Author: Steven Levitt
Publisher: William Morrow
Year Published: 2005
Rating: 
Buy From Amazon.com
Take the principles of economics, the study of how markets behave, and apply them to social issues like crime, race, and parenting, and you have Freakonomics, an in depth snapshot at how people really behave in the real world. The results are presented to make you question conventional wisdoms rather than simply accepting them as truths. To do so, the authors explore a number of social situations through the framework of economics.
For instance, in one chapter, they discuss the effects of the No Child Left Behind act on teaching. The program required kids to take standardized tests each year. If the results were good, teachers were rewarded with praise or even money but if the results were bad, teachers could be reprimanded or even fired. This created an environment where cheating flourished among teachers. One study looked at the Chicago school system and found roughly 5% of teachers modified their students’ answers before they turned them in.
The problem goes back to a fundamental principle in economics – that incentives motivate people to act in a certain way. Taking the theme further, the authors look at interactions between experts and the masses. Here, they cite a study that shows that real estate agents are more likely to sell their own house for, on average, $10,000 more and keep the house on the market for 10 days longer than their clients’. Why might that be?
If you look at commission rates for real estate transactions, the standard fee is 6%, but real estate agents don’t receive all of that. Half goes to the buyer’s agent. Another 1.5% goes to the agent’s firm, so the agent really only receives 1.5% of the transaction. For every increase in $10,000, the agent only pockets $150 of that. That’s not a very big incentive for a lot more work, so agents end up playing on sellers’ fears that their house won’t sell to close the deal faster.
Freakonomics is very accessible for a mainstream audience. Along the way, the authors define and discuss economic basics like regression analysis and correlation as they apply to the studies, but don’t think this is an economic textbook. It’s not. It’s light on research methodology, which Levitt has published elsewhere in much greater detail, and heavy on anecdotes that convey the main results of the studies. Hardcore numbers buffs and sticklers for details can sift through the book’s 200+ endnotes for ideas on where to start.
That said, without the statistics and research mythologies, some of their conclusions are shocking. In one chapter, the authors tackle the decrease in crime in the 1990s by looking at the conventional reasons cited by the media for the decrease – including “innovative policing strategies,” “increased number of police,” and “tougher gun control laws” – while debunking the notion that many had much of an effect. Certainly, more police on the street led to more arrests, but alone, these reasons don’t account for the significant drop. Their conclusion? It was the legalization of abortion that contributed to the decline.
The 90s would be when many of those aborted children – many of whom would have lived in poverty and in single family households, two strong predictors of criminal behavior – would have started getting into crime. In Romania, just the opposite was happening. In the 60s, abortion was abruptly made illegal. By the late 80s, there was a surge in crime.
The authors openly admit that the idea has been extremely controversial and Levitt has been criticized by Republicans and Democrats alike who just don’t want to accept the evidence he provides. It’s much easier to accept the feel good strategies of more police and better policing leading to the decrease rather than abortion regardless of the evidence.
Overall, I thought the book was a fascinating read. At 200 pages, it was relatively short and packed with interesting details. Each chapter is prefaced by a brief blurb from a New York Times Magazine article on Levitt’s life and research, which gives you a better sense of who he is as a person and what’s motivating his research, which may seem odd to some of us non-economists.
Because there’s no overarching hypothesis, the chapters read like articles or case studies rather than building blocks leading up to the conclusion. The main theme – that just because something is conventional wisdom doesn’t necessarily make it true – loosely ties things together but I wished there was something more conclusive. Regardless, this is the type of insightful book that will spark lots of conversation topics with friends and family.
Join our weekly Marketing Success mailing list and receive our free 43-page Small Business Marketing Plan guide. 
