Book Summary: Freakonomics
In Freakonomics, Stephen J. Dubner and Steven D Levitt unpack many interesting narratives through data. In this post, we're unpacking the key takeaways from the book for you. Grab a magnifying glass.
The modern world seems like a convoluted mess of numbers and deception, but that doesn’t mean it’s indecipherable. All you need to do is ask the right questions, and a story emerges from the data.
Like the case of the murderous Russian czar.
There’s a folktale of a czar who came to learn that the most disease-riddled province was also the one with the most doctors. His solution? He had all the doctors shot, to no effect.
A classic case of correlation ≠ causation. 🤷♀️
The Impact of Assumption
When assessing anything, your instincts can tell you to check for relations. And you might find the numbers to prove that too. But instincts don’t always tell how two events are related. Make sound assumptions!
When it comes to asking the right questions, instead of asking ‘What slows down crime?’, why doesn’t anyone ask: ‘Why isn’t there more crime?’
The answer to that is the cornerstone of modern society: Incentives.
The ideas behind incentives
Incentives work on three levels:
1. Economic
2. Social
3. Moral
Combine them and you’ve made a pretty useful cocktail. But there’s another side to this coin.
Let’s take another example to understand this.
A day care in the US wanted to reduce the number of late pickups by parents, so they started imposing a high fee. The result?
The number of late pickups increased. This happened because now the parents recognised that late pickups were indeed an option!
Take expert opinions with a grain of salt; remember even they are not exempt from being incentivised. They are more likely to do what’s best for them than what’s best for you!
The dark side of incentivisation
For every clever trade-off or incentive you propose, there will be equally clever people trying to game it by finding obscure loopholes. Plus, the thing about cheating is: you only account for those that are caught.
In 1987, the IRS started requiring social security numbers to be furnished for children over age 5 that taxpayers had listed as dependents to claim benefits. Suddenly, 7 million children ‘disappeared’ in the USA.
Guilty until proven otherwise. Cheating is everywhere
Information Asymmetry
Information is power — and it probably has the most power over prices. Before the advent of the Internet, comparing different products was hard so the prices could remain high.
Those who have info, have the power
Understanding Risk
What do you think is more dangerous: Guns or Swimming Pools?
Freakonomics says it’s swimming pools. Because it is an avoidable and dangerous risk that is often overlooked. Broaden your visor when it comes to risk!
Risk and Regret
When you don’t know what to do or what decision to make, go with the path of least regret. Chances are that they might turn out to be very favourable.
Just ask this guy. 👇
https://twitter.com/YodaaClub/status/1361876697096749056?s=20
Conventional wisdom is often wrong and misguided. It stems from incomplete and incentivised opinions which propagate immensely. Question everything and go to the roots — there’s often a lot more happening than what meets the eye.
The crime surge of the 1990s in the US wasn’t expected to taper off quickly, and was a big concern. But the tables turned, out of nowhere.
While experts pinned that to progress, the authors disagree. They say that the drop in crime rates was due to the legalisation of abortion in the country. As lesser children were born in stressful environments, lesser people resorted to criminal activities
It’s like the butterfly effect. There are many reasons why something happens
What’s in a Name?
The authors say that the performance of a child is attributed more to how the parents ‘are’ than what they ‘do’ — even when giving them names! The name that is given to a kid makes a significant impact on how they are perceived.
Always remember, economics is a measuring tool.
Ask the right questions and you’re bound to find interesting and unexpected answers! If you want to read some of these case studies in detail, check out the official Freakonomics blog.
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