October 16, 2007

Applied Freakonometrician talks econ at Mandel

Steven Levitt, the unconventional economist who admittedly “received a 2 on an AP Calculus exam,” discussed his personal and academic life last Thursday at Mandel Hall.

Levitt, a professor of economics and the director of the GSB’s Becker Center on Chicago Price Theory, is among the University’s most popular faculty members. His bestselling book Freakonomics and his receiving the prestigious John Bates Clark Medal in 2003 earned him a spot on last year’s Time Magazine list of “100 People Who Shape Our World.”

Levitt told self-deprecating stories of his time as an economics student and encouraged audience members to think outside of the box with their own work, arguing that research on ideas that seem trivial at first can garner valuable insights.

He detailed his findings on terrorism, a subject that many might consider outside the traditional realm of economics. Levitt argued against wide-net approaches to hunting terrorists, noting that even if the government were able to develop a test that was 99 percent accurate at determining whether or not a citizen was a terrorist, it would be wildly insufficient. Hypothetically assuming that there are actually 300 million people and 100 terrorists in the United States, Levitt explained that an accuracy of only 99 percent would lead to the discovery of 3,000,099 terrorists among both the general and terrorist populations of the United States.

Levitt argued that given the fact that transnational money flows in amounts up to billions of dollars per day, trying to infiltrate terrorist groups by detecting such money flows—a strategy advocated by some—is similarly ineffective. The $200,000 that the 20 September 11 hijackers spent over five years in preparation for their terrorist plot, he noted, is an insignificant sum in such a context, and likely to go undetected.

However, “not even a single 9/11 terrorist ever paid mortgage bills or utility bills,” Levitt said, noting that tracking people with irregular payment patterns would be a more efficient counter-terrorism strategy.

Shifting from terrorism, Levitt next tackled the economics of prostitution. He explained to the audience that he had once conducted an experiment where he hired former prostitutes as trackers to gather data on the underground industry, finding, among other things, that police officers on duty were more likely to hire prostitutes than arrest them.

Toward the end of the speech, audience members questioned Levitt about his research, economics at the U of C, and the discipline in general.

“Economics is a very limited view of how people act,” Levitt said. “People deviate constantly from the simple models.” He recommended that economics majors write B.A. papers to further explore their own original ideas.

Asked whether the Chicago school of economics has had a positive or a negative impact, Levitt theorized the existence of “two Chicago schools.” One “marries theory with empiricism,” while the other is more ideologically oriented, fusing politics with economic theory. Noting how Milton Friedman spent approximately “40 years of his life on a political agenda,” Levitt proclaimed that he belongs to the former type of the two Chicago schools.

The Chicago Society sponsored the event, which included a book signing.