Freakonomics
Stephen J. Dubner and Steven D. Levitt

by contributor

Jack Shields

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Themes
Themes are described as ideas that dominate a particular piece of literature. In almost all cases, pieces of literature will be centered a theme or a number of them.
Incentives

Incentives are a recurrent theme in Freakonomics. Levitt and Dubner use the concept of incentives to explain why people act the way they do. McCaffrey defines an incentive as anything which motivates human behavior or encourages a person to make one decision and forego another (77). Arguably, the truth of economics is that the primary reason a person behaves differently is that she or he expects to make the greatest gain from choosing a particular course of action. Therefore, the concept of incentives in this book depicts the idea that individuals take a certain course of action which they believe will make their lives better. The authors list various categories of incentives: social, economic, and moral. For example, Levitt and Dubner demonstrate a perfect form of social incentives using the Israeli Day-Care center. Although the school enacted a $3 fine as an economic incentive to deter parents from picking up their children late, this fine substituted for social incentives when the parent started buying off their guilt for late pickups. Additionally, the cheating of sumo and schoolteachers shows an economic incentive whereby the teachers inflated students’ test scores to avoid reassignment to other schools and for a chance to get a $25,000 bonus. Subsequently, the authors state that it is the powerful impact of incentives that inhibit many people from committing crimes. Arguably, the powerful negative impact of economic and social incentives emanating from a person being jailed, such as losing one's job, family, house, and freedom prevents many people from engaging in crimes. A good example is depicted in chapter 4 where the low profits of cocaine contributed to a decline in crime in the 1990's (122). Many people opted not to risk their lives simply because the incentives were insignificant, thereby, leading to fewer killings. The authors argue everyone, even criminals, respond to incentives (66).

Crime and Economic Incentives

The authors provide their arguments based on crimes, such as cheating, homicides, and lying. According to Draca and Stephen, a person decides whether to participate in crime by conducting a cost-benefit computation under uncertainty. Undeniably, a person weighs whether the projected benefits from crime surpass the expected costs (1). For example, for the crime rates to reduce in 1990, crack dealers weighed the risks and benefits of killing each other’s and found that the risk of going to jail outweighed the profit gained. Moreover, foot soldiers persevered and took risk of facing murder and engaging in violence simply because they hoped that someday they would attain power and earn big money in the crack dealing industry.

Information Asymmetry

The authors discuss the concept of information asymmetry in details ranging from real estate agencies, the K.K.K., life insurance policy companies, and economists. Molin and Axel state that the presence of information asymmetry results in the rising of moral hazard issue. Economists often use the term moral hazard in economics to emphasize the risk of information. The authors argue that information asymmetry leads the involved parties to having a conflict of interest, thereby resulting in the party with the information to act in self-interest ignoring the repercussions of other involved parties (12). In this respect, Levitt and Dubner use the concept of information asymmetry to show how experts like real estate agents manipulate customers in the course of selling a house. Additionally, the story of the K.K.K. depicts the information asymmetry whereby the group used the secrecy of their information asymmetry as a weapon of instilling fear and driving blacks into obedience. Importantly, parenting experts take the advantage of parents who are less enlightened about parenting through fear mongering. More recently, however,  the Internet is helping to bridge the information asymmetry gap between experts and potential victims of manipulation.

Conventional Wisdom

Conventional wisdom encompasses beliefs and actions which perpetuates itself as it serves the common interest. Conventional wisdom is referred to throughout Freakonomics, for instance, the conventional wisdom that drug dealing is the most profitable business, that parenting shapes a child's future success both in life and education, and that a child’s name determines their future chance at success. Levitt and Dubner argue that conventional wisdom is not necessarily true, for instance, drug dealers still live with their mothers because they make below minimum wage. Also, a baby's future is determined long before it is conceived. A child is shaped by who their parents are and not what their parents do. Besides, the authors state that a child's future performance is correlated to a parent's socioeconomic status, thereby, refuting the conventional wisdom that a child's future is determined by their name.

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