Freakonomics | Study Guide

Steven D. Levitt & Stephen J. Dubner

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Freakonomics | Chapter 1 : What Do Schoolteachers and Sumo Wrestlers Have in Common? | Summary


Key Takeaways

The authors demonstrate how the study of economics is not always a dry crunching of numbers but rather more like a detective's investigation. By providing a wide array of economic puzzles for readers to solve, they invite them to begin thinking like economists. Sometimes the investigation reveals a "dark side" to incentives, and the authors posit that the tendency to take advantage of an incentive even if it harms or cheats others is merely "a primordial economic act: getting more for less."

  • Economics is the "study of incentives: how people get what they want, or need, especially when other people want or need the same thing."
  • Capable of exerting great power, incentives, or motivations, are invented concepts and fall into three categories: economic, social, and moral, all of which can be combined and may balance or work against each other.
  • Incentives can have a negative, or "dark side," especially when moral incentives are pitted against economic incentives—leading to dishonesty and cheating when the economic incentive outweighs the moral.
  • Because most people will cheat in some way "if the stakes are right," cheating occurs in nearly every type of human interaction, for it is in one's best interest to get as much as possible for the least amount of money or effort.
  • High-stakes testing, a hot-button issue among American school administrators, teachers, parents, and students, has created incentives for teacher cheating.
  • In the Chicago Public School system, teachers' promotions and raises were tied to good test results. On the other hand, teachers could be fired and schools threatened with closure for poor results. These compelling incentives led to cheating.
  • By applying principles of statistics and economics, a team studying the Chicago Public Schools' testing data showed evidence teachers had altered students' tests in more than 200 classrooms.
  • After 120 classrooms were retested and results were unaltered, significantly lower scores resulted and a dozen teachers were fired, thereby decreasing the incentive for teacher cheating, which dropped by 30 percent the next year.
  • Athletes are also known to cheat because of the "bright-line" incentive of winning or losing. Cheating to win is not as frowned upon as cheating to lose.
  • Sumo wrestlers have high incentives to win eight matches to enter into the elite group and thus boost their earnings and status, both of which are considerably less outside the elite circle.
  • Those already in or not poised to enter have less incentive to win and more incentive to throw a match to allow their opponent to win and thus enter.
  • Data show some matches are rigged, especially those featuring a wrestler with a 7–7 win/loss record versus a wrestler with an 8–6 record: one needs the win; the other doesn't and may have more incentive to "fix" a loss than to win.
  • On the basis of these examples, the authors imply humans may be "innately and universally corrupt."
  • Paul Feldman quit his job to sell bagels on the honor system, dropping off bagels and cash baskets to different companies and keeping rigorous data on his business.
  • His accidental study revealed a window into the kind of cheating known as white-collar crime, which is nonviolent, typically has little data, and seems—but isn't necessarily—victimless.
  • Feldman expected a 95 percent return but got much less than when he provided bagels as a goodwill gesture in his former work, for in an anonymous situation, unlike one in which he was present on the job, the incentive to cheat was greater.
  • People were more tempted to take a bagel without paying than they were to steal the cash box, the negative social incentive likely not worth the risk of the economic incentive.
  • Feldman noticed employees in smaller companies stole less than in large companies, and executives cheated more than lower-level employees.
  • Feldman's bagel business shows how morality and economics intersect: while people do steal from him, the vast majority do not, possibly because the moral incentive to pay the dollar outweighs the economic advantage not to.
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