DOWNLOAD PDF Levitt, Steven D_ Dubner, Stephen J - Freakonomics Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. economist Steven Levitt and writer Stephen Dubner have produced a smart, fun, witty Cheating, mostly non-criminal wrongdoing, is the heart of Freakonomics. Is a gun more dangerous than a swimming pool? Do parents really have an impact on a child's life? Check out our top 30 Freakonomics.
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IC. S. A Rogue Economist. Explores the Hidden. Side of Everything. Revised and Expanded Edition. Steven D. Levitt and. Stephen J. Dubner. FREAKONOMICS. A Rogue Economist. Explores the Hidden. Side of Everything. Steven D. Levitt and Stephen J. Dubner. CONTENTS. AN EXPLANATORY. Ten years ago, as we were about to publish a book called Freakonomics, we decided to start a compan- ion website. It was called.
Levitt and Stephen J. Dubner Is a gun more dangerous than a swimming pool? Did the legalization of abortion lead to a sharp decrease in crime? Want to get the full book in Kindle version? Get it from here: This is not a book about economics. And the conclusions Levitt and Dubner come to may surprise you. And what Levitt and Dubner show above all is the importance of asking creative questions.
With the goal of promoting better education, the No Child Left Behind rewards schools that improve their test scores and penalizes those with failing scores. Because there is a tangible benefit in achieving good test scores and perhaps even more importantly a distinct disadvantage in having poor results, there is a great incentive for teachers to cheat.
The incentive to have good results and avoid bad ones can overcome the fear of doing something wrong or the risk of being caught. Examine What Popular Wisdom Says When you imagine a drug dealer, you may think of an armed person who has access to a significant amount of money. If they have that kind of money, then why do most traffickers still live with their mother? You only believe that drug dealers live dangerous lives surrounded by money because you have absorbed this information from popular wisdom.
Traditional wisdom is usually a belief, opinion or judgment about an individual issue, already accepted by society.
The problem is that once knowledge is recognized as popular wisdom, it is tough to correct it, even if its premise is false. Freakonomics Social and economic behaviors are complex, and their understanding can be complicated. Therefore, people cling to these ideas that are already common. Traditional wisdom is usually introduced by leading thinkers or experts in a particular industry, but these experts often make their observations and assumptions without ever checking the facts.
These conclusions, then, are passed on to other specialists, who lend authority to the argument. The answer to why a typical drug dealer still lives with his mother was discovered by Sudhir Venkatesh, who spent six years with a gang in Chicago, studying their habits. He found that the reason most drug dealers still lived with their mothers was simply that they did not make enough money.
So why do they continue in this challenging and dangerous work? The answer is not financial. Drug gangs are like businesses: they have a pyramid-like organizational format, based on a hierarchy. People in the base of the pyramid the street workers have the difficult task of selling drugs and participating in gang wars, hoping that one day they will climb to the top of the pyramid, where there are big rewards. So the reality is that, contrary to popular belief, drug dealers do not make much money.
That shows that what most people believe to be the truth may not always be the case. Several factors are associated with this decline, including an increase in the number of police officers, an increase in penalties for criminals and a change in the drug market. But what about abortion?
Could legalizing abortion be a contributing factor to this decline? Nicolae Ceausescu became a dictator in Romania in A year later, he made abortion illegal. He thought it could make Romania stronger by increasing the population of the country. The only women who were allowed to abort were those who already had four children and those in a high position in the Communist Party.
The pressure on women was so intense that government officials forced them to take pregnancy tests on the job. Women who did not get pregnant were forced to pay a celibacy tax. Within a year, the birth rate in Romania doubled. Under the dictatorial regime of Nicolae Ceausescu, ordinary people of Romania lived a miserable life. However, the consequences were worse for children born after the abortion ban: they were worse off than those born a year earlier, including their schooling achievements and their success at work.
After abortion became illegal in Romania, more children were born in poverty and were, therefore, more likely to engage in criminal activity. If the ban on abortion can lead to increased crime, it is not difficult to apply the same logic to explain why crime is declining in the United States. It may be that there are fewer unwanted children. Women in the US have access to abortion, children who are born have better prospects in life and are less likely to engage in crime for economic reasons.
