Review: Freakonomics

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything is a tour of University of Chicago economist Steven D. Levitt's most famous works, most of which have been pay-per-view on the Internet up until now. His most public introduction came through a profile in the NYTimes Sunday Magazine in August of 2003. The journalist assigned to write that profile, Stephen Dubner, was fascinated by Levitt, and the article struck a chord with the readers. Soon Levitt was flooded by requests for assistance from all sides (including a former Tour de France champion who wanted help proving that the current Tour was rife with doping; wouldn't I give up my lunch money to find out who that might be).

He was also flooded by requests from publishers to write a book. After all, which publisher wouldn't want the next The Tipping Point? Levitt had no time or interest in writing a book...unless perhaps Dubner helped him write it. Out of that collaboration was born Freakonomics.

Freakonomics does not have as cohesive a theme as a book like The Tipping Point or The Wisdom of Crowds. The unifying theme is Levitt's brain, and that brain contains more ideas than can be tied together neatly. If one theme emerges more strongly than any other, it's that economics as a discipline can reveal the way the world works, even when the truth is obscure or counter intuitive (thus the subtitle The Hidden Side of Everything).

Levitt admits to Dubner at one point, "I just don't know much about the field of economics. 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." Thank goodness. If he wrote a book on those esoteric topics, the ones the public traditionally associates with economics, I wouldn't have any interest in reading it.

Instead, what fascinates Levitt is corruption, lying, deception, and crime, and that leads him towards interesting subject matter . Levitt's studies cover cheating schoolteachers and sumo wrestlers, drug gang economics, shrinking crime rates, even racism on the game show The Weakest Link. Perhaps that explains the "Freakonomics" and "Rogue Economist" in the book's title because Levitt's research methodology is familiar and hardly controversial. He uses the standard economics toolkit, familiar to most anyone with a basic understanding of statistics. Even if you've never studied statistics, you can easily understand why correlation doesn't always equal causality, the importance of good and clean data, and other such principles, all of which are explained in the book. This book is targeted at the public at large, not at economists.

Another reason Levitt has such broad appeal is that within his areas of interest, he formulates interesting questions. Asking the right question can turn a mundane investigation into a fascinating one. Finally, Levitt has an uncanny intuition that allows him to devise hypotheses that guide his research. He puts himself in the shoes of people, imagines how incentives might influence them or how he might cheat if he were to cheat, and from that arises hypotheses that focus him on useful slices of an otherwise overwhelming sea of data.

Levitt's thought processes are remarkably unemotional and non-judgmental, and his data-driven assertions are an antidote to the shrill, dogmatic, and often uninformed rhetoric permeating media. It's refreshing to hear, especially after the din of political bluster from all sides in the 2004 election. During his interview with the Society of Fellows at Harvard, Levitt was asked what his unifying theme was. He couldn't name one, and one suspects that in part that is because Levitt refuses to let any loyalty to any one theme prejudice his thinking. He follows the data where it leads him, however unpleasant the conclusions. Moral judgments and political correctness he'll leave to others.

Some of Levitt's fundamental ideas dominate the book, and these ideas are cited in the introduction:

  • Incentives are the cornerstone of modern life

  • Experts--from real-estate agents to criminologists--use their information advantage to serve their own agenda

  • Conventional wisdom is often wrong

  • Dramatic effects often have distant, even subtle, causes

  • Knowing what to measure and how to measure it makes a complicated world much less so

Levitt's most well-known study, and the one that brought him to national prominence, was one that showed that the legalization of abortion played a far greater role in lowering the crime rate in the 1990's than gun control, a strong economy, and innovative police strategies combined. It embodies the Levitt intellectual sleuthing technique. First he shows how much conventional wisdom about crime deterrence is false, using a variety of data. An improved economy, increased use of capital punishment, and innovative policing strategies didn't drive down crime, though higher rates of imprisonment and additional police did. Gun control laws? Most that have been passed to date fail because a criminal has no incentive to fill out paperwork to wait for a gun when a burgeoning black market exists.

Next, Levitt followed his intuition to a factor no one else had considered. The legalization of abortion in the U.S. meant that in the early 1990's, just as the first generation of children born after Roe vs. Wade was in its late teens (the age at which young men enter their criminal prime), the rate of crime began to fall. This generation did not have as many of the type of children most likely to become criminals, the children born to unmarried, poor, and/or teenage mothers.

Were abortion and crime merely correlated and not causal? Levitt tests this several ways. First he examines the crime decreases in states where abortion was legalized before Roe vs. Wade. He finds that states that legalized abortion earlier saw their crime rates drop earlier than in the other states. Levitt also searched for a correlation between each state's abortion rates and crime rates. He found a correlation. States with higher abortion rates in the 1970's saw the greatest decrease in crime rates in the 1990's. Levitt finds other correlations that support the link between abortion and crime rates.

Needless to say, Levitt's conclusion was not received well by many people, especially those who were pro-life. Levitt does not argue for or against abortion, though. As Levitt has said, "morality represents the way people would like the world to work, whereas economics represents how it really works."

The book contains a summary of many other studies and cases. Among the most interesting:

  • A day care center had a policy requiring parents to pick up their children at by 4 p.m. But many parents were late, causing a teacher to stay late. A pair of economists proposed a fine for tardy parents and offered to test their solution. Once the fine was instituted, the number of late pickups increased, almost doubling. Why?

  • When President Bush signed the No Child Left Behind Act in 2002, "high-stakes" testing went into place, holding schools accountable for the results of their students' test scores. Whether you're for or against the law, one effect was undeniable: the incentives for teachers changed such that teachers had an incentive to cheat. How did teachers respond to these incentives, and how did Levitt search for cheating teachers?

  • Do sumo wrestlers cheat, and if so, how and why?

  • Which of the following five terms have a strong positive correlation to the ultimate sales price of a home, and which five have a strong negative correlation? Fantastic, Granite, Spacious, State-of-the-Art, !, Corian, Charming, Maple, Great Neighborhood, Gourmet

  • How might one test for discrimination on the game show The Weakest Link? What were the results of just such a study?

  • What are the economics of a drug gang like, and how is a drug gang like McDonald's?

  • What is more dangerous around the house to your children, a gun or a swimming pool?

  • What are eight factors that correlate strongly with a child having high test scores in school, and what are eight that do not? Some of these will be surprising to parents, especially those who obsess over their kids. It's not that parenting doesn't matter, but parents matter to their children in a way that most parents will not have thought of.

  • Does the name you give your child affect his/her life? Does a name matter? Levitt collaborated with Roland Fryer on a study of black vs. white names: do distinctively black names disadvantage people? One random but somewhat amusing tidbit in this chapter: Fryer recounts a story of a woman who called into a radio show angry that her niece had been given a name pronounced shuh-TEED but spelled Shithead. I'm no economist but I'm going to hypothesize that that name disadvantaged that girl.

  • What causes a names to gain in popularity anyhow? Does it come from celebrities? Does it start with popularity among high income, high education families and trickle down the socioeconomic ladder?

I devoured the book over two sleepless nights, the first time that's happened in a long time. Levitt is the type of guy I'd love to sit next to at a dinner party. I suspect there are few topics Levitt couldn't analyze in a unique and enlightening way. After this book is published, getting on Levitt's calendar at all, let alone chatting him up over a meal, will be considerably tougher. Getting inside Levitt's head, though, will be much easier starting tomorrow, April 12, when Freakonomics hits bookstores nationwide.

Economics is sexy again, Levitt is its pinup, and this book will turn him into household name.