Freakonomics_summary .docx

Freakonomics Summary Freakonomics is a 2005 nonfiction book by economist Steven Levitt and journalist Stephen J. Dubner. The book is a collection of essays exploring how fundamental economic theories can be used to analyze a diverse array of social phenomena. Chapter one introduces the concept of incentives, which is defined as “a means of urging people to do more of a good thing or less of a bad thing,” and analyzes how different groups have been incentivized to cheat. First of all, however, the book defines the three types of incentives: economic (their actions will change their wealth), social (their actions will affect how others perceive them), and moral (their actions are the result of their sense of right and wrong). The authors explain that many “incentive schemes” combine two or more of these factors to influence behavior. The two main cheating groups that this chapter looks at are public school teachers and sumo wrestlers. In Chicago public schools, teachers are incentivized to cheat because low test scores can jeopardize the future of the entire school, as well as individual teachers’ careers. For sumo wrestlers, their ranking determines the wages they earn as well as how much they can eat and sleep. These rankings are determined at bimonthly tournaments, where a certain minimum number of wins are required. Contrary to expectations, often times wrestlers with more wins lose to those that require one more win to advance. While there could be bribes (economic incentives) involved, there is also intense moral and social incentivizing at play, as the sumo community is very tight-knit and the stakes of victory are so high. Chapter two focuses on the theory of information asymmetry in the fall of the Ku Klux Klan and the strategies of modern real estate agents. By the 1940s, while the Klan was no longer as violent as it had been in the past, its mysterious aura and fear rhetoric still held a large sway over the American public. So, a journalist named Stetson Kennedy infiltrated the Klan and disseminated its secrets via a popular radio program, turning mystique into ridicule and dropping its membership drastically. Real estate agents, meanwhile, profit from information asymmetry by utilizing their larger knowledge base to try to get owners to sell faster (inducing fear by implying that there is an issue with the market) or use coded language in the listing (“well maintained” equals old) in order to advertise in a targeted manner to informed buyers or other agents. Chapter three challenges the conventional wisdom that drug dealing is extremely lucrative, and also compares a drug organization to corporate America. The chapter analyzes a gang, the Black Gangster Disciple Nation, explaining its hierarchy and how profits are distributed. While the top bosses made good money, the rank-and-file members of the gang earned less than minimum wage. Much like large corporations, the highest-ranking members take the lion’s share of profits. This is described as a “winner-take-all” labor market. Chapter four contains the book’s most controversial material. While other sources theorize that the crime drop in America in the 1990s was due to gun control or increased police presence, the book theorizes that it was actually the legalization and affordability of abortion. Abortions are often procured by women unable to provide for a child, and had those children been born, 1|Page

they would be 50 percent more likely to live in poverty and therefore resort to crime. The book explains an opposite case study, in Romania, where abortion was made illegal. A generation later, crime increased drastically, and the dictator who enacted the ban was killed by youth that may not have been born in its absence. In chapter five, the book undertakes the role of active parenting. Analyzing data from the Early Child Longitudinal Study (ECLS), containing data from over twenty thousand students, Levitt determines that the factors that most affect a child’s success are not the malleable ones (such as whether the child attends Head Start, or gets read to) but rather the immutable ones (such as the parents’ socioeconomic status, education level and age). In the sixth and final chapter, Levitt examines whether the name given to a child impacts its life, long-term. Specifically, he examines how racially distinct names may alter a child’s success. In a study, “white names” received many more requests for interviews than “black names” on identical résumés. Distinctly black names do correlate to a lower quality of life, but more because these names more often stem from low-income, low-education households than because of the names themselves. However, the résumé study does indicate that by choosing “white” names over “black” names, society is reinforcing existing stereotypes and perpetuating the black-white achievement gap. Freakonomics showcases how systems of incentives, information asymmetry, and other economic theories impact culture on a scale much larger than merely economic. By opening our eyes to a host of questions, correlations, and methods, Levitt and Dubner unmask the subtle systems at work that influence how our society operates, from issues as small as how a house is sold to as large as systemic crime.

