Freakonomics Rev Ed - Deepstash
Freakonomics Rev Ed

Freakonomics Rev Ed

Steven D. Levitt

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Chapter 1 - Incentives are the cornerstone of modern life

An incentive is simply a means of urging people to do more of a good thing and less of a bad thing.

There are three basic flavors of incentive:

  • Economic - they don't want to be punished by law or lose what they have
  • Social - they don't want to be seen by others as doing something wrong
  • Moral - they don't want to do something they consider wrong

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A thing worth having is a thing worth cheating for

Any incentive is inherently a trade-off; the trick is to balance. For every incentive has its dark side. Whatever the incentive, whatever the situation, dishonest people will try to gain an advantage by whatever means necessary.

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Cheating is a primordial economic act: getting more for less

For every clever person who goes to the trouble of creating an incentive scheme, there is an army of people, clever and otherwise, who will inevitably spend even more time trying to beat it. Cheating may or may not be human nature, but it is certainly a prominent feature in just about every human endeavor.

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It is true that sports and cheating go hand in hand

Cheating is more common in the face of a bright-line incentive (the line between winning and losing, for instance) than with a murky incentive.

An athlete who gets caught cheating is generally condemned, but most fans at least appreciate his motive: he wanted so badly to win that he bent the rules.

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Chapter 2 - Terrorism is so effective

People respond strongly to strong incentives. And there are few incentives more powerful than the fear of random violence - which, in essence, is why terrorism is so effective.

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Sunlight is the best disinfectant

A group whose power was derived in large part from the fact that it hoarded information - once that information falls into the wrong hands (or, depending on your view, right hands), much of the group's advantage disappears. The dissemination of the information diluted its power.

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Information is the currency of the internet

It is common for one party to a transaction to have better information than another party. In the parlance of economists, such a case is known as an information asymmetry. We accept as a variety of capitalism that someone (usually an expert) knows more than someone else (usually a customer). But information asymmetries everywhere have in fact been gravely wounded by the internet.

As a medium, the internet is brilliantly efficient at shifting information from the hands of those who have it into the hands of those who do not. It has vastly shrunk the gap between the experts and the public.

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Keep the information asymmetry as asymmetrical as possible

Experts depend on the fact that you don't have the information that they do. Or that you are so befuddled by the complexity of their operation that you wouldn't know what to do with the information if you had it. Or that you are so in awe of their expertise that you wouldn't dare challenge them.

Armed with information, experts can exert a gigantic, if unspoken, leverage: fear. The fear created by commercial experts may not quite rival the fear created by terorists, but the principle is the same.

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We all use information for our own gains

It would be naive to suppose that people abuse information only when they are acting as experts or as agents of commerce. 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.

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Discrimination is not dead

It has become so unfashionable to discriminate against certain groups that all but the most insensitive people take pains to at least appear fair-minded, at least in public. This hardly means that discrimination has ended - only that people are embarrassed to show it.

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Two leading theories of discrimination

  • Taste-based discrimination - one person discriminates simply because he prefers to not interact with a particular type of other person;
  • Information-based discrimination - one person believes that another type of person has poor skills and acts accordingly.

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Chapter 3 - Determine if your question is a good one

Just because a question has never been asked does not make it good. Smart people have been asking questions for quite a few centuries now, so many of the questions that haven't been asked are bound to yield uninteresting answers.

But if you can question something that people really care about and find an answer that may surprise them - that is, if you can overturn the conventional wisdom - then you may have some luck.

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Journalists & experts are the architects of conventional wisdom

It may be sad but not surprising to learn that experts can be self-interested to the point of deceit. But they cannot deceive on their own. Journalists need experts as badly as experts need journalists. Every day there are newspaper pages and television newscasts to be filled, and an expert who can deliver a jarring piece of wisdom is always welcome.

Advertising, too, is a brilliant tool for creating conventional wisdom.

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Immutable law of labor

When there are a lot of people willing and able to do a job, that job generally doesn't pay well. This is one of the four meaningful factors that determine a wage. The others are the specialized skills a job requires, the unpleasantness of a job, and the demand for services that the job fulfills.

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The rules of a tournament are straightforward

  • You must start at the bottom to have a shot at the top.
  • You must be willing to work long and hard at substandard wages. In order to advance in the tournament, you must prove yourself not merely above average but spectacular.
  • Once you come to the sad realization that you will never make it to the top, you will quit the tournament.

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Chapter 4 - Broken Window Theory

Minor nuisances, if left unchecked, turn into major nuisances: that is, if someone breaks a window and sees it isn't fixed immediately, he gets the signal that it's all right to break the rest of the windows and maybe set the building afire too.

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Whose hands happen to be holding the gun?

A gun is a great disrupter of the natural order. A gun scrambles the outcome of any dispute. Gun advocates believe that gun laws are too strict; opponents believe exactly the opposite.

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The basic reality is that the risks that scare people and the risks that kill people are very different.

PETER SANDMAN

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Risks that you control are much less a source of outrage than risks that are out of your control.

PETER SANDMAN

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Chapter 5 - Art of parenting

No one is more susceptible to an expert's fearmongering than a parent. Fear is, in fact, a major component of the act of parenting. A parent, after all, is the steward of another creature's life, a creature who, in the beginning, is more helpless than the newborn of nearly any other species. This leads a lot of parents to spend a lot of their parenting energy simply being scared.

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What, exactly, are we afraid of?

It's the imminent possibility of death that drives the fear - which means that the most sensible way to calculate fear of death would be to think about it on a per-hour basis.

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Fear best thrives in the present tense

That is why experts rely on it; in a world that is increasingly impatient with long-term processes, fear is a potent short-term play.

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Epilogue

If morality represents an ideal world, then economics represents the actual world.

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mingmiiing

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