Hello. I'm Nina Kabukaeva from We Read to Share
and the book I would like to share today is...
Freakonomics by Stephen J. Dubner and Steven Levitt! This is a book that explores the fundamentals of our society. It poses and answers questions that seem to have few relations with economics: which is more dangerous, a gun or a swimming pool? What do online daters lie about? What a drug dealer, a high school quaterback, and editorial assistant have in common? Authors show how economics is capable of explaining social movements beyond the production-consumption circle.
The book consists of 6 chapters each exploring different questions.
Chapter 1: What do school teachers and Sumo wrestlers have in common?
This chapter explores the beauty of incentives, as well as their dark side - cheating.
It is possible to distinguish two kinds of incentives upon which people act : financial and non-financial. Economics as a sciencce assumes that people’s main objective is to maximize their benefits. Indeed, a common feature of both school teachers and sumo wrestlers is that they have a strong financial incentive which allows sumo wrestlers to lose deliberatly and school teachers to manipulate test scores. These actions might be left unseen unless people are caught but numbers can not hide the truth. By comparing different senarios authors presented cases where financial incentive was strong enough to make people commit crimes. On the other hand, a different pattern, whereas a moral incentive appeared to be stronger than a finincial one, can also be observed. A study of Israeli day-care center showed that a fine of 3$ for picking up children late did not result, as it was aspiered, in reduction of late pick-ups. Instead, a three-dollar cost of late pick-up indicated to parents that damage to the center is not as big as they thought it was before fine was introduced. Guilt kept rates low but when it was substituted with few dollars, rates of late pick-ups rose dramatically. Important lesson to remember is that the bigger financial gain obtained the weaker role of moral in people’s actions is. Based on that, one is capable of predicting how people might act in different situations.
Chapter 2: How is the Ku Klux Klan like a group of real-estate agents? This chapter argues that nothing is more powerful than information, especially when its power is abused. As people we sometimes approach things that are beyond our knowledge and the only thing left is to consult with an expert. In such situations experts can easily abuse their power. For example, a real-estate agent might have few incentives to sell a house at its maximum price. Additional efforts of an agent will bring a dramatic increase in profits of a seller but it will only add a few dollars to the premium of agent himself. Both Ku Klux Klan group and real-estate agents group are similar in way that their power thrives from the exclusive information they obtain. When the roots of this power are cut these ‘experts’ can no longer abuse their power. A tool that helped to diminish power of ‘experts’ was Internet. With the inroduction of Internet assymetry of information was reduced significantly. People now could access information that was only exclusive to certain groups of people, however, even Internet is incapable of fully tackling down the problem of assymetrical information. While making decisions we have to take in acount that some people have an incentive not to provide full and correct information.
Chapter 3: Why do drug dealers still live with their moms?
This chapter asserts that conventional wisdom is often found to be a web of fabrication, self-interest, and convenience.
Conventional wisdom can be defined as a generally accepted theory or belief. Nontheless, as masses are proven to be easily manipulated not every generally accpeted belief is true. On contrast, it is also wrong to say that conventional wisdom is always absolutely wrong. In the long run, people will eventually find out the truth by constantly asking questions and challenging the existing believes. However, in the first place, why wide masses are oftenly mislead? It all starts with experts upholding more information (and, therefore, more power) which allows them to exploit information in order to benefit themselves. Challenging these experts requieres lots of effort and people find it easier just to accept the theory proposed.
One of such common misbeleves is that drug dealers are rich but data shows the majoty of them still live with their mothers, why is that? Simple answer to this question is that nearly all profits os selling drugs go to the people on the top of the drug-dealing organisation. Those people who deal with selling drugs make up the majority of organisation and they are also the ones who earn the least. The average salary of these people is less than minimum wage but these people still continue working in this industry, and they do this for the same reason as the girl comes to Hollywood to be an actress or a boy goes everyday to football pitch. They all hope that one day they will become the elite of their industry. While chances of getting to the top are incredibly small benefits gained if one manages to succeed are enourmous . The only difference being is that drug dealing is illegal which increases chances of failure by a lot.
Chapter 4: Where all the criminals gone? This chapter sorts out the facts of crime from the fictions. Since the 1960s crime rates across the United States were fluctuating but in the 1990s these rates decreased significantly leaving lots of experts wondering what was the cause of that. The proposed reasons included innovative policing strategies, increased number of plolice as well as strong economy, increased reliance on prisons, aging population and other factors. Authors argue that these factors did not contibute as much as legalised abortion did: potantial criminals were simply not born. Providing access to legal abortions indeed contributed to a decrease in crime rates but what authors seem to forget to mention is that nothing can happen sepparately and there is no just a single cause of an event. Low crime rates might be a result of legal abortion, but legal abortion might be result of social development whereas social development usually occurs with economical and political development and etc. This circle can be continued forever, and that is the beauty of economics: there is no single right answer.
Chapter 5: What makes a perfect parent ?
This chapter looks at a question,whether parents really matter, from a variety of angles.
Obviously, there is no simple answer to this question: from a moral perspective, parents indeed are the most important people in a child's life, but from an economics view that might not be the case. To measure how parents influence children's lives economists used test scores at school as an indicator of the parents’ success. Analysis of the data showed that good genetics and wealth play by far a bigger role in children’s performance than an intact family or use of physical punishments.
Chapter 6: Would a Roshanda by any other name smell as sweet?
This chapter explores how important is the first parent’s official act- naming the baby.
Many parents do believe that a name can define the future of a child. In some ways these people are right, but that has nothing to do with the special meaning of the name itself rather than social labels that are attached to it. To prove this postion, an experiment was conducted and results were such as between two identical resumes the one with ‘white name’ got more responces than the one with ‘black name’. In the end, name is just one of the many factors that affect life a person, but it is sertainly not the most important one.
There are few main ideas which can be summarized in five points:
incentives are the cornerstone of modern life.
the conventional wisdom is often wrong.
dramatic effects often have distant, even subtle, causes.
‘experts’ use their informational advantage to serve their own agenda.
knowing what to measure and how to measure it makes a complicated world much less so.
In my opinion, this book can be considered as one of the best introductory economics works. One of the most significant features that stood out for me was the fact that rather than exploring economic theories and models this book focuses on applications of economic analysis, in other words, throughout the prism of everyday life, fundamental economic principles are explored but not vice versa. This book teaches how to pose questions and how to answer them, which is the first and the most crucial step that should be undertaken when one decides to look into economics.
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