Chapter-wise Brief Summary Author Steven Levitt begins Freakonomics by brushing over some of the stories, questions, and ideas he will cover in the rest of the book, such as the 1990s crime drop, information asymmetry, real estate agents, correlation vs. causation, and, most importantly, incentives. From then on, each chapter centers on an unusual question. The first chapter's main message is about incentives. Incentives are the basic building blocks of economics: according to economists, nearly every decision can be explained through incentives. Because of incentives, people are sometimes driven to cheat. Because of high-stakes testing, schoolteachers in Chicago public schools were incentivized to change their students' answers on test answer sheets so that they (i.e. the teachers) would not be fired or penalized for the poor test scores. Similarly, sumo wrestlers in Japan are incentivized through bribes and social incentives to cheat and throw certain important matches (i.e. to allow other wrestlers to win) so other wrestlers do not drop in the rankings. Chapter 2 asks how the Ku Klux Klan is similar to real estate agents. It tells the story of Stetson Kennedy, a man who infiltrated the 1940s KKK and published much of their secret information, thereby erasing the informational advantage they had that made people fear them. Real estate agents also have an informational advantage over their clients, and they often use this to their advantage, selling houses for less than they are worth so that they can close a deal 2|Page

quickly because they have less to gain from a higher sale than the sellers do. Experts often abuse information asymmetry between themselves and consumers, but things like the internet are working to erase this information imbalance by providing more information to everyday people. Chapter 3 debunks the myth that drug dealers are all rich by telling the story of a man who studied the organization of the Black Disciples crack gang in Chicago. In reality, crack gangs are very similar in structure to any business in corporate America, with a small number of people on the top making big money and hundreds of people on the bottom barely scraping by at all. These people stay in the business because of the prospect of potentially moving up and making it big one day, which is the mentality that drives people like athletes and entertainers trying to move up as well. Chapter 4 asks, "Where have all the criminals gone?" It first tells the story of Romania, a country that experienced a huge rise in crime after its dictator banned abortion. The chapter then turns to the United States in the mid-1990s: while crime had been rapidly rising in the year prior, the trend suddenly reversed, leaving many experts puzzled and attempting to explain it. None of the explanations they proposed were correct—instead, according to Levitt, the crime drop was heavily linked to the Roe vs. Wade Supreme Court decision nearly twenty years before. When abortion was legalized, many low-income, low-education, teenage mothers were able to take advantage of it. This meant that many babies who would have grown up unwanted and impoverished—and, by this trend, more likely to become criminals as they neared adulthood—were not being born. Nearly two decades later, this generation of potential criminals would have been teenagers; however, they had never been born, and so there was a sudden drop in crime. Chapter 5 talks about parenting, and the obsession that many parents have over making sure they do exactly the right thing so their children will turn out successful. Levitt points out that many parents are misguided, and the things they do matter much less than the things they are. Parents who are highly educated with a high income are most likely to have successful children; these factors are determined before the child is even born. This same truth applies to naming children, as discussed in Chapter 6. The name given to a child does not cause their success or failure; rather, it is a reflection of the status and circumstances of the parents. Names also move down through society: high-income parents begin to use a name, and then, over time, it trickles down to low-income parents until it becomes less popular. The epilogue tells readers that, while there is no single unifying theme to this book, the main takeaway is a new way of thinking, looking at, and interpreting the world according to the tools of economics discussed in the book's chapters.

Quotes and Analysis 

"Morality, it could be argued, represents the way that people would like the world to work, whereas economics represents how it actually does work."- Introduction, pg. 13

This quote details an important distinction that characterizes the rest of Levitt's analysis. As an economist, he studies the way the world actually functions, which includes deviations from 3|Page

what might be considered the moral thing to do, like cheating or abusing informational advantages. People do not always make moral decisions—whether or not they do so depends on the incentives that motivate them. 

