Freakonomics - Steven Dubner

FREAKONOMICS

A Rogue Economist Explores the Hidden Side of

Everything

Steven D. Levitt and Stephen J. Dubner

CONTENTS

AN EXPLANATORY NOTE

In which the origins of this book are clarified.

INTRODUCTION: The Hidden Side of Everything

In which the book’s central idea is set forth: namely, if morality represents how people would like the world to work, then economics shows how it actually does work.

Why the conventional wisdom is so often wrong…How “experts”—from criminologists to real-estate agents to political scientists—bend the facts…Why knowing what to measure, and how to measure it, is the key to understanding modern life…What is “freakonomics,” anyway?

1. What Do Schoolteachers and Sumo Wrestlers Have in Common?

In which we explore the beauty of incentives, as well as their dark side—

cheating.

Who cheats? Just about everyone…How cheaters cheat, and how to catch them…Stories from an Israeli day-care center…The sudden disappearance of seven million American children…Cheating schoolteachers in Chicago…Why cheating to lose is worse than cheating to win…Could sumo wrestling, the national sport of Japan, be corrupt?…What the Bagel Man saw: mankind may be more honest than we think.

2. How Is the Ku Klux Klan Like a Group of Real-Estate Agents?

In which it is argued that nothing is more powerful than information, especially when its power is abused.

Going undercover in the Ku Klux Klan…Why experts of every kind are in the perfect position to exploit you…The antidote to information abuse: the Internet…Why a new car is suddenly worth so much less the moment it leaves the lot…Breaking the real-estate agent code: what “well maintained” really means…Is Trent Lott more racist than the average Weakest Link contestant?…What do online daters lie about?

3. Why Do Drug Dealers Still Live with Their Moms?

In which the conventional wisdom is often found to be a web of fabrication, self-interest, and convenience.

Why experts routinely make up statistics; the invention of chronic halitosis…How to ask a good question…Sudhir Venkatesh’s long, strange trip into the crack den…Life is a tournament…Why prostitutes earn more than architects…What a drug dealer, a high-school quarterback, and an editorial assistant have in common…How the invention of crack cocaine mirrored the invention of nylon stockings…Was crack the worst thing to hit black Americans since Jim Crow?

4. Where Have All the Criminals Gone?

In which the facts of crime are sorted out from the fictions.

What Nicolae Ceau?escu learned—the hard way—about abortion…Why the 1960s were a great time to be a criminal…Think the roaring 1990s economy put a crimp on crime? Think again…Why capital punishment doesn’t deter criminals…Do police actually lower crime rates?…Prisons, prisons everywhere…Seeing through the New York City police “miracle”…What is a gun, really?…Why early crack dealers were like Microsoft millionaires and later crack dealers were like Pets.com…The superpredator versus the senior citizen…Jane Roe, crime stopper: how the legalization of abortion changed everything.

5. What Makes a Perfect Parent?

In which we ask, from a variety of angles, a pressing question: do parents really matter?

The conversion of parenting from an art to a science…Why parenting experts like to scare parents to death…Which is more dangerous: a gun or a swimming pool?…The economics of fear…Obsessive parents and the nature-nurture quagmire…Why a good school isn’t as good as you might think…The black-white test gap and “acting white”…Eight things that make a child do better in school and eight that don’t.

6. Perfect Parenting, Part II; or: Would a Roshanda by Any Other Name Smell as Sweet?

In which we weigh the importance of a parent’s first official act—naming the baby.

A boy named Winner and his brother, Loser…The blackest names and the whitest names…The segregation of culture: why Seinfeld never made the top fifty among black viewers…If you have a really bad name, should you just change it?…High-end names and low-end names (and how one becomes the other)…Britney Spears: a symptom, not a cause…Is Aviva the next Madison?…What your parents were telling the world when they gave you your name.

EPILOGUE: Two Paths to Harvard

In which the dependability of data meets the randomness of life.

AN EXPLANATORY NOTE

The most brilliant young economist in America—the one so deemed, at least, by a jury of his elders—brakes to a stop at a traffic light on Chicago’s south side. It is a sunny day in mid-June. He drives an aging green Chevy Cavalier with a dusty dashboard and a window that doesn’t quite shut, producing a dull roar at highway speeds.

