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Freakonomics
A Rogue Economist Explores the Hidden Side of Everything
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.
- Anyone interested in human decision-making.
- Managers with an interest in the impact of incentives and risk analysis
- Economists looking for a more creative approach to using the tools of economics
Steven D. Levitt teaches economics at the University of Chicago. His unorthodox approach of using the tools of economics to reveal hidden aspects of everyday decisions has triggered debate in the media and academic circles.
Stephen J. Dubner is a former writer and editor at the New York Times Magazine. He is also the author of Turbulent Souls, Confessions of a Hero-Worshiper, and the children's book The Boy with Two Belly Buttons.
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Freakonomics
A Rogue Economist Explores the Hidden Side of Everything
- Read in 16 minutes
- Audio & text available
- Contains 11 key ideas
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.
Key ideas in this title
- Incentives can affect your wallet, your pride or your conscience.
- Introducing incentives can often have unintended consequences on people’s behavior.
- Incentives are context dependent: what works when it’s sunny might not when it’s raining.
- Experts can use their informational advantage to exploit laypeople for economic benefit.
- Experts can use fear and anxiety to cheat laypeople.
- The Internet has greatly helped reduce the informational advantage of experts.
- When sellers leave out information, customers often penalize them by assuming the worst.
- People worry disproportionately about risks that are particularly prominent or over which they have little control.
- We often incorrectly assume that just because two things happen simultaneously, one is causing the other.
- When attributing causality, we tend to overlook remote causes in favor of more immediate ones.
- Final summary
