In Chapter 2 of Freakonomics, authors Steven D. Levitt and Stephen J. Dubner explore the concept of incentives and how they can influence behavior. The chapter begins with a discussion of a daycare center in Israel that implemented a fine for parents who were late in picking up their children. Initially, the fine seemed to work as intended, with late pick-ups decreasing significantly. However, after a few months, the number of late pick-ups began to rise again.
Upon further investigation, the authors discovered that the fine had actually had an unintended consequence: parents who were consistently on time began to view their punctuality as less important, since they could simply pay the fine if they were late. The fine had actually created a disincentive for punctuality.
This example illustrates the complexity of incentives and how they can have unexpected consequences. The authors go on to discuss other examples of how incentives can shape behavior, including a study on real estate agents in which agents who were paid a higher commission per sale actually sold fewer houses than those who were paid a lower commission but received a salary.
The chapter also delves into the concept of "moral hazard," in which individuals take more risks because they are protected from the consequences. For example, executives at companies with large amounts of debt may be more likely to make risky business decisions because they know they will not personally suffer the consequences if the company goes bankrupt.
Overall, Chapter 2 of Freakonomics illustrates the power of incentives and how they can shape behavior in unexpected ways. It emphasizes the importance of considering the potential unintended consequences of any incentive system and the need to carefully design incentives to achieve the desired outcome.
Freakonomics by Steven D. Levitt and Stephen J. Dubner Analysis and Summary
Because the system provides incentives to schools and teachers whose students get high scores. Kennedy understood that information is powerâonce secret information becomes public, the people who controlled the secret information lose much of their power. Since the Klan was dependant on their violentâdespite not being extremely violentâreputation, the disclosure of the information they had withheld from the public rendered them powerless. Levitt points out that many parents are misguided, and the things they do matter much less than the things they are. Uncovering Distant, Unexpected Causes Small, indirect and remote causes can trigger huge, unexpected outcomes. This approach to economics is empirical, not theoretical.
Freakonomics Chapter 1: What Do Schoolteachers and Sumo Wrestlers Have in Common? Summary & Analysis
Real estate agents will also use different phrases in listings for the houses they are selling that convey large amounts of information to another agent or a savvy buyer. However, although society desires its people to be smart, exploiting that information for personal gains results in fear and mistrust. Levitt, a professor of economics at the University of Chicago, was awarded the John Bates Clark Medal, given to the most influential American economist under forty. Incentives are the building blocks of economics: almost every decision can be explained through incentives. Names also move down through society: high-income parents begin to use a name, and then, over time, it trickles down to low-income parents until it becomes less popular. Next, Levitt explains a concept that is the cornerstone of any data analysis: correlation does not prove causation. Similarly, sumo wrestlers in Japan are incentivized through bribes and social incentives to cheat and throw certain important matches i.
Based on all past data, a 7-7 wrestler should beat an 8-6 wrestler about 48 percent of the time. There are certain risks that scare people into changing their behaviorâbut these changes in behavior are often out of proportion with the risk itself. Before then, the civil rights movement in America had made great progress in making life better for black Americans, in terms of healthcare, education, job opportunities, etc. Sumo wrestling is a particularly good example of the power of economic studies, since, on the surface, it seems almost impossible to measure whether sumo wrestlers cheat: sumo wrestling is such an unpredictable sport that it would be difficult to separate legitimate matches from rigged matches. Dubner take a different approach.
The authors argue that humans usually make decisions based on the incentives for their actions. The epilogue tells readers that, while there is no single unifying theme to this book, the main takeaway is a new way of thinking, looking at, and interpreting the world according to the tools of economics discussed in the book's chapters. For example, an advocate for the homeless named Mitch Snyder compared the recent history of homelessness in the United States, and most of the people being crack dealers. Economic models like the supply and demand curve rely on both partiesâthe producers who supply and the consumers who demandâhaving perfect information in any given transaction, but this is not always the case. Strangely, however, when day care centers adopted such a policy, late arrivals went up, not down.
Freakonomics Chapter 2: How Is the Ku Klux Klan Like a Group of Real
He brought in large volumes of cocaine and distributed it to predominantly black street gangs to turn into crack cocaine and sell on the streets. Economists propose two different kinds of discrimination: the first is taste-based discrimination, when one person discriminates because he prefers not to interact with a certain type of person. There are economic, social, and moral incentives, and they all exert a powerful grip on human behavior. What makes a perfect parent? Chapter 4 Chapter four takes an interesting approach in explaining the decline of crime rate in the 1990s. In part, this is because the authors are taking an impartial, economic view of cheating, not a moral view.
In 1958, a man named Robert Lane had two children. This is because often, parents are the role models of their children. When reading the book, it can be easy to get lost in the minutiae of the individual stories, so we reinforce the larger, overarching ideas. Instead of charging the companies upfront for the bagels, Feldman used an honor-system collection formatâhe would come back to companies in the afternoon to see if anybody had eaten a bagel and left some money. In order to convince you to take this offer, an agent will use the informational advantage she has over you to induce fear. He uses the example of real estate agents selling their own homes to illustrate this. Based on this principle, researchers estimate evidence of cheating in about five percent of all classrooms in Chicago.
They say that the much higher prevalence of owning a gun might explain why crimes are much less in the US. Therefore, it would seem that the social and economic incentives for cheating in sumo wrestling outweigh the negative moral incentives of doing so. Finding that brokers make much better deals when negotiating for their own properties rather than for the properties of their clients. Many names that were popular among upper-class families 40 years ago have now become most popular in working-class families. Positive â The child is adopted.
The Klansmen controlled lots of private information: they had lots of passwords and secret handshakes, for instance. Statistics show that there are many real estate terms associated with a higher or lower final sale price. One of the most interesting trends for online dating was racial preference. From childhood, we all learn to respond to incentives, positive or negative. His colleagues call him Lou. For example, an insurance salesman with a near-monopoly on information about the prevalence of heart attacks could create fear in the minds of his customers, and sell lots of overpriced life insurance policies. It tells the story of Chapter 3 debunks the myth that drug dealers are all rich by telling the story of a man who studied the organization of the Black Disciples crack gang in Chicago.