But the car is quiet for now, as are the noontime streets: gas stations, boundless concrete, brick buildings with plywood windows.

An elderly homeless man approaches. It says he is homeless right on his sign, which also asks for money. He wears a torn jacket, too heavy for the warm day, and a grimy red baseball cap.

The economist doesn’t lock his doors or inch the car forward. Nor does he go scrounging for spare change. He just watches, as if through one-way glass. After a while, the homeless man moves along.

“He had nice headphones,” says the economist, still watching in the rearview mirror. “Well, nicer than the ones I have. Otherwise, it doesn’t look like he has many assets.”

Steven Levitt tends to see things differently than the average person. Differently, too, than the average economist. This is either a wonderful trait or a troubling one, depending on how you feel about economists.

—The New York Times Magazine, August 3, 2003

In the summer of 2003, The New York Times Magazine sent Stephen J. Dubner, an author and journalist, to write a profile of Steven D. Levitt, a heralded young economist at the University of Chicago.

Dubner, who was researching a book about the psychology of money, had lately been interviewing many economists and found that they often spoke English as if it were a fourth or fifth language. Levitt, who had just won the John Bates Clark Medal (awarded every two years to the best American economist under forty), had lately been interviewed by many journalists and found that their thinking wasn’t very…robust, as an economist might say.

But Levitt decided that Dubner wasn’t a complete idiot. And Dubner found that Levitt wasn’t a human slide rule. The writer was dazzled by the inventiveness of the economist’s work and his knack for explaining it. Despite Levitt’s elite credentials (Harvard undergrad, a PhD from MIT, a stack of awards), he approached economics in a notably unorthodox way. He seemed to look at things not so much as an academic but as a very smart and curious explorer—a documentary filmmaker, perhaps, or a forensic investigator or a bookie whose markets ranged from sports to crime to pop culture. He professed little interest in the sort of monetary issues that come to mind when most people think about economics; he practically blustered with self-effacement. “I just don’t know very much about the field of economics,” he told Dubner at one point, swiping the hair from his eyes. “I’m not good at math, I don’t know a lot of econometrics, and I also don’t know how to do theory. If you ask me about whether the stock market’s going to go up or down, if you ask me whether the economy’s going to grow or shrink, if you ask me whether deflation’s good or bad, if you ask me about taxes—I mean, it would be total fakery if I said I knew anything about any of those things.”

What interested Levitt were the stuff and riddles of everyday life. His investigations were a feast for anyone wanting to know how the world really works. His singular attitude was evoked in Dubner’s resulting article: As Levitt sees it, economics is a science with excellent tools for gaining answers but a serious shortage of interesting questions. His particular gift is the ability to ask such questions. For instance: If drug dealers make so much money, why do they still live with their mothers? Which is more dangerous, a gun or a swimming pool? What really caused crime rates to plunge during the past decade? Do real-estate agents have their clients’ best interests at heart? Why do black parents give their children names that may hurt their career prospects? Do schoolteachers cheat to meet high-stakes testing standards? Is sumo wrestling corrupt?

And how does a homeless man in tattered clothing afford $50 headphones?

Many people—including a fair number of his peers—might not recognize Levitt’s work as economics at all. But he has merely distilled the so-called dismal science to its most primal aim: explaining how people get what they want.

Unlike most academics, he is unafraid of using personal observations and curiosities; he is also unafraid of anecdote and storytelling (but he is afraid of calculus). He is an intuitionist. He sifts through a pile of data to find a story that no one else has found. He figures a way to measure an effect that veteran economists had declared unmeasurable. His abiding interests—though he says he has never trafficked in them himself—are cheating, corruption, and crime.

Levitt’s blazing curiosity also proved attractive to thousands of New York Times readers. He was beset by questions and queries, riddles and requests—from General Motors and the New York Yankees and U.S. senators but also from prisoners and parents and a man who for twenty years had kept precise data on his sales of bagels. A former Tour de France champion called Levitt to ask his help in proving that the current Tour is rife with doping; the Central Intelligence Agency wanted to know how Levitt might use data to catch money launderers and terrorists.