"An incentive is a bullet, a lever, a key: an often tiny object with astonishing power to change a situation." - Chapter 1, pg. 16

Incentives, defined as things that motivate a person to take a certain action, are the building blocks of economics, and Levitt focuses on them in multiple chapters of this book. Incentives can be broken up into economic incentives, social incentives, and moral incentives, all of which, together, drive our decision-making. 

“Information is a beacon, a cudgel, an olive branch, a deterrent–all depending on who wields it and how.” - Chapter 2, pg. 44

When thinking about our day-to-day lives, it is important to remember the power of information and the advantage held by whoever has the most of it. We often think of economic transactions as consisting of physical goods, like money or items. But information plays an even more important role in determining the outcomes of our interactions, and people who hold more of it—like experts—are in a position to take advantage of people who have less. 

"Or more likely, it has become so unfashionable to discriminate against certain groups that all but the most insensitive people take pains to at least appear fair-minded, at least in public. This hardly means that discrimination itself has ended—only that people are embarrassed to show it." - Chapter 2, pg. 52

With this quote, Levitt posits an important truth about discrimination in modern-day United States. Why it may appear that discrimination has ended in our society and that people are tolerant and accepting, there are more subtle indications that some discriminatory preferences still exist. Levitt uses the game show "The Weakest Link" in order to show this. 

"The problem with crack dealing is the same as in every other glamour profession: a lot of people are competing for a very few prizes. Earning big money in the crack gang wasn’t much more likely than the Wisconsin farm girl becoming a movie star or the high-school quarterback playing in the NFL. But criminals, like everyone else, respond to incentives. So if the prize is big enough, they will form a line down the block just hoping for a chance. On the south side of Chicago, people wanting to sell crack vastly outnumbered the available street corners." - Chapter 3, pg. 67

This important quote outlines just how similar crack dealing is to many other high-stakes professions that are more mainstream, despite the fact that crack dealing is illegal. It works like a pyramid, with a few highly successful, wealthy individuals at the top, and hundreds at the bottom are motivated to stay in the company in the hopes of someday making it up the ladder to prosperity and fame. 

"The Supreme Court gave voice to what the mothers in Romania and Scandinavia— and elsewhere—had long known: when a woman does not want to have a child, she usually has good reason." - Chapter 4, pg. 86

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This quote comes as Levitt is connecting the Roe v. Wade decision in 1973 to the 1990s crime drop. He acknowledges that those unborn children of mothers who had abortions would be much more likely to grow up to be criminals had they been born, having primarily been raised in low-income, low-education households. Roe v. Wademeant that these unwanted children were not being born—thus, they could not grow up to be criminals. 

"The typical parenting expert, like experts in other fields, is prone to sound exceedingly sure of himself. An expert doesn’t so much argue the various sides of an issue as plant his flag firmly on one side. That’s because an expert whose argument reeks of restraint or nuance often doesn’t get much attention. An expert must be bold if he hopes to alchemize his homespun theory into conventional wisdom. His best chance of doing so is to engage the public’s emotions, for emotion is the enemy of rational argument." Chapter 5, pg. 92

In this quote, Levitt points out the mentality that experts have if they want to become well known. The only way to gain attention is to speak to extremes, taking a solid stance on one side of another of an issue. Experts also know how to play to their audience's emotions, and many experts—particularly parenting experts—use fear to their advantage. 

"Here is the conundrum: by the time most people pick up a parenting book, it is far too late. Most of the things that matter were decided long ago—who you are, whom you married, what kind of life you lead." - Chapter 5, pg. 111

Here, Levitt summarizes the truth about parenting that is the central focus of the book's last two chapters: it is not what parents do that affect their children's life outcomes, but rather who they are. Children born into high-income, high-education households are already primed to succeed, regardless of what choices a parent makes while raising them. Conversely, children born to families with low socioeconomic status have the odds stacked up against them from the start. 

