In 2005, a University of Chicago economist and a New York Times journalist revolutionized economic thinking in popular culture with their non-fiction book, “Freakonomics: A Rogue Economist Explores the Hidden Side of Everything.” The authors put forward a fresh perspective as to how the world works through an exploratory lens they refer to as “the hidden side.” The authors argue that this exploration can be accomplished by “stripping away a layer or two from modern life and seeing what is happening underneath.” The book is formatted by postulating a series of thought-provoking questions. What do school teachers and sumo wrestlers have in common? Which is more dangerous, a gun or a swimming pool? What kind of impact did Roe v. Wade have on violent crime? Since the original work was published in 2005, the Freakonomics authors have capitalized on their success by creating a Freakonomics brand through additional books, lectures, blogs, and a weekly podcast.
According to Steven Levitt, economics was a science with excellent tools for gaining answers but a serious shortage of interesting questions to direct the application of those tools. He provided an original set of thought-provoking questions and then applied the tools of his economic training. The result was statistically significant, rational explanations to explain perplexing phenomenon in the modern world. Often eschewing conventional wisdom, Levitt and Dubner created controversy by demonstrating empirical evidence for events, including their theory that the legalization of abortion in the 1970s reduced violent crime in the United States two decades later. Unconcerned with shocking the mainstream population, the authors argue that morality is how individuals would like the world to work, and economics is the way the world actually operates. The book outlines a number of basic principles related to economics: 1) Incentives are the cornerstone of life; 2) conventional wisdom is often wrong; 3) Dramatic events or effects often have distant, subtle causes; 4) Experts use their informational advantage to serve their own agenda; and 5) knowing what to measure and how to measure makes the world less complicated.
Freakonomics postulates that economics is the study of human behavior, explained through the investigation of incentives. Thus, to understand human behavior, one must understand the incentives which motivate him into action. Levitt and Dubner write, “Economists love incentives. The typical economist believes the world has not yet invented a problem that he cannot fix if given a free hand to design the proper incentive scheme.” According to the authors, incentives come in three varieties: moral, social, and economic. Moral incentives motivate an individual to act out of conscience or conviction. Social incentives inspire individuals to act in order to avoid shame or achieve glory. Finally, economic incentives direct people to act in their financial interest.
To explain how these incentives work in the real world, Levitt and Dubner utilized an example of a day care center in Haifa, Israel. In this example, the center’s management faced a recurring problem: parents were late to pick up their children and staff had to be paid extra wages to watch the children past the agreed upon schedule. Management decided to enact a fee for the late pickup of a child, which they believed would discourage parental tardiness. Instead, they was shocked to discover that parents showed up late more often after the fee was instituted. According to the authors, the fee had the reverse impact on parental arrival times because the parents traded a moral incentive, a sense of guilt for being late, for an economic incentive, a small fee for a late pickup. These parents changed their behavior by assessing the benefits of the extra time in their schedule and decided that the price was worth the added cost.
Freakonomics is a persuasive read, in part, because of the authors’ innovative way of employing powerful quantitative tools of economic inquiry to refute conventional wisdom. The problem with conventional wisdom is not that is it always incorrect, rather that such explanations are simply accepted by the general population without questioning or examination. To many, human social behavior is complex and requires too much effort to understand. In an effort to avoid mental analysis, we accept conventional wisdom delivered in short phrases which comfort us with their simplicity and familiarity. Taught as children, we hear the same phrase repeatedly until we start parroting it back as an explanation. Such aphorisms include “an apple a day keeps the doctor away,” “the early bird gets the worm,” and “what doesn’t kill you makes you stronger.” Conventional wisdom is often first created by experts in a field, i.e. physicians advised patients to avoid eating eggs to maintain a healthy level of cholesterol. These conclusions get repeated in the media and by other experts who further establish credibility. Repeated often enough, a false attribution of causality becomes accepted by society as conventional wisdom to explain a problem.
