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April 26, 2005

U of C professor spurns convention in examination of economic underbelly

The keystone of Steven Levitt's new book, Freakonomics (co-written by journalist Stephen Dubner), is incentives. If you can figure out what's motivating a real estate agent, you can find ways to determine how he is screwing homeowners. If you can figure out how sumo wrestlers cheat to advance their careers, you can pinpoint the circumstances under which they are most likely to throw a match.

In example after example, Levitt picks apart conventional wisdom: that real estate agents are looking to maximize profit for homeowners, or that sumo wrestlers always try to win their matches. Levitt, an economics professor at the University and recipient of the coveted John Bates Clark medal for best economist under 40, begins each of his analyses in Freakonomics by determining an actor's motivations. It's from this baseline of incentives that he develops methodologies and data sets to draw piercing conclusions.

In a world where misconceptions and incorrect conventional wisdoms rule, Levitt argues, economic data offer a glimmer of truth about how humans actually act. The trick to dredging the data is knowing where to look. And Levitt's exceptional knack at identifying and teasing out incentives is what makes Freakonomics such a fascinating read. But to turn Levitt's new book on its head, what are his incentives in publishing Freakonomics?

An extended and exceptionally well written log of Levitt's work, Freakonomics is a glimpse into Levitt's mind more than anything else. The first chapter discusses two of Levitt's most notable studies, about professional sumo wrestlers and Chicago public school teachers. The common theme between the two very different professions? Given the right circumstances, both sumo wrestlers and teachers—and anyone else, for that matter—will cheat.

Take sumo wrestlers, whose tournaments are round robin. Wrestlers completing the 15-match tournament with a positive record improve their ranking, while losers sink. Focusing his research on the final round matches between wrestlers with 7-7 records competing against opponents who had already secured victories, Levitt found that, indeed, the wrestlers on the bubble won disproportionately more than they would have in other circumstances.

Along a similar thread, Levitt surmised that teachers have an incentive to cheat on their students' standardized tests—especially when improved scores lead to bonuses, promotions, or some other commendation. An effective way for a teacher to cheat, Levitt surmised, would be to fill in a string of correct multiple choice answers on several of the students' answer sheets, replacing the incorrect or empty answers from the later, and more tricky, questions. To test this theory, Levitt developed an algorithm to identify consistent irregularities, such as classrooms where students who had bombed the easier part went on to get a string of difficult questions correct. Following Levitt's study, cheating Chicago school teachers were fired.

Watching Levitt connect sumo wrestlers to teachers—and later, the Ku Klux Klan to real estate agents—is dazzling. But if Freakonomics shines in the unlikely connections it draws, jumping from study to study, it also leaves the reader feeling a little empty since, by Levitt and Dubner's own admission, there's no core example the book develops around, no thesis it tracks or singular story it tells. Instead, the chapters are stitched together by a certain mindset. It's a worldview wary of experts, professionals, and the media consumerism complex that spawns half-truths and "conventional wisdoms."

Another flaw in Freakonomics is that it's a shade too reverent of Levitt's brilliance. Each chapter begins with a vignette from a New York Times Magazine article in which Dubner deified Levitt. The cumulative effect is over-the-top and slightly out of place: it's akin to someone selling a worldview of irreverence while demanding unflinching faith. The authors continue their self-apotheosis in a passage about the allure of becoming a crack dealer. For youths in bad neighborhoods, the prestige of becoming a crack dealer is equivalent to the dream of throwing touchdowns in the NFL or starring in Hollywood movies. Or the dream of becoming an economist or writer.

Self promotion aside, Freakonomics should become required reading for Allen Sanderson's introductory courses, alongside Naked Economics. In fact, any Chicago student would do well for himself to read Freakonomics. It's smart, counterintuitive, critical, and makes for a great read. Dubner does an excellent job as a mouthpiece for Levitt, using anecdotes and history to frame the studies in an engaging and meaningful context.