Thursday, February 7, 2008

Freakonomics


I've been meaning to write about Freakonomics: A Rogue Economist Explores the Hidden Side of Everything for a while now. It was a super read. There's been a lot of hoopla over this book and deservedly so. The authors have a great blog on The New York Times website where they basically continue the conversation they began in the book; it has become one of my daily morning coffee reads.

I'm not going to try to review Freakonomics because there are already dozens of intelligent (and not-so-intelligent) reviews out there and I'm not sure what I can contribute to the dialogue. Instead I'll share some parts of Freakonomics that appealed to me the most.

Morality, it could be argued, represents the way that people would like the world to work--whereas economics represents how it actually does work. Economics is above all a science of measurement. It comprises an extraordinarily powerful and flexible set of tools that can reliably assess a thicket of information to determine the effect of any one factor, or even the whole effect.
The truth of this resonated like a tuning fork. We all have fixed ideas of how the world should run and how things should work and how people should behave. We "know" that some things are inherently bad and some things are inherently good. Because most people are fundamentally moral (I believe), we want the world to be just, we want everyone to get what they deserve, and we want cause and effect to work the way common sense dictates. We are thrown when these things don't happen (and we respond with either wonder or denial). Economics, which is really all about math and psychology, often explains to us why they don't happen that way.

One of the great examples of "morality contrasted with economics" in the book was the idea that swimming pools kill many more children than guns do. Statistically, 1 in 11,000 children drown in pools each year, whereas 1 in 1,000,000 plus children die by guns. A child in the United States is roughly 100 times more likely to die in a swimming accident than in playing with a gun. But few people look at owning a swimming pool as a sign of poor parenting (perhaps just the opposite) and many people would think of gun ownership that way. (My own commentary: of course, you can always say that pools don't kill children; not watching children in pools kills children...but don't try to apply this wisdom to a gun or you will be labeled a Conservative Republican.) You might think that there are many more pools in the United States than guns, so of course children stand more of a chance of drowning than shooting themselves. But that's not true. As of the publication of the book, there were roughly 6 million pools in the United States and 200 million guns. Do the math. Hmm. And yet, morality teaches us that guns are very dangerous to have in households with children and pools are not. I found this pleasantly disturbing.

Freakonomics is based on a few fundamental ideas. The italics are direct quotes from the book; what follows are my thoughts:
  1. Incentives are the cornerstone of modern life. I think that when the truth of this hit me (like a bag of cement), my entire approach to both relationships and earning a living shifted.
  2. The conventional wisdom is often wrong. Yes. Think about all the popular ideas that you believed even five or six years ago that have been proven to be bogus. When you are hit with a popular idea that everyone espouses, your response should always be: PROVE IT. George Bush is intellectually stupid? Give me proof. Drinking eight glasses of water a day will improve my health? Let me see the study. The planet is getting warmer and it's going to kill us all? Show me the incontrovertible evidence. I believe in math and I trust numbers. I always want to do the math.
  3. Dramatic effects often have distant, even subtle causes. And people usually don't want to look that far off to see what the cause might be. See my post on Ripples.
  4. "Experts" - from criminoligists to real-estate agents- use their informational advantage to serve their own agenda. The book also points out the comforting fact that with the dawn of the Age of Information and increased use of the Internet, this "expert" advantage is shrinking. Think of all the informational pieces that you can now access (and share) that you couldn't access ten years ago and think of how this information empowers you. This idea extends to all aspects of life. Half of what is wrong with Judaism is that, cross-denominationally, the experts (Rabbis, communal leaders) use their book knowledge of Torah and Talmud to serve their own agenda.
  5. Knowing what to measure and how to measure it make a complicated world much less so. One of the most important parts of the study of statistics is understanding the difference between correlation and causality. Just because two things seem to happen together doesn't mean that one causes the other. Knowing what to measure is probably where I trip up most often in life.
Read Freakonomics. It's a short read, 200 or so pages, and the writing is bleeding edge. The ideas will bother you and get your synapses firing. I'm looking forward to the sequel, which will be out later this year.

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