Levitt and Dubner cite several examples of conventional wisdom, which is demonstrably in error including the positive societal connotations of allowing your child to attend a play date where the family owns a swimming pool versus the negative associations of allowing your child to visit a home where guns are kept. According to the U.S. Center for Disease Control (CDC), there is one drowning of a child for every 11,000 residential pools in the United States. There are approximately 6 million pools in the United States, which equates to 550 children under the age of ten who drown each year. Comparatively, there is 1 child killed by a gun for every 1 million guns. There are an estimated 200 million guns in the United States, which means that roughly 175 children under ten die each year from guns. Thus, the likelihood of death by pool equates to 1 in 11,000 versus death by gun to 1 in 1 million. The authors write, “If you both own a gun and a swimming pool in your backyard, the swimming pool is about 100 times more likely to kill a child than the gun is.”
Freakonomics postulates that economic inquiry, the gathering and interpreting of data, is time intensive and complex. When considering the causes that precipitated a dramatic event, the answer is often outside the realm of attributed factors. The book carefully analyses the dramatic rise in crime reported in the early 1990s and the predictions that the violence would increase dramatically in the decade. President Clinton spoke to the fears abounding from the increase in deaths by gunfire, carjackings, robbery, and rape. He stated, “We know we’ve got about six years to turn this juvenile crime thing around or our country is going to be living with chaos.” In a drastic turn of events, crime began to fall in 1995 and continued in the subsequent years. The teenage murder rate did not rise to the levels predicted, rather it fell more than fifty percent within five years. By 2000, the U.S. murder rate had dropped to the lowest levels in thirty-five years. Experts then theorized a number of logical reasons for the drop in crime: the booming economy. the proliferation of gun control laws, and innovative policing techniques. Levitt and Dubner’s analysis concluded that the real underlying cause was attributable to the legalization of abortion in 1973 and the related decrease of children born into poverty.
Experts and Informational Advantage
Freakonomics explores how specific individuals can capitalize on their informational advantage to serve their own goals. The authors examine the informational advantage held by a real estate agent, including the current condition of local housing markets. They can combine this superior knowledge to expedite a home sale which may be at a price less than what the seller could have obtained by a longer listing period. The real estate agent’s commission is structured in such a way that what may be a significant increase in profit for the sellers equates to negligible increase in the fees they receive for the sale of the home. Moreover, the real estate agent’s credibility is often linked to how fast a home is sold, i.e. days on the market. The authors cite evidence of real estate agents using their informational advantage to scare sellers into accepting a lower offer to achieve a deal which is in the agent’s best interest.
Measuring the World
Freakonomics provides new insights by applying the scientific process to address economic and social issues. The authors formulated testable hypotheses and then gathered the relevant data, often from what was previously considered unconventional sources to test those hypotheses. Freakonomics provides concrete illustrations of how unconventional methods of data gathering and innovate means of interpreting said data provides new insights into how our world works. The book argues that knowing what to measure and how to measure it makes a complicated world easier to understand.
The Freakonomics of Freemasonry
Popular culture often relays a mistaken point of view of Freemasonry as being an elite organization, where individual members possess and yield undue power in our society. This is an example of the principle that conventional wisdom is often wrong and should be examined by the individual. Stereotypes about Freemasonry have been exacerbated and enforced by the media, i.e. attention to sensationalized books such as “The Lost Symbol” by Dan Brown. In reality, Freemasonry is an educational and self-improvement system that requires hard work and dedication. Not unlike a school, members are taught how to behave as upright members of society and instructed on how to improve their lives through greater control of their bodies and minds. Many freemasons are very successful individuals who reap the benefits of education in the seven liberal arts and sciences, including grammar, logic, rhetoric, music, arithmetic, geometry and astronomy. Repetition is a recipe for success as the more time an individual takes to perfect his skills, related to writing, public speaking, debate, and logical reasoning, the greater the probability he will have in being successful in the business world and in society in general.