Freakonomics Case

Freakonomics is intended to challenge ones prior beliefs and the conventional wisdom of the reader. Conclusions derived from various investigations described throughout the book will often shock you. Some may even irritate your sensitivities. The authors, Steven D. Levitt an economist and Stephen J. Dubner a writer, do not argue that conventional wisdom is “always” wrong, but they do conclude that the conventional wisdom used as an explanation for many social issues is unexamined, unquestioned and often incorrect. Freakonomics provides you with real life examples of incentives and how they affect human behavior.

It shows how everyday situations, purchases, and decisions affect the economy, and how humans are tempted to participate in different activities because of incentives. This book discusses the economy and how it is affected in the perspective of life. The authors provide you with statistics and evidence that they have collected to defend their statements. You will find the topics interesting and would never imagine the role they take in the economy. While reading you will hear about the “butterfly” effect and how an event can affect someone or something years down the line and have undesired or unexpected effects.

While reading the chapter on “What Do Schoolteachers and Sumo Wrestlers Have in Common?” I could think of several examples that take place in countries like Argentina in their daily dealings with the corruption in law enforcement. It’s not that the policemen are bad people or that they don’t have morals, it is that the monetary incentive is strong enough that they prefer to “cheat” and profit more from corruption than what they would earn by their monthly wages which is zero to nothing in comparison. Within this chapter they explain how incentives sometimes lead to cheating. Incentives in business should be established wisely, in order for them to have the desired effect, instead of fostering cheating among the businesses (like theft by employees).

In the government we can see this happening with certain policies as stated by Dr. Paul M. Johnson, “Government regulations or tax policies are often justified to the public as a means of “correcting” the outcome of the market for goods involving especially sizable externalities, especially negative externalities. The government charges would force the sellers (or the buyers) of the good or service to begin to start taking into account these external costs along with their own and would effectively shift the supply curve (or the demand curve) to the left, resulting in somewhat smaller quantities of the good being sold at a somewhat higher price in the new equilibrium after inauguration of the tax — and thus, somewhat fewer costs will be imposed on third parties. (But note that it is the government that gets to keep the money, not the unfortunate bystanders still suffering the damage!)”.

In chapter 5 “What Makes a Perfect Parent?” the title intrigued me. This is not a subject you would expect to find an economist discussing however, as we have learned in this book, economics is a tool that helps us to understand the underlying relationships and hidden causes of all phenomena in our daily lives. It is shocking to me that it is more dangerous for a child to play in a swimming pool than to play with a gun! The author talks about the parenting practices and how common used practices and those taught in how – to – books are not very useful. I am in agreement with the theory that what really matters is what parents are, instead of what they do for their children, because it is logical: the best way to teach someone something is to lead by example, therefore if you are an image of success, your kids will probably look forward to being successful as well. Though I found it difficult to understand how this was explained by the economic models and theories, the statistics given in the book prove the accuracy of the theory stated.

From my point of view the findings are surprising and hard to believe but when considered they make sense. The cornerstone of modern life drives us and our actions more than we notice, even unconsciously, they are there and it would be useful if we were aware of this in order to predict others behaviors and assist us in negotiations. We can find many strange coincidences but it is imperative that we determine the causes of them and their consistencies.

References

Johnson, Paul M., Dr. (1994-2005). Auburn University. A Glossary of Political Economy Terms. Retrieved from http://www.auburn.edu/~johnspm/gloss/externality

Levitt, Steven D., Dubner, Stephen J. (2009). Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. ISBN: 978-0-06-073133-5 (pbk)