Saturday, April 23, 2005


I've been on one of my reading binges lately. Last night I read Freakonomics, the new book by economist Steven Levitt and write-hand-man/journalist Stephen Dubner. I have enough to say about it for multiple posts.

The book is basically Levitt celebrating his own genuinely interesting research and the esprit d'economie behind it. As they write:
Economics is, at root, the study of incentives: how actions are associated with (perceived) costs and benefits, and when the costs and benefits change, so do people's actions.
Silly rabbit! I just made that sentence up. Freakonomics is one of those hastily thrown together science books. So the actual sentence from the book reads:
Economics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing.
Which may be an accurate characterization of what economics is after, even while it would puzzle the bejeezus out of anyone who didn't already know what an incentive is.

The book also borrows other tricks out of the Malcolm Gladwell school of science writing, which is all the better since Gladwell is granted the honor of blurbing the book on both the front and back of the book jacket. Important rule: if a story is interesting, do not take it out just because it "doesn't work", just claim a connection exists and move on. So Chapter 2 opens with this 10-page yarn about the history of the Ku Klux Klan and how the Klan revival in postwar America was supposedly gravely damaged by an infiltrator who made various of its dopier rituals public--some precious history of American race relations, this--which is then wrapped up with the conclusion that
[The infiltrator] understood the raw power of information. The Ku Klux Klan was a group whose power--much like that of politicians or real estate agents or stockbrokers--was derived in large part from the fact that it hoarded information.
Which then segues into a discussion of the information advantages of real estate agents and how they exploit these advantages to convince you to sell your house for something less than the maximum that you could get for it. In any case, given that the "information" the inflitrator revealed about the Ku Klux Klan were things like their secret passwords and the weird names of the positions on their organizational chart ("Exalted Cyclops" and "Grand Dragon"), one can decide how much that information really was behind the power of the Klan or how similar it is to a real estate agent having more information about the real selling value of your house.

The book also contains some of the weird economic explanations that some economists use when they want to cast the world as more economically simple than it really is--you know, the kind that make you scratch your head and think, "Does he really believe this?" (In this respect, Freakonomics is nowhere near as bad as Steven Landsburg's The Armchair Economist, a book which becomes inadvertently hilarious as the author shows he will go to any lengths to deny that the reason stores price things at $19.99 rather than $20 is that the difference psychologically seems larger than one penny.) From Freakonomics:
The day that a car is driven off the lot is the worst day of its life, for it instantly loses as much as a quarter of its value. This might seem absurd, but we know it to be true... Why? Because the only person who might logically want to resell a brand-new car is someone who found the car to be a lemon. So even if the car isn't a lemon, a potential buyer assumes that it is. He assumes that the seller has some information about the car that he, the buyer, does not have--and the seller is punished for this assumed information.
There is a reason why economists are often confronted by skeptics saying, "If you're so smart, why aren't you rich from selling used cars?" The extension of the above reasoning would be that if you were able to prove (or, perhaps even, guarantee) that there was no reason to think that a one-day old used car wasn't a lemon, then you should be able to command an identical price for it as a new car. It will be left as an exercise as a reader for whether such proof really would eliminate the new car premium.

For all my carping, Freakonomics was interesting enough for me to read it all the way through in just a few hours, and, in general, sociology would certainly be better off if it had more people who had the empirical imagination that Levitt does. I'll post about the part of the book that I think is most provocatively interesting later if I get the chance, although before that I want to write a post about Levitt's chapter on first names.

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