[Book Review] Freakonomics

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signDo you respond to incentives? Some students study hard to get straight As and some to get more allowance from their parents. Most of people work diligently to earn better salary the following year. A real-estate agent sells houses eager to earn the commission. People tend to avoid a traffic violation that levies fines. You may also have some economic incentives. Like these examples, we do respond to incentives on our daily life. The thing is, however, people do not really think that as a study of economics because economics mostly sounds too far from their ordinary life. For those, who regard themselves economics-unrelated-readers and wish to know about different kinds of incentives, here I recommend Freakonomics. Co-writers, an economist Steven D. Levitt and a NY Times columnist Stephen J. Dubner, suggest very interesting economic theories related to daily lives in Freakonomics.

Steven D. Levitt is not a normal economist in terms of his views for the world. He tends to unveil every incident happened in the world with economist’s point of view. He suggests two specific topics, a) incentives of modern life and b) informational advantage, in order to analyze the world mechanism. How are these connected to us?

Co-writers give us an example of a clash of economic and moral incentives in the first chapter. A kindergarten in Israel introduced a late pick-up fine of $3 on tardy parents in the hope of reducing the rate. The result turned out, however, doubling the rate of late-pickup. What happened with the fine? Here is the thing. Parents who usually were late used to feel sorry at least, however, after the enacting of $3 fine, they no longer had to feel that worries. They could only pay the “sin-tax of $3,” which means their moral incentive to pick-up their child early transferred to economic incentive of a small amount of $3 fine. Parents rather chose to spend more time at work or other sports thinking that way was more efficient for their utility. Unfortunately, co-writers say the Israeli kindergarten could not get rid of the problem even after abolishing the fine system.

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The writers bring up more interesting questions other than the above example. Questions like if real-estate agent’ and a house owner’s incentives are aligned with, why drug dealers live with their mom, or if elections really have something to do with money things. Freakonomics tries to look at the normal things with extraordinary viewpoints and gives us matters to think about. How about understanding the stories of our lives in a way we haven’t done in Principles of Economics class this weekend?

Sincerely,

Gueran Jeon (gueran.jeon@gmail.com)

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