What they were all responding to was the force of Levitt’s underlying belief: that the modern world, despite a surfeit of obfuscation, complication, and downright deceit, is not impenetrable, is not unknowable, and—if the right questions are asked—is even more intriguing than we think. All it takes is a new way of looking.

In New York City, the publishers were telling Levitt he should write a book.

“Write a book?” he said. “I don’t want to write a book.” He already had a million more riddles to solve than time to solve them. Nor did he think himself much of a writer. So he said that no, he wasn’t interested—“unless,” he proposed, “maybe Dubner and I could do it together.”

Collaboration isn’t for everyone. But the two of them—henceforth known as the two of us—decided to talk things over to see if such a book might work. We decided it could. We hope you agree.

Levitt had an interview for the Society of Fellows, the venerable intellectual clubhouse at Harvard that pays young scholars to do their own work, for three years, with no commitments. Levitt felt he didn’t stand a chance. For starters, he didn’t consider himself an intellectual. He would be interviewed over dinner by the senior fellows, a collection of world-renowned philosophers, scientists, and historians. He worried he wouldn’t have enough conversation to last even the first course.

Disquietingly, one of the senior fellows said to Levitt, “I’m having a hard time seeing the unifying theme of your work. Could you explain it?”

Levitt was stymied. He had no idea what his unifying theme was, or if he even had one.

Amartya Sen, the future Nobel-winning economist, jumped in and neatly summarized what he saw as Levitt’s theme.

Yes, Levitt said eagerly, that’s my theme.

Another fellow then offered another theme.

You’re right, said Levitt, my theme.

And so it went, like dogs tugging at a bone, until the philosopher Robert Nozick interrupted.

“How old are you, Steve?” he asked.

“Twenty-six.”

Nozick turned to the other fellows: “He’s twenty-six years old. Why does he need to have a unifying theme? Maybe he’s going to be one of those people who’s so talented he doesn’t need one. He’ll take a question and he’ll just answer it, and it’ll be fine.”

—THE NEW YORK TIMES MAGAZINE, AUGUST 3, 2003

INTRODUCTION:

The Hidden Side of Everything

Anyone living in the United States in the early 1990s and paying even a whisper of attention to the nightly news or a daily paper could be forgiven for having been scared out of his skin.

The culprit was crime. It had been rising relentlessly—a graph plotting the crime rate in any American city over recent decades looked like a ski slope in profile—

and it seemed now to herald the end of the world as we knew it. Death by gunfire, intentional and otherwise, had become commonplace. So too had carjacking and crack dealing, robbery and rape. Violent crime was a gruesome, constant companion. And things were about to get even worse. Much worse. All the experts were saying so.

The cause was the so-called superpredator. For a time, he was everywhere.

Glowering from the cover of newsweeklies. Swaggering his way through foot-thick government reports. He was a scrawny, big-city teenager with a cheap gun in his hand and nothing in his heart but ruthlessness. There were thousands out there just like him, we were told, a generation of killers about to hurl the country into deepest chaos.

In 1995 the criminologist James Alan Fox wrote a report for the U.S. attorney general that grimly detailed the coming spike in murders by teenagers. Fox proposed optimistic and pessimistic scenarios. In the optimistic scenario, he believed, the rate of teen homicides would rise another 15 percent over the next decade; in the pessimistic scenario, it would more than double. “The next crime wave will get so bad,” he said, “that it will make 1995 look like the good old days.”

Other criminologists, political scientists, and similarly learned forecasters laid out the same horrible future, as did President Clinton. “We know we’ve got about six years to turn this juvenile crime thing around,” Clinton said, “or our country is going to be living with chaos. And my successors will not be giving speeches about the wonderful opportunities of the global economy; they’ll be trying to keep body and soul together for people on the streets of these cities.”

The smart money was plainly on the criminals.

And then, instead of going up and up and up, crime began to fall. And fall and fall and fall some more. The crime drop was startling in several respects. It was ubiquitous, with every category of crime falling in every part of the country. It was persistent, with incremental decreases year after year. And it was entirely unanticipated—especially by the very experts who had been predicting the opposite.