Economics and Normative Analysis

Topics: Economics, Freakonomics, Incentive Pages: 7 (1411 words) Published: October 2, 2014
ECON 260

Freakonomics

Freakonomics, by Steven D. Levitt and Stephen J. Dubner, is book that not your typical economist would write it was co-authored in 2005 and if morality represents how we would like the world to work, then economics represent how it actually does work in this award-winning book. Steven D. Levitt is a not your typical economist. He is a much-heralded scholar who studies the riddles of everyday life- from cheating and crime to sports and child rearing and whose conclusions turn the conventional wisdom on its head (freakonomics.com). Stephen J. Dubner is an award-winning author and journalist (freakonomics.com). These two authors team up to create a very insightful groundbreaking collaboration. They set out to to explore the inner workings of a crack gang, the truth about real estate agents, the secrets of the Ku Klux Klan, and much more. Through much story telling and insightful knowledge, they show that economics is at the root, the study of incentives (freakonomics.com). There is not one underlying theme the book, Freakonomics, is built around, but there are many reoccurring themes throughout. The three major themes that I found occur throughout the book are: positive vs. normative analysis, incentives are the cornerstone of modern life, and the idea of “tournament” style markets, “winner take all”. Freakonomics is a brilliant, provocative investigation into motives: what are they, how they can be changed, and how they affect what people do. It is also a deceptively easy read: its style is very humorous and really grips the reader throughout the book. Freakonomics tackles some of our most basic assumptions about the way people, and society, work. I believe that Freakonomics demonstrates the basic economic principles. I will defend this argument through the underlying themes of Freakonomics.

Positive vs. normative analysis is one of the many underlying themes of Freakonomics. The conclusions derived from each chapter will often surprise the reader. These conclusions may also not agree with your personal beliefs, but that is the basis of positive vs. normative analysis. Positive economics is objective and fact bases, while normative economics is subjective and value based. Positive economic analysis statements do not always have to be true, but in order to be considered a positive analysis you must be able to test and prove or disprove the statement. Normative analyses are opinion based, so they cannot be proved or disproved. This basic economic principle is not always easy to understand because the consumer is usually very value based. Public policies are typically revolved around normative economic statements meaning the disagreements carry on because neither side can prove that is correct or incorrect. There are many examples of positive vs. normative analysis throughout Freakonomics, in chapter four, on crime and abortion, the authors brought forth the issue of how crime rates relate to abortion and backed it up with the statistical information. This is an example of positive analysis because the statistical information supports the issue being argued. Normative analysis of the issue between crime and abortion would be that they are not correlated to one another because it pledges the fidelity to notions of the way the world should be. Also, in chapter five, the coauthors believe that a child’s academic success does not come from parental efforts and they explained this through the data presented in the book. One would think a parental figure would help a child’s development in the classroom, but in reality its other external factors that does. This clearly illustrates the difference between an analytical approach that considers the world, as it is (positive analysis) and an analytical approach that is based on how the world should be (normative analysis).

Incentives are the cornerstone for modern life, people respond to incentives. An understanding of incentives is the key to clearly...
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