Privileged Information Ca Be Advantageous Real estate brokers make a lot of money at the expense of asymmetric informational.
They need to use insider information to convince their customers to download or sell real estate.
Consider for a moment that you want to sell your home. Selling a home is not a routine transaction, and you may not know much about the real estate market. One of your biggest problems will be the price of the house. If you assign a meager price on your home, you may not get the money you deserve. But if your price is too high, your home may not be sold. So, what do you do? In this scenario, your best option is to contact a broker.
Before the emergence of the Internet, they were the only ones who had information on the real estate market. However, they could also manipulate this information in their favor, to make their customers afraid of losing a good sale if they delayed.
Nowadays, thanks to the Internet, downloaders and sellers can quickly research the market. In the same way, life insurance companies made a lot of money before the arrival of the Internet. In the past, customers had no way of knowing if the companies were offering the best prices or the best policies.
Therefore, the cost of life insurance was very high. When the Internet began offering comparisons between plans, customers were able to find cheaper policies quickly. That has increased competition among insurance companies, which has caused prices to fall. We see then that the power and influence of insurance companies or real estate companies depend on exclusive information. When exclusivity no longer exists, their power reduces or disappears.
One is a white boy and the other a black kid. His mother is a housewife and holds a university degree. The boy lives a happy life and does well in high school. One day the boy sees his father beating a woman. She is beaten so badly that she loses some of her teeth. The kid does not do well in high school, starts selling drugs and gets in trouble often. He makes sure to be in his bed before his father comes home from work and leaves the house before his father wakes up in the morning.
Eventually, his father is arrested for sexual assault. At twelve, the boy needs to support himself. What do you think will happen to these two boys? How will their future be? And finally there is a strong social incentive, as people do not want to be seen by others as doing something wrong. Often, depending on the crime, this can be a stronger incentive than economic penalties.
It is this combination of all three types of incentives that encourage most people to refrain from crime. Incentives can affect your wallet, your pride or your conscience. We are all familiar with attempts to incentivize behavior. Whether it is parents offering small treats to their children for doing schoolwork or companies paying bonuses to employees who hit their sales targets, everyone has had incentives dangled in front of them.
However, influencing behavior by adding incentives is often a more complicated affair than it might first seem. Incentives often operate in an environment where small changes can have a dramatic impact, and not always in the way those initiating the changes would hope.
In a study of day care centers in Haifa, Israel, economists tried to reduce the number of parents arriving late to pick up their children.
But rather than reduce the number of late pick-ups, the change actually doubled them.
How could adding this disincentive have backfired? One problem may have been that the amount was not big enough, signaling to the parents that late pick-ups were not a significant problem. The main issue, however, was that this small economic disincentive replaced an existing moral disincentive: the guilt parents felt when arriving late.
Parents could now effectively download off their guilt for a few dollars, so they were less worried about being late.
Furthermore, once the signal had been sent, the effect could not be undone. The removal of the fines had no remedial effect on the number of late pick-ups. As the example shows, setting incentives can be tricky, especially when other forms of incentive are already present. When introducing incentives, think carefully about whether they might displace existing ones.
Freakonomics Key Idea 2: Incentives are context dependent Have you ever robbed a bank? Probably not, since there are a variety of disincentives e. And yet, some people do rob banks even though they face the same disincentives. Because different people react differently to the same incentives.
This is fairly self-evident, but more surprisingly, even one and the same person may respond differently to the same incentives on different occasions. Consider the data collected by Paul Feldman, who ran a business providing bagels to office snack rooms. With the bagels, he left an unattended cash-box for customers to pay in, and picked up the cash and leftovers at the end of each day.
Each customer had the same incentives to pay — the desire to be and look honest — so the variations in payment rates each day and at the different locations revealed some interesting trends about honesty in changing conditions. The key contributing factor in how honest his customers were seemed to have been personal mood, which was in turn affected by other factors: The weather played a big role with higher payment rates on unseasonably warm days and lower rates on unseasonably cold days.
