I have continuously found intriguing the answers the authors of this book look for in their studies and this one was no difference. What's in a name, really, from an economic perspective?
An interesting part of the chapter was the account of the father who named one of his sons "Winner" and his last son "Loser". We learn that Loser, or "Lou" as his friends call him, went to college and joined the New York Police Department. Winner became a career criminal. I thought that was pretty funny. But the study into the uniqueness of a person's name was focused on how African-American names are very different from other ethnicities and whether this has an effect on a person's success in life.
Using several decades of name data drawn from California birth certificate records, Levitt’s analysis revealed a number of interesting trends. I was a little surprised about the study the authors talk about in this chapter that shows that similar résumés with white and distinctively black names result in job offers being extended to the white-sounding applicant far more frequently than the black-sounding applicant. Considering these two applicants are equally qualified, it would seem that the tiebreaker was their respective names in most cases that landed them the job, and perhaps not how they carried themselves in an interview. It is a little disheartening to think that some employers still act that way or allow that type of practice in their organizations.
I think the epilogue of the book helps find a balance to all of the authors' conclusions. By showing us that Ted Kaczynski, also known as the Unabomber, came from a privileged background and had access to all of the resources that are typically correlated with success, whereas Roland G. Fryer, an African-American man who was raised in an impoverished, unstable family environment, is now a promising Harvard economist, we see that economic analysis is only a limited tool for examining issues.
Friday, November 16, 2007
Chapter 5: What Makes A Perfect Parent?
In this chapter the authors used data to determine what factors in a child's upbringing were correlated with high standardized test scores. The analysis of the data is also used to displace some of the things we believe to be conventional wisdom.
I was surprised to find that some factors were not correlated with high test scores. According to the book, that a child comes from a broken family, that the child's mother worked between birth and kindergarten, that the child was spanked regularly, and that the child regularly watched TV does not have a negative effect on test scores. Also surprising was that attending Head Start programs before kindergarten, being read to by a parent regularly, and being taken to museums were not positively correlated to high test scores. I suppose that I just fed into the conventional wisdom; it made sense to me that regular television watching would be detrimental to a child's education. However, after reading this chapter I though of all the education programming there is out there and the book mentions how children in Finland learn to read and speak before kindergarten by watching American programming with English subtitles, and I could easily see how television would not have a negative effect on a child's education.
I would agree with the authors' conclusions in this chapter. There is little in the way of child-rearing techniques that can greatly increase a child's aptitude and performance in school. This is of course the old nature vs. nurture debate. The book states that children of highly educated parents tend to do better on tests, as to be expected. Adopted children tend to do worse on tests, and although people who adopt are usually highly educated, the children they adopt tend to be born from parents who are not. Similarly, children with low birth rates also tend to test lower than the rest. These are factors I think are associated with the nature side of the debate, and the effect of these factors cannot be enhanced or diminished by any child-rearing technique. There are also some factors that are not nature per se, but are sometimes out of the control of the parent, such as socioeconomic class.
On the other hand, some factors may depend on the the chosen parenting techniques. According to the authors, children born to mothers who are thirty years of age or older, children with parents involved in the PTA, and children with many books in the home typically score higher. Thus, the conclusion is that in terms of parenting, in order to improve a child's aptitude parents need to be actively involved in the child's education. I think this is true. This can maximize the child's success in school up to his or her potential, which is determined by "nature" type and socioeconomic factors.
I was surprised to find that some factors were not correlated with high test scores. According to the book, that a child comes from a broken family, that the child's mother worked between birth and kindergarten, that the child was spanked regularly, and that the child regularly watched TV does not have a negative effect on test scores. Also surprising was that attending Head Start programs before kindergarten, being read to by a parent regularly, and being taken to museums were not positively correlated to high test scores. I suppose that I just fed into the conventional wisdom; it made sense to me that regular television watching would be detrimental to a child's education. However, after reading this chapter I though of all the education programming there is out there and the book mentions how children in Finland learn to read and speak before kindergarten by watching American programming with English subtitles, and I could easily see how television would not have a negative effect on a child's education.
I would agree with the authors' conclusions in this chapter. There is little in the way of child-rearing techniques that can greatly increase a child's aptitude and performance in school. This is of course the old nature vs. nurture debate. The book states that children of highly educated parents tend to do better on tests, as to be expected. Adopted children tend to do worse on tests, and although people who adopt are usually highly educated, the children they adopt tend to be born from parents who are not. Similarly, children with low birth rates also tend to test lower than the rest. These are factors I think are associated with the nature side of the debate, and the effect of these factors cannot be enhanced or diminished by any child-rearing technique. There are also some factors that are not nature per se, but are sometimes out of the control of the parent, such as socioeconomic class.
