Freakonomics Review

Sarayu Bacchu

Why do drug dealers still live with their mothers? What do schoolteachers and sumo wrestlers have in common? Which is more dangerous, a gun or a swimming pool?

These may not sound like typical economics questions, I certainly thought so! After all, before reading this book, I thought economics was simply confined to theories like interest rates and diminishing marginal utilities. Yet, as I continued to read, it became evident that economics is so much more than price elasticities.

The book opens with exploring the idea of incentives. Incentives can be divided into three general categories: social, economic and moral. Attempts at incentivising behaviour are familiar to us all, from parents rewarding children with pocket money for completing chores, to companies offering employees bonuses. Incentives drive human behaviour, so are crucial when examining the drivers behind the decisions that humans make.

One of the real life examples investigated in the book is that of the day-care centre in Haifa, Israel struggling with late pickups of children. In this study, economists tried to reduce late pickups by establishing an economic disincentive of a $3 fine. However, rather than seeing a reduction in the number of late pickups, the fine actually doubled them. How could this disincentive backfire so badly? The main issue was that the fine - a small economic disincentive - replaced a larger existing moral disincentive - guilt. Effectively, parents could now buy off their guilt for a few dollars, so they were less worried about being late. Moreover, once the signal had been sent, the effect could not be undone - in the end, removing fines did not reduce the late pickups. This example reinforced the importance of incentives and emphasised the complex layers present in situations. This has pertinent applications in several areas, from fighting crime to running a business.

Similarly, the rest of the book uses more real-life examples and data to highlight different key ideas in economics. For example, information asymmetry is highlighted through real-estate agents employing code words in advertisements which signify the property can be bought for a lower price.

Other times, Levitt grapples with questions which oppose conventional wisdom. The sudden drop of crime in America in the 1990s surprised many. Several plausible explanations were put forward, like a stronger economy and innovative policing strategies. However, when looking at the data, it was found that these played a limited role. Instead, Levitt dug deeper and further back in history. Legalisation of abortion in 1973 ended many unwanted pregnancies. Many of these children would have been born into single parent and poor households, which are two of the strongest predictors of future criminality. In the end, the crime rate dropped when these children would have been in their late teens or prime years for a criminal.

Throughout the book, wit and humour is constant, making for an enjoyable yet insightful read, especially for those with no prior experience of economics. Any unfamiliar terms are explained well and the use of relatable examples further aids understanding.

By analysing data from the world around us, ‘Freakonomics’ is able to uncover hidden aspects and often irrational factors at play. Overall, this book is a great read and highly recommended for anyone interested in unconventional methods of delving deeper to try and solve problems. It will certainly change your perspective on economics!

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven Levitt and Stephen J. Dubner