Friday, April 12, 2013

Paper Backtime: Getting Your FRECON 101

Let's take life, then subtract social parameters, politics, conventional wisdom. What remains? Hard data bolstered by the human condition. Or as co-authors Steven Levitt (the Warhol of economists) and Stephen Dubner (writer and Levitt's decoder ring) like to say, "People respond to incentives."

Basically Freakonomics shows you how to read things differently. Hence the cover of the first book where you cut open an apple and inside is an orange. Then you get to the Table Of Contents:

Chapter 1: What Do Schoolteachers And Sumo Wrestlers Have In Common?

Chapter 2: How Is The Ku Klux Klan Like A Group Of Real Estate Agents?

Chapter 3: Why Do Drug Dealers Still Live With Their Moms?

This is where the "people respond to incentives" comes in. Some teachers cheat student test scores in order to receive accolades and rewards, while some Sumo wrestlers throw fights to help others in their fraternity to remain in the big leagues, in hopes that the same compensatory measures will be reciprocated sometime down the road.

The Ku Klux Klan and Real Estate Agents use buzzwords in the literature they produce that is only grasped by the others in their circle. Only those with the time, energy, and acumen to infiltrate these realms can truly expose the secrets.

Drug Dealers still live with their Moms because drug dealing at the street level isn't a lucrative business. But it is a business, and if you survive the very dangerous corporate ladder to become a "soldier" and then an "officer," that's when the incentives really kick in. For many who turn to drug dealing, there isn't the money or the incentive to leave home (if you have one to begin with).

The thesis answer in many of these questions are two parts: cause vs symptom. When crime rates plummeted in the 1990s, why was that? Was it better policing? Tougher gun laws? An improved economy? Maybe.

The authors make a hard, unemotional argument that Roe v Wade was the cause. More aborted pregnancies led to fewer unwanted babies which led to fewer troubled and underprivileged children which led ultimately to a relative dearth of age-appropriate criminals.

Then with fewer criminals on the streets, the police wouldn't be overwhelmed and could strategize better police work. That would be a symptom of the overall crime reduction, helping to create further crime reduction.

Take the chapter, "A Rashonda By Any Other Name." Are kids with "black" and "poor white" names more likely not to succeed because of their name? No, that would be a symptom. Kids are less likely to succeed when they don't have the means or support system, and their parents are poorly-educated. Somehow that translates to "Jake" having a better chance than "DeShawn." But if you flipped the kids' names, and the situations remained, that wouldn't necessarily be the case. Alas there are too few Jakes in the projects and DeShawns in McMansions.

Well that was all from the first book, Freakonomics. A couple of years later, Levitt and Dubner followed up with Super Freakonomics. It really takes a lot of these ideas and applies them empirically to much more inflammatory issues.

For instance, what are the preferred and non-preferred ways to make a living as a prostitute? Should you work with or without a pimp? Should prostitution work be seasonal?

Why your chances of surviving a hospital stay are based on not your doctor's skill but his hygiene, and yes Chapter 2 is titled, "Why Should Suicide Bombers Buy Life Insurance?"

The answer to the last question is reasoned out with cold calculation. First, suicide bombing are very rare. Second, most suicide bombers fit a certain profile - they are more educated than you think, and have certain banking patterns. But if a suicide bomber ever wanted to throw those pursuing him off the trail, he must simply purchase life insurance. After all, what jihadist would pay money into a plan that wouldn't pay out once he's blown himself to paradise?

The answer is simple: one who has read Freakonomics.

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