How does Freakonomics exemplify the difference between positive and normative analysis?
As an economist, Levitt aims to look objectively at a number of complex phenomena, such as legalized abortion's effect on crime. To do this, he employs techniques of positive analysis, which is objective and fact-based. He does not, however, make any inferences or attach any moral value to his findings—to claim that abortion should be legalized would be opinion-based, which is a form of normative analysis.
What argument does Freakonomics make about human's ability to assess of risk?
In Chapter 5, Levitt uses data to prove that something as seemingly innocuous as a swimming pool is actually more dangerous to children than many of parents' most pressing concerns. Overall, the book argues that our perception of risk is skewed: we are more afraid of immediate risks like terror attacks than distant, chronic risks like heart disease, even though the latter is more likely to kill us. Our assessment of risk is also heavily affected by public outrage; if more people are outraged about a certain risk, then we perceive it as riskier, even though it may not actually be.
In what ways is it important that all three kinds of incentives—economic, social, and moral—fit into a successful incentive scheme?
Each of these types of incentives targets people in a different way. People respond well to physical rewards, whether money, gifts, or some other material benefit, which is why economic incentives are powerful. But we are also equally moved to make decisions that stem from our own inner moral values as well as our relationships to the people around us. The best incentive schemes—including those found in much of modern-day advertising—are successful because they recognize all three of these kinds of things that motivate humans and take full advantage of them.
Why is "conventional wisdom" so comforting to people, and what purpose does it serve?
Conventional wisdom is so comforting primarily because it confirms our preexisting perceptions of the world. Conventional wisdom is familiar, and interpreting it does not require changing the way we think in any way—therefore, it serves to comfort and ease the mind. But because conventional wisdom is not always true, it is important for truth-seekers to dig deeper and question everything, rather than take for granted what the general public believes is correct.
What motivates people to cheat, according to Freakonomics?
Despite arguments by philosopher Adam Smith and other similar experts that claim humans are innately moral beings, many people still cheat in some way or another. While incentives drive people to make good decisions, a strong enough incentive can also motivate them to make bad ones. If the incentive to cheat is more powerful than incentives not to cheat, then a rational person will likely make the decision to cheat—like the Chicago schoolteachers did in the teacher cheating scandal.
How does Freakonomics combine the fields of economics and sociology?
Levitt employs his economic analyses on situations that often exemplify the racial and socioeconomic inequality problems that currently plague the United States. Economics and sociology are hugely intertwined, since it is this inequality that produces the achievement gap that ultimately determines the kinds of decisions people make. Levitt uses statistics and economic data to analyze certain sociological issues and find correlations that might reveal important truths.
What purpose does Levitt's choice to analyze out-of-the-box situations serve in this book?
Part of the widespread appeal of Freakonomics are the unconventional questions it asks. Because this book is targeted at an audience that likely has little experience in the field of economics, it is important for Levitt to draw his readers in with eye-catching subjects. These topics are attractive and informative precisely because of their unorthodoxy: they are situations that many people have not thought to analyze, but upon a closer look, it becomes clear that many of the same forces are at play in these as there are in more conventional economic situations.
Discuss the results of the bagel experiment by Paul Feldman.
In delivering bagels to hundreds of offices and expecting payment on the honor system, Paul Feldman unwittingly set up an economics experiment that spoke volumes about morality and cheating. Feldman found that a person's mood—influenced by things like the weather and holidays—strongly affected how honest they were. He also found that people were less likely to be honest in large offices, suggesting that in these cases, they believed they could cheat and fly under the radar more easily. Most tellingly, though, despite the lack of enforcement, the majority of people did not steal the bagels, which shows that humans do retain some morality even when no one is watching.
Does the existence of information asymmetry suggest that we should never trust experts? Why or why not?
Although experts do have an information advantage over the average consumer, this advantage exists as a result of education and professionalization, the very reason we look to experts in the first place. Having experts that are highly specialized in certain field helps both the economy as a whole as well as individual consumers, who can look to experts to give them certain services that they cannot do for themselves. Though it is important to be wary of being taken advantage of by experts, the existence of the internet means there are plenty of outside avenues that allow consumers to do full research before seeking out a professional service of any kind.
Why is it important to know the difference between correlation and causation?
Because economics deals with real-world situations, it is difficult to hold the kind of controlled experiment necessary to prove absolute causation. Economic tools can, however, uncover correlations, which show relationships between two factors without any manipulation by the researcher. It is essential to remember, though, that no matter how concrete they may seem, these correlations do not prove causation, because this can lead to hasty claims being made. There might be a reverse relationship, or even a third variable that is causing both of the two related factors.