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Unread May 22nd, 2005, 08:04 PM
James Brody James Brody is offline
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Join Date: Jun 2004
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Default Nets & Invisible Hands: A Review of Freakonomics*

Levitt, S., & Dubner, S. (2005) Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. NY: Morrow. $26 but 40% off for Barnes & Noble members.

Levitt & Dubner (L&D) define their assumptions early:
1) Incentives drive the market
2) Conventional wisdom was first an insult and is often wrong
3) Distant, small causes have large, delayed effects
4) Exclusive access to information drives profits in real estate, insurance, and funerals. (He could have included psychotherapy, health care, jewelry, and even the fine arts.)
5) Knowing the numbers selects and simplifies the stories that you tell.
L&D hook you with puzzles: do teachers cheat when their pupils take national exams (yes!), do Sumo wrestlers take turns letting each other win (yes!), and did Superman have a role in discrediting the KKK? Again, yes! L&D deliver lots of fun stuff: for example, Connecticut awards you 21 weeks of compensation for loss of a finger and 35-104 for loss of your vagina. In another chapter, crack dealers, like athletes or actors, usually earn so little that they are forced to work at Walmart and live with their mothers. And most controversial, the right to a legal abortion reversed crime rates in the 90s: mothers apt to rear criminals quit having babies.
L&D challenge Conventional Wisdom, a gift from John Galbraith. CW aligns "with what most closely accords with self-interest and personal well-being or promises best to avoid awkward effort or unwelcome dislocation of life." (p. 90). Well! Don't tell Newsweek! CW provides a foil for L&D's discussions of education, parenting, crime, and abortion, a straw man to be examined, disassembled, and swept away. For example, handguns are a smaller risk to children than are swimming pools. And car seats help because we put the kid in the back seat. They also demonstrate that, since the Black Power movements in the '70s, mothers who are poor, single, and often black, choose from one list for the names of their children; mothers who are married and financially better-off, choose from another. DeShawn has a different niche and life course than Madison.
L&D, however, have their own CW in their assumptions and miss a family of invisible hands from emergent networks, power laws, and behavior genetics. I suspect that income for crack dealers parallels not only that found in McDonalds or Walmart (a few people make big bucks in contrast with hordes of slaves) but also in sports, entertainment, the fine arts, and even publishing. I think L&D might find that power laws underlie most of the patterns that they describe and their forming a partnership with Albert Barabasi (the physicist who wrote "Linked") could be revolutionary. (They might also look up Herb Gintis!) Behavior genetics whispers through L&D's data on school achievement ("It matters more who you are than what you do," p. 175, in regard to your children's success: socioeconomic status and income, however, have significant foundations in genetics! On the other hand, Headstart, spanking your child, or reading to him have zero impact.) L&D cite Judith Harris in the parenting chapter: they could have, more helpfully, also cited David Cohn's "Stranger in the Nest."
L&D give fine examples of how restricted information in real estate, auto sales, funerals, and insurance give immense advantages to the professional and note how the Internet equalizes the field. (An arms race is born: the pros have to invent more secrets in order to stay in business or, like children's names, migrate to poorer neighborhoods!) They don't notice the similarity of these changes to winner-take-all arrangements discussed by Robert Frank and Peter Cook (The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us. NY: Free Press, 1995). These can be seen as statistical effects that we find not only at Walmart and in CNS pathology, but also in Bose-Einstein condensates! But, what the heck, they can't say everything in a popular book...
Bottom line:
Good book and foundation for a great one to come! You might read Freakonomics in an afternoon but think about it for most of your life.

Copyright, 2005, James Brody, all rights reserved.

* Written at the Barnes & Noble Store in Exton, PA. Touch a human when you get a book!
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