Freakonomics by Steven Levitt & Sthephen Dubner

Few months back I read this book, and I completed it in almost no time, given that I’m a slow reader, sometimes it takes me months to complete a book. This can you an idea how interesting this book is. For my own reference, I usually write down a summary of the book.

The book is written by Steven D. Levitt, a young economist at the University of Chicago, who had just won the John Bates Clark Medal (awarded every two years to the best American economist under forty), Harvard undergrad, a PhD from MIT.

“The Steven Levitt tends to see things differently than the average person. Differently, too, than the average economist. This is either a wonderful trait or a troubling one, depending on how you feel about economists.”
—The New York Times Magazine, August 3, 2003

According to Levitt: “I’m not good at math, I don’t know a lot of econometrics, and I also don’t know how to do theory. If you ask me about whether the stock market’s going to go up or down, if you ask me whether the economy’s going to grow or shrink, if you ask me whether deflation’s good or bad, if you ask me about taxes—I mean, it would be total fakery if I said I knew anything about any of those things.”.


As Levitt sees it, economics is a science with excellent tools for gaining answers but a serious shortage of interesting questions. His particular gift is the ability to ask such questions. For instance:

How Is the Ku Klux Klan Like a Group of Real-Estate Agents?
If drug dealers make so much money, why do they still live with their mothers?
Which is more dangerous, a gun or a swimming pool?
What really caused crime rates to plunge during the past decade?
Do real-estate agents have their clients’ best interests at heart?
Why do black parents give their children names that may hurt their career prospects?
Do schoolteachers cheat to meet high-stakes testing standards?
Is sumo wrestling corrupt?
And how does a homeless man in tattered clothing afford $50 headphones?




What really caused crime rates to plunge, in USA, during the past decade?

In the United States in the early 1990s crime had been rising relentlessly. Other criminologists, political scientists, and similarly learned forecasters laid out a horrible future, as did President Clinton. “We know we’ve got about six years to turn this juvenile crime thing around,” Clinton said, “or our country is going to be living with chaos. And my successors will not be giving speeches about the wonderful opportunities of the global economy; they’ll be trying to keep body and soul together for people on the streets of these cities.” The smart money was plainly on the criminals. And then, instead of going up and up and up, crime began to fall.

The magnitude of the reversal was astounding. The teenage murder rate, instead of rising 100 percent or even 15 percent as warned, fell more than 50 percent within five years. By 2000 the overall murder rate in the United States had dropped to its lowest level in thirty-five years. So had the rate of just about every other sort of crime, from assault to car theft.

According to Levitt’s theory, it was due a case, filed by a teenager, Norma McCorvey, against the Dallas County district. The story was that Ms McCorvey was a poor, uneducated, unskilled, alcoholic, drug-using twenty-one-year-old woman who had already given up two children for adoption and now, in 1970, found herself pregnant again. But in Texas, as in all but a few states at that time, abortion was illegal.
On January 22, 1973, the court ruled in favor of Ms. Roe, allowing legalized abortion throughout the country. Levitt argues that a child born into an adverse family environment is far more likely than other children to become a criminal. Just for the sake of reference, in US, 1.5 millions abortions are carried out every year.


Do real-estate agents have their clients’ best interests at heart?

How any given expert treats you, will depend on how that expert’s incentives are set up. But as incentives go, commissions are tricky. First of all, a 6 percent real-estate commission is typically split between the seller’s agent and the buyer’s. Each agent then kicks back half of her take to the agency, which means that only 1.5 percent of the purchase price goes directly into your agent’s pocket. So on the sale of your $300,000 house, her personal take of the $18,000 commission is $4,500. Still not bad, you say. But what if the house was actually worth more than $300,000? What if, with a little more effort and patience and a few more newspaper ads, she could have sold it for $310,000? After the commission, that puts an additional $9,400 in your pocket. But the agent’s additional share—her personal 1.5 percent of the extra $10,000—is a mere $150. If you earn $9,400 while she earns only $150, maybe your incentives aren’t aligned after all. Especially when she’s the one paying for the ads and doing all the work. Is the agent willing to put out all that extra time, money, and energy for just $150? When she sells her own house, an agent holds out for the best offer; when she sells yours, she pushes you to take the first decent offer that comes along.

