A Book Review of Freakonomics and Application to Project Management November 2010
The idea to write Freakonomics began in 2003 when journalist and award winning author Stephen Dubner wrote a profile of economist Steven Levitt for the New York Times Magazine. At the time, Levitt, an Economics professor at the University of Chicago, was focusing his research efforts on answering unique and sometimes controversial questions concerning topics such as crime, corruption, education, and parenting using economic analysis. The two immediately hit it off and decided to collaborate to write a book detailing Levitt’s most interesting research. In 2005 their book, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, was published by William Morrow and quickly became a bestseller (Miller).
The authors state in the introductory chapter that there is not one common theme in Freakonomics, instead the book is structured around four fundamental ideas: incentives are the cornerstone of modern life, conventional wisdom is often wrong, dramatic effects often have distant (even subtle) causes, and experts use their information advantage to serve their own interests. Each subsequent chapter is titled with an intriguing question, such as, “what do school teachers and sumo wrestlers have in common”, and then answers are provided based on Levitt’s economic research and analysis.
One of the primary points emphasized in Freakonomics is that economics is essentially the study of incentives; why people behave in certain ways and how they benefit from the things that they do. The authors explain that there are mainly three varieties of incentives that motivate human decision-making: moral, financial, and social. When people make decisions based on moral incentives they are doing what they feel is “the right thing to do”. Financial incentives exist when decisions are made based on money, economic gain, or some other sort of material reward. Lastly, people make decisions based on social incentives, which exist because of societal or group norms and expectations. The authors claim that when incentives are high enough, even normally ethical people will behave unethically to get what they want. As an example, Levitt and Dubner detail the case of cheating on federally mandated standardized tests in the Chicago pubic school system. One would immediately assume that students were the ones caught cheating, but on the contrary, it was actually the teachers who cheated by providing their students with some of the correct test answers or changing students answers before handing in the tests. Teachers whose classes performed well on the tests were praised and often promoted, but those teachers whose classes routinely performed poorly on the tests were often put on probation or terminated. Certainly, poorly performing teachers had a huge incentive to cheat in order to keep their jobs. Another topic discussed in Freakonomics is conventional wisdom. According to Levitt and Dubner, conventional wisdom has to be simple, convenient, and comfortable, but not necessarily true. As an example of conventional wisdom that is shoddily formed, Levitt and Dubner cite Mitch Snyder, who was an advocate for the homeless in the early 1980s. Snyder was quoted saying that there were nearly three million homeless people living in America, which would have been nearly 1 in 100 Americans at the time. After testifying in front of Congress, Snyder eventually admitted that his figure of three million homeless was just a gross estimate because journalists had been pressing him for a specific number. Since the figure was coming from an expert, it was published as truth in newspapers across the country. The most controversial topic presented in Freakonomics is Levitt’s claim that the 1973 Roe V. Wade legalization of abortion led to the dramatic decrease in violent crimes that occurred in the...
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