Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

Rarely does a book about economics attract a large audience, but Freakonomics: A Rogue Economist Explores the Hidden Side of Everything sold 4 million copies after its 2005 debut. The book, by University of Chicago professor Steven Levitt and journalist Stephen Dubner, explains how incentives—the reasons why people do things—can cause unusual and unexpected effects in many areas of life.

Praised and reviled for its outside-the-box approach—the work was condemned for suggesting that liberalized abortion laws helped lower the US crime rate—Freakonomics incited lively debate and inspired several sequels, a weekly podcast, and a film documentary. The 2020 ebook version of the revised and expanded edition forms the basis for this study guide.

Summary

The Introduction presents the book’s main themes: Conventional thinking often is wrong, and people make decisions based on what they want to do, not on what they should do. Incentives push and pull humans toward those decisions; sometimes these motivators lead people to take actions unexpected by experts. The way to discover the options people really prefer is to gather data on their actions, think hard but dispassionately about the incentives revealed in the data, and uncover the hidden side of human behavior.

Chapter 1 examines cheating, why it happens, and ways to detect it. Israeli daycare centers imposed a $3 fine on parents who were late picking up their children, but lateness more than doubled; tardiness changed from a moral failure to a privilege parents could purchase. Elite Sumo wrestlers are touted as highly moral, but when a winning contestant’s last bout is against an opponent who’s on the verge of demotion, he’ll often take a fall as a favor to the weaker opponent, who returns the favor in a subsequent bout.

Chicago schools tightened testing requirements in the 1990s, and poorly performing classrooms suddenly did much better because teachers altered the students’ answer sheets. A salesman brought bagels to businesses where office workers paid on the honor system; thievery increased on rainy days and after expensive holidays like Christmas and Thanksgiving.

According to Chapter 2, real estate agents and the Ku Klux Klan both use inside information to take advantage of others. During the 1900s, the Klan presented itself as a fiercely dangerous secret society bent on suppressing Black civil liberties, and rumor had it that the KKK lynched many more African Americans than it actually did. The group used that rumor, along with its secret connection to police departments in the South, to intimidate Black Americans without always resorting to risky killings. Realtors, meanwhile, make more money for themselves by selling houses quickly and cheaply, and they keep this knowledge from their clients. Other professionals—doctors, auto mechanics, car dealers—also use inside knowledge to get the better of their own customers.

Chapter 3 shines a light on the hidden world of drug-dealing inner-city gangs—most of whom, contrary to popular opinion, are too poor to move out of their mother’s residence. The invention of crack cocaine brought a cheap drug to the urban scene, and crime soared as rival gangs fought each other for prime sales spots. Sociologist Sudhir Venkatesh studied a Chicago drug gang from the inside for six years. He learned that the world of a drug-dealing foot soldier is dangerous—after four years, one in four died in street battles—and most never advance in rank or pay. For gangsters, however, the slight chance that selling drugs might win them a ticket out of the housing projects is worth the risk.

Shortly after Venkatesh finished his study, crime in America defied predictions and dropped steeply. In Chapter 4 the authors argue that this can be traced to a US Supreme Court decision that legalized abortion. The result was that many fewer unwanted children were born; unwanted kids are much more likely to get involved in crime when they grow up; by the 1990s, fewer such people meant fewer crimes.

Chapters 5 and 6 explore the effects of parenting on children’s lifetime outcomes. Abusive parents cripple their offspring’s chances, but parents who try to provide their kids with educational stimulation generally make no difference with those efforts. What counts is who the parents are—well educated, interested in reading—rather than what they do.

Parents in low-income communities, both White and Black, tend to give their children names not used in more affluent neighborhoods, and Chapter 6 focuses on this phenomenon. As well, Black parents choose names that differ considerably from those chosen by White parents. In both groups, names change over the decades, with some rising to the top of fashion and others dropping away.