On the other hand, some factors may depend on the the chosen parenting techniques. According to the authors, children born to mothers who are thirty years of age or older, children with parents involved in the PTA, and children with many books in the home typically score higher. Thus, the conclusion is that in terms of parenting, in order to improve a child's aptitude parents need to be actively involved in the child's education. I think this is true. This can maximize the child's success in school up to his or her potential, which is determined by "nature" type and socioeconomic factors.
Thursday, November 15, 2007
Chapter 4: Where Have All the Criminals Gone?
Considering the intense debate over abortion, it is no wonder that this chapter in "Freakonomics" has received a great deal of attention and stirred a considerable amount of controversy. Using a number of positive and negative correlations, the authors attempt to show that there is an abortion-crime link, that the 1973 decision in Roe v. Wade holding that women had a constitutional right to have an abortion, is directly correlated with the decrease in crime during the 1990s. While the statistics shown in the book strongly support the authors' argument, I do not think that the legalization of abortion had so strong an impact as Levitt and Dubner assert.
I agree with the authors that most abortions following Roe v. Wade would involve single, poor women. I also agree that children born into the lower class, to a single mother are more likely to remain poor throughout their lives, and as a result would resort to crime. This is not something I take on the authors' word alone. The summer after my first year in law school I clerked for a judge in the criminal court in Miami. Everyday the court calendar was filled with about 30 to 40 cases, with crimes ranging from a simple narcotics possession to burglary and armed robbery offenses. One thing that could easily be gleaned sitting in that court room for an hour on one of those days was how many defendants were homeless or in the lower class. Therefore, I would agree with the authors that Roe v. Wade did have a role in lowering crime.
Where I disagree with the authors is the extent to which they claim the legalization of abortion lowered the crime rate. They take several 1990s crime-drop explanations, such as tougher gun laws and increases in police numbers, and discount them to support their abortion-crime reduction theory. They state that there are no positive correlations between these explanations and the reduction in crime. However, some of these things did have a significant impact on crime. For instance, the book disclaims improved policing strategies in New York from playing much of a part in reducing NY crime, but in fact, the change in strategy during the 80s and 90s for which Rudy Giuliani takes credit for during his tenure as district attorney (even though much of the crime reduction is attributed to police commissioner of that time, William Bratton) had a lot to do with it. Giuliani implemented a strategy (called "broken windows" strategy) that ensured that arrests would be made for small crimes, such as jumping a subway turnstile, with the expectation that arrests for small crimes would catch bigger crimes, such as the turnstile jumper illegally carrying a concealed firearm. Similar policing strategies were adopted in other cities as well. It would take too long to discuss every theory, but it is hard to believe that every one of those advanced by the authors had less of an effect than the legalization abortion.
My point is, I think Levitt's theory is strong and is well supported by the statistics. However, the extent of the effect of abortions on crime is overstated. Many other things were certainly instrumental in the decimation of crime during the 90s. What we could take from this chapter, whether we agree with Levitt or not, is that we should always dig deeper for answers to a problem and not dismiss the most remote possibilities. I would have never linked abortion to crime reductions, but I am certain that there are many things that can be explained by similarly obscure theories.
I agree with the authors that most abortions following Roe v. Wade would involve single, poor women. I also agree that children born into the lower class, to a single mother are more likely to remain poor throughout their lives, and as a result would resort to crime. This is not something I take on the authors' word alone. The summer after my first year in law school I clerked for a judge in the criminal court in Miami. Everyday the court calendar was filled with about 30 to 40 cases, with crimes ranging from a simple narcotics possession to burglary and armed robbery offenses. One thing that could easily be gleaned sitting in that court room for an hour on one of those days was how many defendants were homeless or in the lower class. Therefore, I would agree with the authors that Roe v. Wade did have a role in lowering crime.
