. The abortion ban stayed in effect until December 16, 1989, when Nicolae lost his grip on Romania. Thousands of citizens took the streets to protest his regime. It should be noted that his demise was in large part due to the youth of Romania, a great number of whom, would not have been born without his abortion ban.





Interestingly enough, on Christmas Day in 1989, Nicolae took a bullet to the head and crime in the USA was just about at its peak. The link of these two scenarios actually revolves around abortion and crime. In the previous 15 years, violent crime had risen eighty percent. Then crime was the topic that led the nightly news and national conversation. Crime began to recede in the early 1990s so swiftly that is surprised everyone. Now experts rushed to explain the forecasting of why crime fell so fast.


Following will be the eight explanations by frequency of mention in articles published in articles from 1991-2001. Innovative policing strategies, increased reliance on prisons, changes in crack and other drug markets, aging in the population, tougher gun-control laws, strong economy, increased number of police, and all other explanations (increased use of capital punishment, concealed weapons laws, gun buybacks). Of the seven explanations stated, only three can be shown to have a true contribution to the drop in crime.


Thinking back to Romania in 1966, where without warning abortion was banned outright. Children born following this ban were much more likely to become criminals. Studies in parts of Eastern Europe and Scandinavia from the 1930s to the 1960s revealed a similar trend. In most cases, abortion was not forbidden outright, however women had to get a judge's permission to have an abortion. Research has found that women are denied abortions, she often resents the baby and does not provide it with a good home. Even if the child is raised in a good home, school and good health, they too were more likely to become criminals.


Up until just recently the United States was more openly to abortion and during the years following Roe v. Wade, there are clear arguments, numbers and information that supports the idea that abortions do indeed deter crime. One study shows that the typical child who went unborn in the earliest years of legalized abortions would have been fifty percent more likely than average to live in poverty and sixty percent more likely to grow up with just one parent.


The legalization of abortion helped drop infanticide, shotgun marriages, and the number of adoptions. Conceptions rose by thirty percent, but births actually fell by six percent. Just for the record as the writer of this post, I do indeed believe women should have a say so for what goes on in and outside of their bodies.


Perfect Parenting & Assessing Risk


Just like any other topic or opinion in life, conventional wisdom on parenting seems to shift by the day. The most common "arguments" are breastfeeding versus bottle feeding, a baby sleeping on their back versus their stomach, or maybe spanking a child or not. The typical parenting expert, like experts in other fields, is very likely to sound extremely sure of himself. "No one is more susceptible to an expert's fearmongering than a parent. Fear is in fact a major component of the act of parenting. A parent, after all, is the steward of another creature' s life, a creature who in the beginning is more helpless than the newborn of nearly any other species. This leads a lot of parents to spend a lot of their parenting energy simply being scared" (149). Parents are often just scared of doing the wrong things.





Consider two households both having daughters that were friends and enjoying hanging out at each other's home. One home the parents have a gun and the other home the house has a pool. Numbers show that the safest place for the children to play are at the home with the gun because children are more likely to die from drowning than being killed with a gun at home.


Then we are fronted with the age-old debate, nature versus nurture. But how much does parenting really matter in this debate? "In determining a parent's influence, which dimension of the child are we measuring: his personality? his school grades? his moral behavior? his creative abilities? his salary as an adult? And what weight should we assign each of the many inputs that affect a child's outcome: genes, family environment, socioeconomic level, schooling, discrimination, luck, illness, and so on?" (156). In my opinion all these things will factor into who a person becomes.


The parenting chapter concludes with a study done by the U.S. Department of Education in the late 1990s called the Early Childhood Longitudinal Study (ECLS). This study measured the academic progress of more than twenty thousand children ranging from kindergarten to fifth grade. The study was also done across the entire country. The wide ranging ECLS data offer some compelling correlations between a child's school performance and personal circumstances. The list broke down 16 total factors that are strongly correlated with high test scores split with half of those that are not. For the sake of ending this post here and not writing all the instances, I hope you find yourself wanting to buy and read this book!


Thank you for making it this far, I hope you enjoyed this post and learned something to new. Share this to your friends and loved ones! Don't forget to check out and buy our new ebook on investing in vending machines and the stock market.


Peace. Love. Blessings

B.Will




















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