Freakonomics, Steven D. Levitt and Stephen J. Dubner - Book Summary


“Freakonomics” brings economic logic to everyday events, from online dating to buying a home. It explains why our decisions are so irrational, why seemingly wise tricks turn out to be wrong, and how we are lured in.

Who should read this book:

  • Those who are curious about how we make decisions
  • Managers want to understand the impact of motivation and risk analysis
  • The economist wanted to find a creative way to use economic tools

About the author

Steven D. Levitt teaches economics at the University of Chicago. He uses economic tools in an unorthodox way to uncover the dark side of everyday decisions. His findings sparked controversy in the media and academia.

Stephen J. Dubner is a former author and editor for the New York Times , as well as the author of Chaotic Souls, Confessions of a Cultist and a children's book The Boy With Two Navels .

Your motives can affect your wallet, your self-esteem or your conscience.

Right now there are countless people who want to change your behavior, such as: politicians, doctors, your boss, your parents or your spouse... Tactics can be threats or bribes, seduction, or intimidation. seductive or confusing, the common point is that they are all based on the motive of action.

Motivation is a means of motivating people to do more good or less bad things.

Motives are of three main types: economic, social, and moral. The most effective type targets the desire to change behavior – this type combines all three of the above motivations. Motivation is at the heart of criminal acts. The interesting thing is when we have the opportunity to cheat, steal or cheat, what motivates us to do so.

The risk of going to jail, losing a job, losing a home, losing freedom is an economic factor and it certainly forms an incentive against crime.

There is also a moral motive because no one wants to do anything that goes against their conscience.

And finally there is a social motive, no one wants to be seen as a criminal. Often, depending on the type of crime, the social incentive can be stronger than the economic punishment.

It is the combination of all three types of motivation that stops the criminal behavior of most of us.

Motivational stimuli often have unintended consequences in human behavior.

We are all too familiar with incentives to achieve certain behaviors. From parents who reward their children when they do well in school to companies that reward employees when they achieve sales. We are all inundated with various forms of stimulation.

However, changing behavior through motor stimulation is more complex than we thought. Stimulus forms are most effective when small changes have profound effects that we don't anticipate.

Economists did an experiment to reduce the number of parents arriving late to pick up their children at a child care center in Haifa, Israel. They offer a fine of 3 dollars when parents come to pick up their children late. However, the cases of parents picking up their children late have doubled, not reduced as originally planned. Why?

First, perhaps the fines aren't so large that parents take the late pick-up off as something not to worry about.

The bigger problem is that this small fine obscures a moral responsibility: Parental shame for not picking up children on time. Parents can now redeem their shame with just a few dollars, so they don't mind being late.

Furthermore, once the $3 value was established, the penalty removal did not reverse the situation, the number of parents picking up their children late remained the same.

The example above shows that positing one form of motor stimulation is particularly complex when another form is operating. Because the new form can nullify the old form.

These forms of motor stimulation often cause undesirable consequences in human behavior.

Motivation depends on the circumstances: what is good in the sun is not necessarily good in the rain.

Have you ever robbed a bank? Probably not, because there are penalties such as imprisonment, loss of social status, guilty conscience. Still, there are people who rob banks even though they know they will have to face those penalties. Why? Everyone has different motivations.

This is quite obvious, but it is worth mentioning that the same person, under different circumstances, will have different responses to the same type of motor stimulus.

Paul Feldman - the owner of a bagel shop for offices - reveals an interesting piece of information in his work. When delivering bagels, he often leaves a box with money for customers to pay for themselves. Paul will return to clean up and collect the money at the end of the day. Every customer has the same incentive to pay – they want to be honest and be seen as honest by others. However, the amount collected in each office reveals the honesty of customers in that office.

The main factor affecting honesty is mood (which is influenced by many other factors).

Earnings are higher on warm days and lower on cold days. Busy holidays like Christmas or Thanksgiving significantly reduce earnings, and vice versa for other holidays.

Same with office qualities. Employees of a happy office tend to pay more.

After 9/11, the amount of money collected increased evenly, the author attributed it to the sympathy aroused after the event. The lesson learned is that one form of influence on one person's motivation at one time may not work at another time. It depends on the environment, personal circumstances and human mood.

