A Response Paper On Levitt And Dubner’s Book Freakonomics

This paper will serve as a response to the book Freakonomics by Steven D. Levitt and Stephen J. Dubner. Levitt, an economist, and Dubner, a writer, teamed up to write this book to initiate unique thinking about the world today. The book covers a wide range of topics and is designed to open the minds of readers by changing the way that people think. Some topics covered in this work are the power of incentives, the greed of real estate agents, the truth about drug dealers, the drop in U.S. crime in the 1990s, parenting, the importance of naming children and more. These topics are presented in such a way that allows the authors to inform the reader and teach critical thinking skills. Overall, the book is effective in attaining its goal of showing readers the economic implications of daily life. This unique approach to economics allowed the book to be both insightful and enjoyable to read.

The book begins by discussing the power of incentives by using teachers in the Chicago public school system and sumo wrestlers as examples. Teachers at Chicago public schools were incentivized to cheat on behalf of their students in order to raise their class scores. Since teachers are often evaluated by their students’ performance, they were highly motivated to cheat to avoid the risk of being fired or passed over for a promotion. Similarly, cheating in sumo wrestling in Japan also seems to be prominent. At tournaments that are held several times a year, wrestlers must win at least 8 of their 15 matches to improve their ranking, otherwise, their ranking will fall. Studies found that wrestlers that were 8-6 appeared to let 7-7 wrestlers defeat them under the agreement that the other wrestler would let them win next time they faced off. These two everyday examples regarding the power of incentives provide an interesting viewpoint. For example, the government is consistently creating policies to incentivize citizens to behave a certain way. This shows how important the implementation of incentives can be to motivate individuals to react. These examples show the reader that incentives can be very powerful and will commonly elicit a response from individuals.

Another example of a human response to incentives is with the explanation of real estate agents. Levitt actually compares real estate agents to the KKK in the fact that their power comes from information asymmetry. The party that holds more information is in a power position and is often incentivized to take advantage of it. For example, real estate agents benefit more so off selling their client’s house quickly rather than holding out for a slightly higher selling price. Economically, the additional work required does not benefit the agent enough to wait to sell the house. Meanwhile, they might leave their own house on the market longer because they are incentivized to do so to sell it for more. The power of incentives further shows that people will change their behavior when motivated to do so. This is very interesting from an economic perspective because incentives drive people to make decisions. These decisions add up and become very impactful on how the economy operates.

The next critical example in the book compares dealing drugs to any other capitalist society. The people at the top reap the most financial benefits while the people beneath them are not able to live as lavishly. In fact, the wealth gap appears to be significant as those at the bottom level made below minimum wage in the gang that was studied. This gang dynamic is very representative of the overall structure of capitalism. In this system, businesses pay wages based on the supply and demand for that job. This specific study focused on the development of crack cocaine specifically. Its rise in popularity suggested a subsequent rise in crime rate which turned out to not be true. Levitt’s argument for this drop in crime rate is the 1973 court case, Roe v. Wade. This Supreme Court Case legalized abortion across the United States. Levitt’s theory suggests that those unwanted children were more likely to lead a criminal life but were now able to be aborted. He suggests that this is why crime rates decreased in the 1990s, as those children would have been in their 20s at this time. This section of the book further highlights how smaller day-to-day activities are representative of the overall economy. Levitt carefully shows the reader how these everyday events are significant. The examples of the gang and the explanations of decreasing crime rates show an interesting analysis of the economy. Levitt continues to make his economic analysis engaging and insightful through this style of writing.

The final topics discussed by Levitt surrounded the ideas of parenting and the naming of children. Parenting is a topic that is interestingly discussed by Levitt as he analyzes the actions of parents and the consequences. He comes to the conclusion that a child’s environment is more significant at shaping the child’s life than how the parents behave. Levitt points out that parents that read books on how to parent and do similar activities are not actually helping their child that much. However, the fact that a parent would be willing to put in this type of effort for a child in itself signals that he or she would a better parent. This topic is further expanded upon through the discussion of how much a child’s name really matters. Levitt shares the story of a New York man that named his sons Winner and Loser. Loser ended up being much more successful than his brother in life, signaling that a name does not predetermine your circumstances. This analysis to conclude the book seems to debunk popular opinion on what is important for parents. Once again, Levitt takes an everyday activity, in this case, parenting, and analyzes its economic implications. This insightfulness provides a unique perspective on the impact, or lack thereof, of correct parenting decisions.

In conclusion, this book presents an uncharacteristic approach to economics. The authors’ analysis is simplified for the reader by taking everyday activities and expanding their effect. This book covers a wide array of interrelated topics including but not limited to incentives, criminal activity, and parenting. Levitt looks at these activities on a small-scale and then expands them to a macro level. This serves as a very unique but compelling economic viewpoint. This strategy makes the book effective at promoting Levitt’s ideas as an economist. This piece is organized well as each example is distinct but still flows smoothly. As a reader, I began to think of the world differently after this book. This viewpoint is powerful because of its ability to take everyday activities and show their larger effects. I would recommend Freakonomics and would certainly be interested in reading more of Steven Levitt’s work.

16 December 2021
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