Is’nt this interesting, as recently I have been dealing with estate agents and never figured that out.


Consider the folktale of the czar who learned that the most disease ridden province in his empire was also the province with the most doctors. His solution? He promptly ordered all the doctors shot dead. This describes the difference between Causation and Correlation.


Do schoolteachers cheat to meet high-stakes testing standards?

Who cheats? Well, just about anyone, if the stakes are right. You might say to yourself, I don’t cheat, regardless of the stakes. And then you might remember the time you cheated on, say, a board game. Last week. Or the golf ball you nudged out of its bad lie. Or the time you really wanted a bagel in the office break room but couldn’t come up with the dollar you were supposed to drop in the coffee can. And then took the bagel anyway. And told yourself you’d pay double the next time. And didn’t.

W. C. Fields once said: a thing worth having is a thing worth cheating for.

The Chicago Public School system embraced high-stakes testing in 1996. Under the new policy, a school with low reading scores would be placed on probation and face the threat of being shut down, its staff to be dismissed or reassigned. The CPS also did away with what is known as social promotion. In the past, only a dramatically inept or difficult student was held back a grade. Now, in order to be promoted, every student in third, sixth, and eighth grade had to manage a minimum score on the standardized, multiple-choice exam known as the Iowa Test of Basic Skills.

Schoolchildren, of course, have had incentive to cheat for as long as there have been tests. But high-stakes testing has so radically changed the incentives for teachers that they too now have added reason to cheat. With high-stakes testing, a teacher whose students test poorly can be censured or passed over for a raise or promotion. If the entire school does poorly, federal funding can be withheld; if the school is put on probation, the teacher stands to be fired. High-stakes testing also presents teachers with some positive incentives. If her students do well enough, she might find herself praised, promoted, and even richer: the state of California at one point introduced bonuses of $25,000 for teachers who produced big test-score gains.

So what are the ways to produce better scores:

a.) Write the answers on the board.
b.) Give extra time to students to finish the test.
c.) If she obtains a copy of the exam early—that is, illegitimately—she can prepare them for specific questions.
d.) She might even fill in the blanks for them after they’ve left the room
e.) Correct the answers afterwards, before submitting the answer sheets to be read by electronic scanner.

First four are easily to identify, but the last one is little tricky. To know trick, read the book. J

If it strikes you as disgraceful that Chicago schoolteachers and University of Georgia professors will cheat—a teacher, after all, is meant to instill values along with the facts—then the thought of cheating among sumo wrestlers may also be deeply disturbing.

Is sumo wrestling corrupt?

In Japan, sumo is not only the national sport but also a repository of the country’s religious, military, and historical emotion. Indeed, sumo is said to be less about competition than about honor itself. As with the Chicago school tests, the data set under consideration here is surpassingly large: the results from nearly every official sumo match among the top rank of Japanese sumo wrestlers between January 1989 and January 2000, a total of 32,000 bouts fought by 281 different wrestlers.

All the sumo-wrestlers are divided into two categories, makuuchi and juryo, (higher & lower). And its obvious that everyone wants to be in the upeer one, reason being that a wrestler near the top of this elite pyramid may earn millions and is treated like royalty. Any wrestler in the top forty earns at least $170,000 a year and low-ranked wrestlers have to serve their superiors, like preparing meals and cleaning their quarters and even soaping up their hardest to-reach body parts. A wrestler’s ranking is based on his performance in the elite tournaments that are held six times a year. Each wrestler has fifteen bouts per tournament, one per day over fifteen consecutive days. If he finishes the tournament with a winning record (eight victories or better), his ranking will rise. So as to avoid the relegation the top wrestlers make a settlement that as and when required they’ll let other win the fight.

Let’s now consider the following statistic, which represents the hundreds of matches in which a 7–7 wrestler faced an 8–6 wrestler on a tournament’s final day. The left column tallies the probability, based on all past meetings between the two wrestlers fighting that day, that the 7–7 wrestler will win. The right column shows how often the 7–7 wrestler actually did win.