Where I disagree with the authors is the extent to which they claim the legalization of abortion lowered the crime rate. They take several 1990s crime-drop explanations, such as tougher gun laws and increases in police numbers, and discount them to support their abortion-crime reduction theory. They state that there are no positive correlations between these explanations and the reduction in crime. However, some of these things did have a significant impact on crime. For instance, the book disclaims improved policing strategies in New York from playing much of a part in reducing NY crime, but in fact, the change in strategy during the 80s and 90s for which Rudy Giuliani takes credit for during his tenure as district attorney (even though much of the crime reduction is attributed to police commissioner of that time, William Bratton) had a lot to do with it. Giuliani implemented a strategy (called "broken windows" strategy) that ensured that arrests would be made for small crimes, such as jumping a subway turnstile, with the expectation that arrests for small crimes would catch bigger crimes, such as the turnstile jumper illegally carrying a concealed firearm. Similar policing strategies were adopted in other cities as well. It would take too long to discuss every theory, but it is hard to believe that every one of those advanced by the authors had less of an effect than the legalization abortion.
My point is, I think Levitt's theory is strong and is well supported by the statistics. However, the extent of the effect of abortions on crime is overstated. Many other things were certainly instrumental in the decimation of crime during the 90s. What we could take from this chapter, whether we agree with Levitt or not, is that we should always dig deeper for answers to a problem and not dismiss the most remote possibilities. I would have never linked abortion to crime reductions, but I am certain that there are many things that can be explained by similarly obscure theories.
Tuesday, November 13, 2007
Chapter 3: Why Do Drug Dealers Still Live with Their Moms?
This was a very interesting chapter. From Sudhir Venkatesh's observations while living amongst the drug dealing gang in Chicago, an amazing amount of fascinating data was amassed that tells about the crack dealing life and why so many young people in the projects adopt it as their livelihood. I would not have thought that crack dealing organizations were structured in any way similar to large corporations, but Venkatesh's data shows how a crack gang works pretty much like the standard capitalist enterprise: you have to be near the top of the pyramid to make a big wage. Most crack dealers get into the business at a great deal of sacrifice, earning around $3.30/hr., far below the minimum wage. This is a staggering number when you consider the chance of being killed is 1 in 4. Furthermore, they take other jobs that actually pay minimum wage to supplement their meager, illicit income. Why do they do this? Because they are aiming for the top spot; where the head of a drug dealing organization can earn a six-figure salary, just like the CEO of a major corporation.
One can't help but wonder why these people would even think about taking this job. What I like most about this book is how it gives the story behind statistics. We know about crime rates, poverty rates, the poor quality of education in some places and the rate of high school drop-outs, but the numbers are only used to report on the status of the situation. The authors of this book believe the numbers are descriptive in themselves, and in this chapter they posit a formidable theory for why crack dealing persists despite the dangers involved and the low pay. They explain that dealers see the sacrifice as worthwhile if they can have an opportunity to be at the top of the game to enjoy the glamor and glitz that the leader of the gang has. And it is a goal that is highly sought after because there are not enough street corners to be occupied by all the drug dealers out there.
This is certainly not limited to crack dealing. The book compares this to the situation of a high school quarterback who practices and trains for countless hours to be in the NFL someday. Similarly, one might ask why a business student would take a non-paying internship and why a young attorney fresh out of law school will work on cases for the firm partners for 90 hours a week while the partners are out on the golf course. But despite the fact that these are legitimate, reputable jobs, the answer is the same; they are doing it for the opportunity to be CEO of that company or partner in that law firm someday.
This chapter demonstrates that you cannot believe conventional wisdom. Crack dealers don't take the job, as many believe, because the minimum wage is too low and crime is the only way to earn a living. Crack dealing pays lower than the minimum wage. The reason for something is not always the most obvious, and in this case it took someone to get on the inside and gather information for several years to explain why crack dealing is so prevalent in the projects.
One can't help but wonder why these people would even think about taking this job. What I like most about this book is how it gives the story behind statistics. We know about crime rates, poverty rates, the poor quality of education in some places and the rate of high school drop-outs, but the numbers are only used to report on the status of the situation. The authors of this book believe the numbers are descriptive in themselves, and in this chapter they posit a formidable theory for why crack dealing persists despite the dangers involved and the low pay. They explain that dealers see the sacrifice as worthwhile if they can have an opportunity to be at the top of the game to enjoy the glamor and glitz that the leader of the gang has. And it is a goal that is highly sought after because there are not enough street corners to be occupied by all the drug dealers out there.
This is certainly not limited to crack dealing. The book compares this to the situation of a high school quarterback who practices and trains for countless hours to be in the NFL someday. Similarly, one might ask why a business student would take a non-paying internship and why a young attorney fresh out of law school will work on cases for the firm partners for 90 hours a week while the partners are out on the golf course. But despite the fact that these are legitimate, reputable jobs, the answer is the same; they are doing it for the opportunity to be CEO of that company or partner in that law firm someday.
