Book Reviews

Book Review: Freakonomics by Steven Levitt & Stephen Dubner

Rating: Not as good. Abit long-winded.

Background: This book review is slightly off-the-track from the previous book reviews that focus more on investing and finance. But hey, its economics after all.

Key Summary:

  1. Legalizing abortion in 1973, was the most important factor in explaining the massive drop in crime rate in the 1990s. Legalizing abortion significantly impacted poor, unmarried, and teenage mothers for whom illegal abortions had been too expensive or too hard to get. Their children, if born, would have grown up in an adverse family environment, and would have been much more likely to become criminals.
  2. A real-estate agent keeps her own home on the market an average of 10 days longer and sells it for an extra 3-plus percent. When she sells her own house, the agent holds out for the best offer; when she sells yours, she pushes you to take the first decent offer that comes along because her incremental commission of a better offer is too little an incentive.
  3. School teachers cheat by altering their students’ answers to boost up their test scores. Sumo wrestlers cheat by giving away matches when they don’t “need” them in the tournament, in exchange for wins in future.
  4. A drug dealer network works similarly to a legal partnership or a large corporate firm. The top 20 bosses earned $500,000 a year. The next 100 leaders earned $100,000 a year. There are 5,300 men working for those 120 leaders, and 20,000 unpaid rank-and-file members. These 5,300 took home $3.30 – $7.00 an hour, and the 20,000 paid membership fees. All these 25,300 men are willing to “work” for peanuts in the extremely competitive field where they will be paid a fortune if they reached the top.
  5. The risks that scare people and the risks that kill people are very different. Risk = hazard + outrage. When hazard is high and outrage is low, people underreact. When hazard is low and outrage is high, they overreact. E.g. likelihood of death by pool for children is 1 in 11,000. Likelihood of death by gun in house is 1 in 1 million-plus. However, parents are much more concerned with gun accidents than swimmining pool accidents.
  6. Factors that affect risk perception:
    • How imminent is the risk (e.g. next day? 2 years later?)
    • Is the risk within your control (e.g. driving vs flying)
    • What is the hazard rate? (e.g. 1 in 100 will die, or 1 in 1-million-plus)
    • How gruesome is the outcome (… nuff said..)
  7. Factors that significantly, positively, correlate with test scores:
    • The child has highly educated parents
    • The child’s parents have high socioeconomic status
    • The child’s mother was thirty or older at the time of her first child’s birth

– END –



One thought on “Book Review: Freakonomics by Steven Levitt & Stephen Dubner

  1. I really like this book. I just wanted to say that I was happy to see someone else also likes this book, or at least read it.

    Posted by therealdonquixote | August 10, 2006, 5:55 pm

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