Freakonomics by Levitt & Dubner: A Critical Book Review

Introduction: Economics as the Surprising Science

Economics is often called the "dismal science" because of its pessimistic view of human nature. However, according to Stephen Dubner and Steven Levitt, the authors of Freakonomics, economics might also be called the surprising science. Contrary to classical economic theory, human beings often respond to a much more complex network of incentives than might initially appear to the naked economic eye. Conversely, the unexpected application of economic theory can also explain social behaviors that seem to have nothing to do with dollars and cents — such as why people with certain names are more likely to succeed than others.

The book is structured around a series of eye-catching, humorous chapter titles, such as "Chapter 1: What Do Schoolteachers and Sumo Wrestlers Have in Common?" What is so unique about these economists' method of asking and answering questions about social phenomena is that they apply economic ideas — like the principle of incentives — in unexpected ways, and in doing so seem to explain the inexplicable. They draw surprising connections and apply a rationalist's eye to human behavior, refusing to turn away from an issue simply because it might not be politically correct.

Incentives, Cheating, and Information Asymmetry

The book explains why rewarding teachers for their students' strong performance on standardized tests unintentionally encourages cheating. While some teachers may not openly give answers to students, their own reputations — and the reputations of their schools — rest on test performance, so they feel pressured to allow students to engage in unethical behavior: answering leading questions about test material or teaching actual test questions during review sessions. The net result is that the incentive of rewarding high collective test scores unintentionally undermines the very goal of standardized testing, which is to measure genuine student performance.

In Chapter 2, the authors use real estate agents to illustrate information asymmetry. Real estate agents, Dubner and Levitt argue, have an incentive to sell houses for less than they are worth. Every house sold earns the agent a commission, and a few thousand dollars less on a sale makes little difference to their percentage-based salary — especially if they sell many houses. For the seller, however, those extra thousands from a properly negotiated agreement can matter a great deal. Examining motivational factors through psychology, rather than supply and demand alone, provides valuable insight that can help individuals make better decisions. It also illustrates that knowledge itself generates economic power: after reading Freakonomics, a reader might be more inclined to sell their own home rather than rely on an agent.

Other chapters seem deliberately provocative, including one that chronicles the world of drug dealers. Drug dealers aspire to become the "main dealer," write Dubner and Levitt, even though they make very little money relative to the risks they assume — because they hold onto the hope of eventually reaching the top. The authors describe this as a "tournament" economy: an economy with only one winner. This explains why, even though a drug foot soldier earns as little as $3.30 per hour, individuals are still willing to fall in line under a drug kingpin, enduring physical danger and legal jeopardy. The authors draw a parallel between such a "soldier" and a low-ranking private in the army, both accepting hardship in hopes of rising to a top-level position.

Tournament Economies and Drug Markets

Notably, the authors' risk-versus-reward framework does not dwell heavily on psychological despair or the absence of opportunity in urban areas — factors that many would argue are equally, if not more, compelling motivators for young people who enter the drug trade when they cannot perceive any other viable path.