7–7 WRESTLER’S PREDICTED WIN PERCENTAGE AGAINST 8–6 OPPONENT -- 48.7
7–7 WRESTLER’S ACTUAL WIN PERCENTAGE AGAINST 8–6 OPPONENT ---- 79.6

So numbers speak for themselves. No formal disciplinary action has ever been taken against a Japanese sumo wrestler for match rigging. Officials from the Japanese Sumo Association typically dismiss any such charges as fabrications by disgruntled former wrestlers. In fact, the mere utterance of the words “sumo” and “rigged” in the same sentence can cause a national furor. People tend to get defensive when the integrity of their national sport is impugned.

So if sumo wrestlers and schoolteachers are all cheat, are we to assume that mankind is innately and universally corrupt?
And if so, how corrupt? As Levitt says:

Incentives are the cornerstone of modern life.

The conventional wisdom is often wrong. Conventional wisdom is often shoddily formed and devilishly difficult to see through, but it can be done.

There is a tale, “The Ring of Gyges,” which comes from Plato’s Republic. A student named Glaucon offered the story in response to a lesson by Socrates— who, like Adam Smith, argued that people are generally good even without enforcement. Glaucon, disagreed. He told of a shepherd named Gyges who stumbled upon a secret cavern with a corpse inside that wore a ring. When Gyges put on the ring, he found that it made him invisible. With no one able to monitor his behavior, Gyges proceeded to do woeful things—seduce the queen, murder the king, and so on. Glaucon’s story posed a moral question: could any man resist the temptation of evil if he knew his acts could not be witnessed? Glaucon seemed to think the answer was no. But Paul Feldman sides with Socrates and Adam Smith—for he knows that the answer, at least 87 percent of the time, is yes.

Two Paths to Harvard
In the book, Levitt has mentioned about two different boys, one white and one black. The white boy who grew up outside Chicago had smart, solid, encouraging. Loving parents who stressed education and family The black boy from Daytona Beach was abandoned by his mother, was beaten by his father, and had become full-fledged gangster by his teens. So what became of the two boys?
The second child, now twenty-seven years old, is Ronald G. Fryer Jr., the Harward economist studying black underachievement.
The white child also made it to Harvard. But soon after, things went badly for him. His name is Ted Kaczynski. If you don't know him -- http://en.wikipedia.org/wiki/Ted_Kaczynski

There are many more interesting stories, told be Levitt, but I have mentioned the ones which I felt most interesting and will motivate you to read the book.

--Mishra

Blue Umbrella

Yesterday I had nothing much to do and was not in the mood to read also, and it has been a while since I watched a decent Hindi movie. So I tried “Blue umbrella”, and I’m glad I wasn’t disappointed. I’m truly amazed by Vishal Bharadwaj. This fellow is so talented that at times I feel a bit jealous towards him. Great Musician, Fantastic Direction and Innovative Scripts, you name it and you get it. Omkara was the first, of his masterpieces which I saw, and I was speechless or I should say I couldn’t stop talking about the movie. Plot, Music, Performances, Direction, dialogues, everything was inch-perfect. Then I watched Maqbool, and almost same experience, except this one was more serious but with added flavor of Irfaan Khan.

To complete the series I decided for Blue umbrella. The title gave me the impression that this one might be similar to “Makdee”, but I was wrong. This one has more emotional touch than “Makdee”. By reviews, I came to know that it is inspired from a novel by Ruskin bond.

I liked the movie because of its simplicity and purity. The Blue Umbrella is a charming story, but it is also a powerful film exploring multiple themes of greed, innocence. It is shot in the amazing surroundings of Himachal Pradesh.

After Maqbool, I was really impressed by Pankaj Kapur and after this one, I admire him. Pankaj Kapur plays Nand Kishore, local village baniya, who steals the umbrella and then gets caught. In fact, Pankaj Kapur is so good in this film, he almost brought tears to my eyes. I will recommend this movie to all, who are fed up with typical Hindi masala movies and like off-beat movies.

--- Mishra