Professionals use the advantage of information to their own advantage.

Everyone will need expert advice from time to time. From appliance repair, home sales or legal matters, you can rely on advice from experts in the field to learn more.

Experts know more about a field than ordinary people, so they have an information advantage. Although experts are often paid a fee or commission, they can also use informational advantages as a ploy to make more money.

Consider a real estate agent: for most of us, selling a home is the big deal in life. It's a complicated thing so we have to find a real estate agent who has a deep understanding of the market, prices, trends and most of all, they also want to sell your home for the highest price because they will enjoy the commission. pink from selling price. You feel secure when you have such an expert to help you. Unfortunately, this way of thinking is too simplistic. More generally, the real estate broker's motive is only to sell the house, not to sell the house at the highest price because the difference in commission is not much. The profit from selling a home is faster and more powerful than trying to sell a house that costs a little more.

One study found that when realtors sell their own homes, they're willing to wait a little longer for a higher price, compared to when they're selling a client's home. So be careful when brokers encourage you to sell your home at the first price, they are making more money for them than for you.

Experts can use fear and anxiety to deceive ordinary people.

The unknown becomes scary sometimes. You are often nervous when trading in areas of which you have little knowledge. The storytellers take advantage of this to make a profit. The car salesman convinces you not to buy the cheaper car because it's not safe. Real estate agents convince you to bid higher or you will lose the house of your dreams. Stockbrokers tell you you'll regret it for the rest of your life if you don't invest in these stocks right away.

Fear of losing reason and clarity in the way we decide, so experts use this to fool our decisions.

Professionals make full use of fear in the face-to-face situations: no one wants to look stupid, cheap, or dishonorable.

Imagine you are busy preparing for the funeral of your loved one. Knowing that you don't know much about coffins and want to have a thoughtful funeral with your loved ones, the funeral director takes advantage of your anxiety to sell you a coffin that is more expensive than you planned. .

Pay attention when experts take advantage of your fear, especially when they urge you to make quick decisions. In this case, you want more time to consider your options, you can tell them you need more input from family or friends. You can also eliminate the information advantage by doing your research before making trades.

The internet frees us from being taken advantage of by experts.

During the 1990s, life insurance prices fell dramatically, while no other type of insurance was affected. Life insurance types and target customers did not change significantly. So why are insurance prices falling? The answer is the rise of the internet, especially price comparison sites. These websites help users compare insurance coverage from dozens of companies in seconds. Finding out the price of insurance before was extremely time-consuming, now it's just a click away. Because the insurance policies of the companies are similar, the big companies are forced to reduce their prices, leading to false reductions in all insurers.

The above example shows that the internet plays an important role in reducing information advantage worldwide. The Internet is an effective tool for sharing and balancing information between haves and have-nots. From there consumers can gather information quickly and conveniently before working with experts. They are more prepared about what is affordable and avoid expert tricks.

Today, if you buy a house, you can find out the right price yourself instead of relying on the guidance of a real estate agent.

When there is not enough information from the seller, the buyer evaluates the price for information they do not know

The flip side of informational advantage is that when information is missing—whether intentionally hidden or perceived as incomplete—it has a devastating effect.

Have you ever wondered why in general the value of a car will decrease by a quarter immediately after the time of sale? You bought a new $20,000 car yesterday, but if you sold it today it would probably be for less than $15,000. Why did the car price drop so drastically after only 24 hours? The explanation lies in the lack of information transparency. When it's not clear why a person is selling the car, the buyer automatically assumes something is shady or the seller is hiding something. And they put a price tag on the car to fill in the information they didn't know. The penalty for this lack of transparency is, of course, borne by the seller.

Another experiment with online dating also gave a similar result. The results show that when the avatar is not updated, the candidate will be less contacted. Because when the face is unknown, the online candidate assumes the worst case scenario.

The lesson learned is that in any transaction, it is not only the information you give that is important, but you also need to consider what information the other party wants to know and the price to pay in the absence of such information.

We worry excessively with emerging dangers or when we are out of control.

