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1-Page Summary of Freakonomics
Overview
In the beginning of Freakonomics, author Steven Levitt briefly mentions some of the topics he’ll cover later in the book. He then goes on to explain why crime rates have dropped in recent years and how real estate agents work. He also explains correlation vs. causation and incentives for people who don’t know what they are or what they do.
The first chapter talks about incentives. Incentives are the building blocks of economics, and nearly every decision is based on incentivizing factors. For example, in Chicago public schools teachers changed students’ test answer sheets because they were afraid of being penalized for low scores. Similarly, sumo wrestlers in Japan change the outcomes of matches by bribing or coercing other wrestlers to lose so that they (the bribe-givers) aren’t ranked lower than their peers.
Chapter 2 discusses how the KKK and real estate agents are similar. It tells a story of how an individual infiltrated the 1940s KKK, published their secrets, and was able to reduce their fear factor by doing so. Real estate agents also have an informational advantage over consumers because they know more about real estate than most people do. They often use that knowledge to sell houses for less than what they’re worth so they can close a deal quickly, even if it means making less money in the long term as well as giving up other potential buyers who would be willing to pay more for the property. Experts often abuse this information asymmetry between themselves and consumers, but things like the Internet help address this imbalance by providing additional information for average people to make better decisions on where they want to live or buy a house based on facts rather than just relying on what salespeople tell them during initial meetings when houses are selling fast with little room for negotiation allowed at those times.
Chapter 3 debunks the myth that drug dealers are all rich by telling the story of a man who studied the organization of one crack gang in Chicago. In reality, crack gangs are very similar to any business in corporate America with a small number making big money and hundreds barely scraping by at all. These people stay in the business because they hope they’ll make it big someday just like athletes or entertainers trying to move up as well.
Crime rates have dropped significantly in the United States. This phenomenon is not easily explained, but Levitt argues that it’s due to Roe v. Wade, which legalized abortion twenty years prior. Because of this ruling, many unwanted babies were never born and therefore didn’t grow up to become criminals as they would have if they had been born into poor families.
In Chapter 5, the author talks about how parents are obsessed with making sure they do everything perfectly so their kids will be successful. However, many of them don’t realize that success has less to do with what parents do and more to do with factors like education level and income. In this same chapter, he also discusses baby names. He says that naming a child after something or someone popular doesn’t guarantee success; rather, it is a reflection of the status and circumstances of the parent(s). Names also trickle down through society: high-income parents start using certain names for their children first until low-income families begin doing so as well.
The author states that there is no unifying theme in the book, but the takeaway message is a new way of thinking about economics and interpreting it.
Introduction
Professor Levitt begins the introduction by discussing his analysis of crime statistics in America in a previous study. He mentions that at one point, it was predicted that crime would only get worse and there were supposedly thugs responsible for committing violent crimes every 4 minutes. The media portrayed criminals as heartless individuals who hurt innocent people. Clinton mentioned that he wanted to deal with juvenile delinquency because it could lead to more chaos if not handled properly.