This chapter demonstrates that you cannot believe conventional wisdom. Crack dealers don't take the job, as many believe, because the minimum wage is too low and crime is the only way to earn a living. Crack dealing pays lower than the minimum wage. The reason for something is not always the most obvious, and in this case it took someone to get on the inside and gather information for several years to explain why crack dealing is so prevalent in the projects.
Chapter 2: The Ku Klux Klan and Real Estate Agents
This chapter dealt with the power of information, the advantages it gives those who have it and the difficulties it presents to those who don't. In economic terms, this is the problem of information symmetry, which pervades every market from stock exchanges to used car markets (see the Market for Lemons Theory - http://en.wikipedia.org/wiki/The_Market_for_Lemons).
According to Levitt and Dubner, real estate agents are some of the biggest culprits of exercising the advantages they are afforded by information asymmetry in their market. Important here is the role the real estate agent's incentive to sell the seller's house at a higher price plays in the selling process. Because a real estate agent earns a commission of between 2.5% and 5% on a sale (depending on whether they also listed the house), they enjoy no benefit from trying to sell a house for $210,000 if they can sell it for $200,000, even if it means an additional $10,000 for the seller, because the difference in commission earned on the sale is at most $500. The $500 is not worth keeping the house on the market longer, spending their own money on advertising, and putting off the realization of their commission income for another month, even if a better buyer could be found.
The authors used house sale data to examine how real estate agents conducted sales of their own homes. For instance, a study of the terms used to describe the house in a real estate ad showed that certain terms were highly correlated with the final sale price of the house. Depending on what words were used in an ad, the agent could encourage the buyer to bid higher or lower on the house. For example, "granite", "state-of-the-art", and "gourmet" were terms correlated with a high sales price. Terms correlated with a low sales price were "spacious", "charming", and "great neighborhood". Real estate agents used terms correlated with higher prices to describe their own houses in ads and kept the houses on the market for a longer time. On average the sale prices were also significantly higher.
But when an outsider gains access to the information or the information is disseminated to the public, information asymmetry is eliminated and the advantage disappears. This occurred when the Ku Klux Klan was infiltrated and its secrets were revealed in radio broadcasts of the Superman show. The advantage of having a secret organization was lost and it could no longer use fear to advance its agenda. The internet can provide the same advantage today. Sites like mls.com allow you to browse real estate listings, giving you the value of a house and allowing you to see what neighboring houses are selling for, effectively removing the real estate agent's information edge. In time we will see the Internet provide access to information in other markets, removing the advantages information asymmetry provides to experts and disabling them from exploiting it at the detriment of non-experts.
Chapter 1: Schoolteachers and Sumo Wrestlers
The first chapter of the book examines various occurrences that we would otherwise overlook or take at face value and explains the effect incentives have on the people involved. It was interesting to see how human behavior could be explained in economic terms; how we all respond to moral, social, and economic incentives, both positive and negative.
I particularly found the economic study on the Israeli child daycare interesting because it demonstrated the effect of replacing one form of incentive with another. When an additional fee was charged to parents who were late in picking up their children the opposite of the intended effect occurred, the number of late pick-ups rose in that month. The reason? Before the penalty, parents faced embarrassment of picking up their children late. After the penalty was implemented they could buy off their guilt for picking up the children late. A social incentive was replaced by an economic one.
Incentives are effective means of controlling behavior. However, as the book explains, they can induce the person targeted by the incentive to engage in unfavorable behavior - cheating. Statistical evidence presented proved that teachers artificially boosted the scores of their students in high-stakes testing and that sumo wrestlers violated the honored tradition of the revered sport by conniving with each other to throw matches. The authors argue that when the reward of the incentive is outweighed by the risk of getting caught cheating to achieve the reward, or if negative incentives resulting to the cheater are not in place, cheating will persist in any situation. No matter how clever your incentive scheme is, there will always be people who try to beat the system.
As future managers, this knowledge of incentives can be extremely useful to us in creating ways to lead our employees and control their behavior, whether it be to raise efficiency, curtail insubordination, or improve quality. Incentive systems are extremely useful, our entire society is based on incentives in the form of laws, free market, and capitalism. But it is important to mind how incentive systems are never full-proof, and there will always be those persons who will try to undermine them.
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