When assessing danger, we are not as alert as we think. Are we ready to deal with the danger? is a major factor influencing the assessment. Thanks to the media, it is easy to imagine the consequences of plane crashes, gunfire or terrorism (although they rarely happen). We are therefore unduly bewildered about the consequences of these dangers.

Another example is when you let your child play at someone else's house, would you feel safer if your friend has a gun or a swimming pool?

The phobia that your child may be shot by a gun is terrible, especially when it comes to the news every day. While no one talks about the danger of a child falling into a swimming pool. That's why most think swimming pools are safer. In fact, the rate of children dying from a gun is many times less than dying in a swimming pool.

The second factor in the risk assessment is whether we can control ourselves. This explains why many people prefer driving to flying. We feel in control when we are at the wheel of a car and we feel powerless on the plane. In fact, the odds of dying on an airplane or a car are about the same.

Recognizing these misconceptions is the first step to overcoming them. The second step is to learn the facts to put aside your worries and make a sober assessment.

When two things happen at the same time we often infer that they are related

Even though the capital city of Washington and the city of Denver have the same population, Washington has 3 times more police officers and 8 times more suicides than Denver. Do you think it was the police who caused the suicides?

When the good cause X is high and the bed seems to coincide with the rise of consequence Y, we are inclined to attribute X to the cause of Y. we attribute causation when perhaps it is only the cause of Y. is correlation.

Let's look at the relationship between money and politics. Most of us believe that money has a big influence on election results, and the data we've gathered proves that campaigns that spend money often win. We therefore infer that money is the determining factor. Is that true? Campaign contributors are actually very practical, their strategy very clear: 1) donate money when the election is hot 2) donate money to the dominant candidate. Everyone believes that the candidate they don't support doesn't deserve to win.

Following this trend, elected candidates will often raise a lot of money. But what is the relationship between money and election? A study of elected candidates shows that the impact of money spent on a campaign on results is negligible. A winning candidate can cut campaign costs in half and lose only 1% of the votes otherwise even spending twice a candidate can only increase 1% of votes. So obviously money can't bring election victory.

In causality, we often blame new events and ignore previous events.

Not only do we rush to conclude the causal relationship between two things, we often attribute it to recent events and ignore previous events or indirect causes.

In late 1989 in the US, the crime rate skyrocketed. Violent crime is up 80% from 15 years ago, and experts warn the situation will get worse in the years to come. That's why the dramatic drop in crime in the early 1990s came as a surprise. It was the same experts who made the predictions at the end of 1989 who rushed to come up with explanations. They explained that economic growth, better gun control, innovation in law enforcement, increased police numbers, and better prison guards help improve the crime situation. These reasons seem appropriate and reasonable, but later analysis shows that all of the above reasons contribute only a small part in reducing the number of crimes. The main cause and the strongest influence is: abortion.

A child's future likelihood of committing a crime is predicted by two main factors: 1) being older in a single parent family 2) living in poverty. This is also the reason for abortion. In 1973, Roe v. Wade had a landmark ruling across the country that all women have the right to have an abortion. This new law contributed to a reduction in the number of children at risk of crime over the next 16 years (1989) and beyond.

The lesson to be learned is to be wary of obvious and immediate causes – even experts are easily fooled by them.

Final Summary

The main message of the book:

From raising children to selling a home, every day we make seemingly simple decisions. By challenging the conventional wisdom and analyzing the facts around us, humorous economics uncovers the source of life's interactions, revealing the unexpected and the seemingly absurd. Only when we understand these hidden corners can we begin to understand and find ways to deal with them.

You can find answers to the following questions:

What should you consider when evaluating motivation and its impact?

  • Motives that can affect your wallet, self-esteem and conscience
  • Applying motor stimulation can produce unintended consequences.
  • Motivation depends on the circumstances: what is good in the sun is not necessarily good in the rain.

How does holding information in a transaction affect the parties?

  • Professionals use informational advantage to their own advantage.
  • Experts use fear and anxiety to deceive ordinary people.
  • The internet frees us from being taken advantage of by experts.
  • When sellers store information, buyers charge a price for information they don't know

What mistakes do we make when assessing risks and consequences?

  • We worry excessively about emerging dangers or when we have no self-control
  • When two things happen at the same time we often infer that they are related
  • In causality, we often blame new events and ignore previous events.