Book Review – Freakonomics

By | September 27, 2007

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner

My copy of the book is the first edition, but I highly recommend getting the second edition. The authors added a lot of critical comments and corrections in the second edition. Or, if you already have the first edition, you can do what I did and browse through the updates in the second edition while at a book store.

One of the comments in the second edition directly addresses one of my biggest issues, i.e., the incredibly fawning intros to each chapter. Levitt is clearly a smart guy and doesn’t really require any further build up. However, each chapter begins with a couple of glowing paragraphs from the NY Times that describe how Levitt walks on water, cures the infirm, turns crappy CW sitcoms into The IT Crowd, and turns an incompetent US President into … Okay, not even Steven Levitt can save George Bush from ignominy.

So, who is the unmentioned author of those excerpts from the Times? Why it’s his co-author, Stephen Dubner. But don’t let this stop you from reading this great book. Just don’t waste your time on the chapter intros.

The introduction to the of the book sums up the theme of the book quite nicely – “Why the conventional wisdom is so often wrong”. Over six chapters the Steves present very convincing arguments, backed up with lots of data that has been carefully statistically analyzed and vetted, why some familiar claims that have been made in the media are not only not accurate, but often completely wrong. They received quite a bit of backlash for this book, primarily, it seems, from people who read articles about it rather than reading it for themselves. Obviously this puts a lot of pressure on you to not just read my review, but to also read the book. Sorry. I believe that Levitt honestly is not trying to push any moral beliefs on anyone. He’s just looking at the data as impartially as he can and describing what his analysis tells him.

One chapter I found fascinating was titled “Why Do Drug Dealers Still Live with Their Moms?”. An earlier chapter was titled “How Is the Ku Klux Klan Like a Group of Real Estate Agents?” (very popular with the National Association of Realtors), and this chapter could have similarly been titled “How Are Drug Gangs Like Multi Level Marketing Companies?”. A grad student named Sudhir Venkatesh collected a significant amount of data, at a not insignificant risk to his life, on the Black Gangster Disciple Nation (not connected in any way with WombatNation) in Chicago. The conventional wisdom is that the risk of a gang member dying early is offset by the all the money they can make. Otherwise, why would they do it, right?

Well, Levitt’s retelling of Venkatesh’s research reveals that the marketing done by the drug gang recruiters isn’t that much less misleading than that done by recruiters for multi level marketing companies. Why the MLM marketers don’t die, of course, they generally make far less money than the recruiters say they will, and sometimes they even end up owing the companies money. Although I see a lot of corollaries with the org structure of MLM companies, Levitt compares them with McDonald’s. But back to the drug gangs.

The people at the top levels of the drug gangs do make a lot of money. But, it really is just the people at the very top. The top 2.2% of the gang that was studied took home over half the money. The guys at the bottom made less than the minimum wage and the people above them were making $7 per hour. It’s important to note that if a gang member were active in the gang for the entire four years for which Venkatesh was able to collect data, that gang member’s chances of ending up dead during that time were 1 in 4. Hmmm, the risk seems to outrun the reward just by a little bit.

But just like how many people get sucked up into some MLM companies that border on being Ponzi schemes, the foot soldiers who are signing up have no idea how badly the odds are stacked against them. Of course, many of them are in situations where they feel they might not have any other options.

And if the book isn’t enough for you, there’s plenty more freaky stuff on the Freakonomics blog at the NY Times.

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