"So it isn’t famous people who drive the name game. It is the family just a few blocks over, the one with the bigger house and newer car." - Chapter 6, pg. 129

This quote comes in response to the question of where the majority of parents get names for their children. Many people believed name inspiration comes from the celebrity names, but this is rarely the case. Instead, parents will look to successful people around them—friends, acquaintances, neighbors—and hope, often subconsciously, that by using these names they will prime their children for success. 

"The second child, now twenty-seven years old, is Roland G. Fryer Jr., the Harvard economist studying black underachievement. The white child also made it to Harvard. But soon after, things went badly for him. His name is Ted Kaczynski." - Epilogue, pg. 133

This quote makes an important point—things will not always turn out the way they are predicted to, regardless of the data that might support these outcomes. Roland G. Fryer, Jr. lived a difficult childhood, and yet he managed to surmount the fate that his circumstances 5|Page

predicted and become successful. Ted Kaczynski, however, despite his cushy upbringing, still turned into one of the nation's most notorious criminals.

Freakonomics Summary and Analysis of Introduction Summary Stephen Levitt begins the introduction by discussing the drastic rise in crime in the early 1990s. Violent crime was constant, and experts predicted it was only going to get worse. The media always portrayed each criminal as a heartless thug and insinuated that there was a whole generation of killers behind him. Even President Clinton said that something had to be done about the juvenile problem or America would be plunged into chaos. Suddenly, though, crime began to fall, consistently decreasing year after year. All categories of crime fell, not just certain ones, and the teenage murder rate fell more than 50 percent within five years. By the year 2000, the overall murder rate was the lowest it had been in 35 years. No one, not even the experts, had anticipated this. Seeking to explain the drop, experts proposed a handful of new theories, such as the roaring 1990s economy, gun control laws, and innovative policing strategies. Instead, though, Levitt explains the drop with the story of Norma McCorvey, a young Dallas woman who wanted an abortion more than 20 years before. Poor, uneducated, and unskilled, she had given up two children the year before and had become pregnant again. In Texas, like most other states, abortion was illegal, and she became the main plaintiff for a court case that many important people supported. Her case made it to the Supreme Court, where her name was disguised as Jane Roe. This became the famous Roe v. Wadecase. In the end, the court ruled in her favor, legalizing abortion throughout the country. A generation later, Levitt argues that this led to the crime drop because all the poor, uneducated women whose children were more likely to grow up to be criminals were not being born, because these women had gotten abortions. The pool of criminals had drastically shrunk, so crime went down. But no crime-drop experts ever cited legalized abortion as a cause. Levitt then switches to a discussion of the way we rely on and trust "experts" who have an in informational advantage over us. We believe that these experts are using this informational advantage to help us get exactly what we want for the best price, but unfortunately, this is not always the case. Just like any human, experts respond to incentives, and sometimes an expert's incentives may work against the client. The best way to detect whether or not an expert is abusing his informational advantage is to compare how an expert performs a service for you versus how he performs the same service for himself. He uses the example of real estate agents selling their own homes to illustrate this. Since only about 1.5% of the sale profit of your house would go directly into the real estate agent's pocket, she might not be willing to put in all the extra work to sell your house for $310,000 rather than $300,000 since the difference in profit for her is only $150, while for you, the seller, it would be a lot more. However, the data reveals that when selling her own house, a real estate agent would keep her home on the market for an average of ten days longer, selling for an extra 3 6|Page

