Economics
by Steven D. Levitt and Stephen J. Dubner
Who cheats, and how would we know?
Steven Levitt, an economist, admits he knows little about the stock market. He'd rather know whether sumo wrestlers rig bouts. Journalist Stephen Dubner writes it up with him. The bet is that the right question, asked of enough data, shows what people do when they think nobody is watching.
Hear a sample · read by Laura
Levitt sorts incentives into three kinds. Economic ones cost or pay you money. Social ones change what others think of you. Moral ones rest on your own sense of right and wrong. Most decent behaviour leans on a mix of them, and adding one can quietly knock out another.
Levitt compared homes sold around Chicago. When estate agents sold their own houses, they waited longer and got more. When they sell yours, a higher price adds only a sliver to their commission, so a quick sale suits them. Experts, the book argues, can use what they know against you.
Everyone assumed drug dealers were rich. Levitt, borrowing John Kenneth Galbraith's phrase, calls that conventional wisdom. Then sociologist Sudhir Venkatesh got hold of a Chicago crack gang's accounts. Foot soldiers earned less than the minimum wage. They stayed for a slim chance at the few well-paid jobs at the top.
US crime plunged in the 1990s, just as experts predicted a wave of it. Levitt credits more police, more prisoners and a fading crack trade, and gives New York's celebrated tactics little credit. His boldest claim, that legal abortion from 1973 cut later crime, is still disputed by other economists.
Incentives
When a day care began fining late parents, more of them came late. The fine made lateness feel paid for.
Cheating
Give people a reason to cheat and some will, even sumo wrestlers and schoolteachers.
Experts
Estate agents kept their own homes on the market longer and sold them for more. Experts can use what you don't know.
Drug dealers
Most crack dealers earned less than the minimum wage and lived with their mothers, hoping to reach the top.
Crime
Levitt argues the US crime drop of the 1990s came partly from abortion being legalised two decades before.
A story from the book
Day-care centres in Haifa, Israel, began fining parents who collected their children late. Late pickups soon more than doubled. The fine was small, and paying it let parents buy extra time without feeling guilty about it.
Hot take · true or myth?
Reading to your child every night lifts their school test scores.
Myth. In the large US study Levitt used, daily reading didn't line up with early test scores, while a home full of books did. He argues who parents are matters more than what they do.
One thing to try
Next time someone advises you on a big purchase, a phone contract, a mortgage or a house sale, ask how they're paid. Then ask what they'd earn if you picked the cheaper option. Levitt would say their answer tells you how far to trust the advice.
Knotd has the key ideas from 250+ non-fiction books, each in a few minutes, in plain words. Freakonomics comes with a Hot Take round to make it stick.
Get the whole book on KnotdOpen in the appWho cheats, and how would we know? Steven Levitt, an economist, admits he knows little about the stock market. He'd rather know whether sumo wrestlers rig bouts. Journalist Stephen Dubner writes it up with him. The bet is that the right question, asked of enough data, shows what people do when they think nobody is watching.
Three kinds of incentive; What your estate agent knows; Why dealers live with their mums; Where did the criminals go?.
Next time someone advises you on a big purchase, a phone contract, a mortgage or a house sale, ask how they're paid. Then ask what they'd earn if you picked the cheaper option. Levitt would say their answer tells you how far to trust the advice.
Yes. Knotd has the key ideas from Freakonomics in a few minutes, in plain words, plus a Hot Take round to test them. It's one of 250+ non-fiction books in the app.
