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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