percent or more. When selling your house, the agent's goal is to get you to close the deal fast so she can move on, but when selling her own, she will hold out for the best offer. Levitt moves on to a discussion of correlation versus causation, disputing the commonplace assumption that more money makes candidates win elections. He postulates instead that the more appealing candidate who is more likely to win anyway will attract the most money, saying that the candidate's appeal wins him both the money and the votes. This can be proven by examining the same two Congressional candidates running against each other in consecutive elections, which show that a candidate increasing money spent on his campaign will have littleto-no effect on the amount of votes he receives. Levitt ends the introduction by bringing all of these anecdotes together to explain what this book is about. The book will ask questions and dig beneath the surface of everyday life to find answers in data. He distinguishes between morality, the way people would like the world to work, and economics, which is the way the world actually does work. It will apply the tools of economics to interesting and sometimes odd scenarios. The books is based on a few fundamental ideas: Incentives drive modern life. Conventional wisdom is often wrong. Dramatic effects sometimes have distant and subtle causes. Finally, experts use their informational advantage in their own favor. Knowing what to measure and how to measure it can help make the world less complicated, and this book's goal is to explore the hidden side of everything.

Analysis Most readers conceptualize the field of economics as having to do solely with finance or commerce. Freakonomics, however, immediately defies this conception, calling economics a discipline that examines the way the world actually works and distinguishing it from morality, which is an idealized version of the way people think the world should work. It applies the same tools used in economics to all kinds of unconventional situations so that readers can understand how these phenomena operate in daily life. Levitt uses the introduction to outline the key points of the book. Rather than go in-depth on each of them, though, he only brushes the surface, priming readers to tackle these concepts later in the book and getting them exercising their minds and thinking about these things early on. Rather than use complex academic jargon, he explains things in simple terms so that even readers who have had no exposure to economics can understand. This is part of what has made this book so popular. The first of the major concepts that Freakonomics explores is the existence of incentives and the way they drive daily life. We respond to incentives in our school, our work, and our relationships: they are things that motivate or deter us from pursuing certain actions. It is important to note, though, that experts respond to incentives too, and often the incentives of the professionals we trust may not exactly align with our own. With the detailed perspective on incentives that this book provides, readers can view the choices and actions of the people with whom they interact more critically in order to determine which incentives are motivating them. 7|Page

Another important concept discussed in this book is information. In economics and in the behavior of people, information is its own currency, and can be used and abused by the people who hold it the same ways money itself can. In our daily interactions, there is often an information imbalance, with one party having more information than the other. According to Levitt, it is in these situations that an informational advantage may be abused. Next, Levitt explains a concept that is the cornerstone of any data analysis: correlation does not prove causation. A correlation is the relationship between two different sets of data, or two different phenomena. However, one thing being correlated with another does not mean that it causes that thing. It could be that one caused the other or vice versa, or it could be that a completely unrelated thing is causing both phenomena. It is important to understand the idea of correlation vs. causation when approaching any data analysis in economics. Levitt explains these concepts through flashy, exciting, out-of-the-box anecdotes that catch a reader's attention and draw them deeper into the analysis. He begins the introduction with the story of the 1990s crime drop and presents it like a mystery, slowly revealing more information about the occurrence until finally he provides the real explanation. He uses this strategy repeatedly throughout the book, and it allows him to engage readers who otherwise would not be interested enough to grapple with the concepts he discusses.

Freakonomics Summary and Analysis of Chapter 1 Summary This chapter will answer the question, "What do schoolteachers and sumo wrestlers have in common?" It begins with a story about a pair of economists who tried to find a solution for tardy parents who repeatedly come late to pick up their children from daycare. They decided to try fining parents, adding a $3 fine for each child when a parent showed up more than ten minutes late. Unfortunately, though, after this fine was instated, the number of late pickups only went up. Before explaining why this happened, Levitt segues into an in-depth discussion of incentives. He defines them as the way people get what they want or need, especially when other people want or need the same thing. We learn to respond to incentives from a young age, such as rewards for studying hard and getting good grades, and punishments for bad behavior. There are three kinds of incentives: economic, social, and moral, and often incentive schemes will include all three of these. Levitt uses crime as an example: why don't more people commit crimes? Because there exist economic incentives—being jailed, losing your house, being fined—that stop us from doing so, as well as moral incentives, like the refusal to do something morally wrong, and social incentives–we do not want others to see us doing something wrong. These types of incentives are how society attempts to mitigate crime. Before continuing, Levitt backtracks to the daycare study and explains that the incentive of $3 was too small, and, furthermore, putting such a small price tag on the inconvenience of a late pickup absolved parents of the moral guilt they felt for showing up late.

