Book Summary — Freakonomics

🚀 The Book in 3 Sentences

1. Freakonomics = Freak + Economic
2. Many humorous questions with serious answers.
3. Extract insight from data to answer questions.

🎨 Impressions

I was amazed by the questions in this book. It started with a freak question and gradually increased statistic detail. What I get from this book is not only the answers to strange questions but also the scientific methodology used to answer those questions.

🙍‍♂️ Who Should Read It?

Although the content in this book is not difficult to understand, it could be a great foundation of critical thinking and statistical thinking for students or researchers.

☘️ How the Book Changed Me

• I try to ask a question about the status quo.

📒 Summary + Notes

Intro

• The fundamental idea of this book:

1. Incentives are the cornerstone of modern life.
2. The conventional wisdom is often wrong.
3. Dramatic effects often have distant and subtle causes.
4. “Experts” use their informational advantage to serve their agenda.
5. Knowing what to measure and how to measure it makes a world less complicated.

• An honest assessment of the data could yield new, surprising insight.
• Morality represents the way that people would like the world to work while economics represents how it works.

What do schoolteachers and sumo wrestlers have in common?

👶Day-care center case study

• It was announced that any parent arriving late would pay $3.
• The result is the number of late pickups promptly went up.
• Economics is the study of incentives: how people get what they want or need.
• There are 3 basic incentives: economic, social, and moral. A single incentive scheme often includes all 3 incentive types.
• The problem with this policy is that it substituted an economic incentive ($3 penalty) for a moral incentive (the guilt of parents).

🧑‍🏫🏫 Schoolteachers exam cheating case study

• “Cheating” is an economic act: getting more for less
• Schoolteachers have an incentive in cheating high-stakes testing since students 'score is related to teachers’ career.
• Cheating methods below have the risk that any student may tell other people about this cheating.

1. Write the answers on the chalkboard.
2. Give students extra time to complete the test.
3. If teachers obtain a copy of the exam early, they can prepare students for specific questions.

• The better method is that teachers erase the wrong answers and fill in the correct ones.
• However, an algorithm could detect potential cheating classrooms by finding patterns in those classroom answers.

👊 Sumo wrestlers

• Cheating is more common when the difference of incentive between winning and losing is high.
• The incentive scheme that rule sumo wrestler is powerful.
• In 15 rounds matching, wrestlers can rank up when they win 8 or more times, so it will be a critical point when they win 7 times, lose 7 times, and have only 1 round left.
• Data shows that 7–7 wrestlers have an 80% winning rate against 8–6 wrestlers and only 40% in the rematch.
• The agreement might be made: you let me win today, I will let you win the next time.

🍞 Feldman’s bagel

• Feldman sells bagels to the companies. He delivered some bagels in the morning and pick up money and the leftovers in the afternoon. It was an honor-system commerce scheme.
• He analyzed data by comparing the bagels taken and the money collected to tell how honest his customer was.
• This is called a white-collar crime.
• Feldman’s result showed that smaller office is more honest than big ones because smaller community tends to have greater social incentives (being shame) when they commit a crime.
• Economic research has shown that people will pay different amounts for the same item depending on who is providing it.

How is the Ku Klux Klan like a group of real-estate agents?

🪖💥 Ku Klux Klan

• Ku Klux Klan (KKK) is an American white supremacist terrorist hate group founded in the early 1870s.
• The Klan Unmasked written by Kennedy reveals Klan inside information.
• KKK power was derived from its hoarded information like politicians or real estate agents, so group advantage disappeared when information was leaked,

🏠 Information asymmetry

• Information asymmetry is so powerful that only the assumption of information can have an enormous effect on people.
• Experts are trying to keep the information as asymmetrical as possible, so they can exert gigantic leverage from fear of others.
• In the 1990s, the price of term life insurance fell dramatically because Quotesmith.com enable a customer to compare the price of term life insurance within seconds.
• Resold car price drops a quarter of its value once it is out of showroom because customers assume that seller hides car information.
• Internet is shifting information from the hand of those who have it into the hands of those who do not which mean it mitigates information asymmetry.

Why do drug dealers still live with their moms?

💊 Drug dealer

• Most drug dealers live with their moms because, except top tier, they don’t make much money.
• Drug dealer job is famous in Chicago’s south side, so with high demand, the job doesn’t pay well.

Where have all the criminals gone?

🗡️ Crime rate decline

• The crime rate declined in the 1990s because abortion is legal in the 1960s.
• When the birth rate in poverty areas decreased, children who grow up to be a criminal also decreased.
• Several factors were tested in correlation with the crime rate but the abortion rate is a major factor.

What makes perfect parents?

👪 Parenting advice

• Parents usually fear that they raise their children improperly.
• This fear could obscure rational thinking.
• “Risk that you control are much less a source of outrage than risks that are out of your control” that is why most people are more scared of flying in an airplane than driving a car.
• Risk = hazard + outrage. When a hazard is high and outrage is low, people underreact and when hazard is low and outrage is high, they overreact.
• Regression analysis is implemented to find a correlation between several variables and children's performance.
• Regression analysis can tell only correlation but not causation.
• The result shows that what parents are could affect children than what they do as a parent.

📛 Children names

• Black and white parents name their children dissimilarly.
• An unmarried, low-income, undereducated teenager mother from a black neighborhood usually name their children distinctive black name.
• Children's names reflect how parent see themselves and their expectations for their children.
• The naming pattern is that names from high-income, highly educated parents will gradually be adopted by lower socioeconomic parents.
• The “white” resume glean more job interviews than “black”.