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Freakonomics

A Rogue Economist Explores the Hidden Side of Everything

By Steven D. Levitt and Stephen J. Dubner
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  • Contains 11 key ideas
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Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner
Synopsis

Freakonomics (2005) applies rational economic analysis to everyday situations, from online dating to buying a house. The book reveals why the way we make decisions is often irrational, why conventional wisdom is frequently wrong, and how and why we are incentivized to do what we do.

Key idea 1 of 11

Incentives can affect your wallet, your pride or your conscience.

At this very moment, there are probably countless people who wish to affect your behavior: politicians, police, your doctor, your boss, your parents or your spouse, to name just a few. Although the tactics used may vary from threats and bribes to charm and deceit, all attempts have something in common: they rely on incentives.

An incentive is simply a means of urging people to do more of a good thing or less of a bad thing.

Incentives fall into three general categories: economic, social and moral. Most successful incentives – the ones that attain the desired change in behavior – combine all three types.

One area where incentives are crucial is in the field of crime. People regularly have opportunities to cheat, steal and defraud, so it’s interesting to examine what incentives keep them from doing so.

The risk of going to prison and the related loss of employment, house and freedom are all essentially economic in nature, and certainly form a strong incentive against crime.

There is also a strong moral incentive, as people don’t want to do something that they feel is wrong.

And finally there is a strong social incentive, as people do not want to be seen by others as doing something wrong. Often, depending on the crime, this can be a stronger incentive than economic penalties.

It is this combination of all three types of incentives that encourage most people to refrain from crime.

Incentives can affect your wallet, your pride or your conscience.

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