Stressful holidays like Christmas and Thanksgiving dramatically reduced payment rates while more relaxed holidays pushed the rates up. Similarly, office morale played a part, with people in happy offices being more likely to pay. The lesson is that the incentives that work for some people on some days may not work for the same people on other days, depending on shifts in global, local or personal circumstances that affect their moods.
Freakonomics Key Idea 3: Experts can use their informational advantage to exploit laypeople for economic benefit. Everyone needs the advice of an expert from time to time. Whether you are having something repaired, making a big download or dealing with a legal issue, you rely on someone with specialist knowledge to help you navigate through unfamiliar territory. Experts have access to a wealth of information that the layperson does not, meaning an information asymmetry exists.
Although the experts are usually paid a fee or commission for their expertise, they can also use their informational advantage to cheat laypeople for additional gain. Consider real estate: For most people, selling a house is one of the biggest financial transactions they will make in their lifetime.
It can be a complicated business, which is why you rely on your real estate agent who has all the relevant information on property prices and market trends and is presumably also motivated to get the best price possible to raise her commission. You feel assured knowing you have this level of expertise on your side.
While reassuring, this thinking is a little too simplistic. A comparison study reveals that when estate agents sell their own houses they leave them on the market longer and get a higher price than when commissioned by clients. Hence beware; when an estate agent encourages you to take the first decent offer on your house, it is not to maximize your profit but their own.
Experts can use their informational advantage to exploit laypeople for economic benefit. Freakonomics Key Idea 4: Experts can use fear and anxiety to cheat laypeople. The unknown can be pretty scary. In any transaction in an area you have little knowledge or information about, you will likely be worried and anxious. Experts frequently leverage this fear for financial gain.
This can happen in a number of ways: A car salesman can convince you not to download a cheaper model by instilling the fear that it is unsafe.
A real estate agent can play on your fear of missing out on your dream house to get you to put in a higher bid. Fear undermines our rational decision-making ability, which is why experts use it to scare us into making decisions we may otherwise not have made.
In face-to-face situations, social fears can exacerbate this problem: the expert can exploit our fears of looking stupid, cheap or dishonorable. Imagine the stressful situation of arranging the funeral of a loved one.
The funeral director, knowing you know little about his business, can use your anxieties about giving your loved one a proper burial to steer you to a more expensive casket than you would have otherwise chosen.
In such cases, try to have strategies in place that will download you valuable time and space to consider your choices in peace, such as saying you need to get a second opinion. You can also try to even out the information asymmetry by researching the topic of the transaction in advance. Experts can use fear and anxiety to cheat laypeople. Freakonomics Key Idea 5: The Internet has greatly helped reduce the informational advantage of experts.
In the s, the price of life insurance fell dramatically. There was no similar trend in other forms of insurance, or any significant shifts in the life insurance business or customer base itself.
So, why this sudden drop in prices? The answer lies with the emergence of the Internet, or more specifically of price comparison websites. These websites enabled customers to compare insurance prices offered by dozens of different companies in mere seconds.
Price information that had been extremely time-consuming to gather just a few years earlier was available at the click of a mouse. As the policies were fairly similar in nature, the more expensive companies had no choice but to lower their prices, driving down the overall price of the policies.
This example demonstrates how important the Internet has been in eroding and reducing information asymmetries all over the world. At its core, it is a highly efficient medium for sharing and redistributing information from those that have it to those who do not.
If you are downloading a house today, for example, you can go online and find out for yourself what a reasonable offer would be rather than relying on the word of your estate agent. The Internet has greatly helped reduce the informational advantage of experts. Freakonomics Key Idea 6: When sellers leave out information, customers often penalize them by assuming the worst.
One of the side effects of a culture of information asymmetry is that even a lack of information — real or perceived — can have a powerful effect. For example, it is commonly understood that once a new car is bought it will instantly lose as much as a quarter of its value.