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Continuing with the discussion of incentives, Levitt next examines the incentives that cause people to cheat, which he defines as getting more for less. The first example of cheating is an anecdote about high-stakes testing at Chicago public schools. Since public schools with low test scores risked being shut down and teachers with low test scores can be passed over for promotions or even fired, many teachers had incentives to cheat and inflate their students' scores, whether by providing them with answers or even changing their answers after the students finished the test. In order to catch cheating teachers in the Chicago public school system, investigators looked for repeated patterns of letter answers on students' answer sheets in classrooms that had experienced a dramatic spike in test scores from the previous year, a sign that the teacher had possibly been cheating by changing her students' answers before handing in the answer sheets. Using this cheating algorithm, they revealed evidence of teacher-cheating in over 200 classrooms per year. The cheating teachers were likely to be younger and less qualified; they were particularly likely to cheat after their incentives changed, such as when high-stakes testing was introduced. After a retest was administered, enough evidence was gathered to fire many of these cheating teachers. Similar cheating can be seen in athletics, particularly in the Japanese sport of sumo. The incentive scheme in sumo is extremely powerful, since a sumo wrestler's ranking determines everything from how much money he makes to how much he gets to eat and sleep. Rankings are determined by a wrestler's performance in the elite tournaments held six times yearly, where a wrestler fights in fifteen bouts per tournament. If he has eight victories or better, his ranking rises, but if not, his ranking falls. As a result of this, it is suspected that a wrestler with an 8-6 record, who is already guaranteed a rise in ranking, might sometimes allow one with a 7-7 record to beat him. This 8-6 wrestler may have incentive to throw the match because of a bribe, a social incentive, or some other arrangement with the other wrestler. To prove this, experts examined the data from matches between 8-6 and 7-7 wrestlers, first when the 7-7 wrestler needs a win and later when these same two wrestlers are fighting each other again, yet without the same high stakes. While the 7-7 wrestlers won nearly 80 percent of those first, high-stakes bouts with 8-6 wrestlers, they only won 40 percent of the low-stakes rematches. This suggests that the two wrestlers made an agreement: let the 7-7 wrestler win this match, as long as the 8-6 wrestler can win the next one. Despite this evidence of rigging, though, sumo has never formally been accused of corruption, since this would cause national furor in Japan. So with these examples in mind, just how honest or immoral are people on a daily basis? To try to answer this question, Levitt talks about an intriguing social experiment done by a man, Paul Feldman, who would drop off bagels at hundreds of different offices and see how many people actually paid the requested money on the honor system for each bagel they took. Interestingly, people were much more likely to "steal" one of his bagels in this context than they would be in a different context, such as at the counter in a bagel store. Another interesting result was that, following September 11, 2001, there was a noticeable spike in people's honesty and the overall pay rate, perhaps as a result of heightened empathy and patriotism. Small offices 9|Page

were also more honest than larger ones, and people paid more often in good weather than in bad weather. The worst times were the holidays, when the pay rate dropped significantly. The overall takeaway from this bagel experiment was that far more people were honest than were not, which fits with philosopher Adam Smith's theory of the innate honesty of mankind postured in his book, The Theory of Moral Sentiments.

Analysis In Chapter 1, Levitt establishes the format he will continue to use for the duration of the book. He begins the chapter with a question–one that might seem ludicrous at first–and then proceeds to answer it using the tools of economic analysis that are the subject of Freakonomics. By the end of the chapter, this question will have been answered, and readers will be equipped with a new basis of knowledge to take with them in order to tackle the following chapter's question. Levitt takes the concept he briefly discussed in the introduction—incentives—and does an indepth analysis of incentives at work in a number of unconventional situations. According to him, incentives are at the core of the discipline of economics, and many economists believe that every possible behavior can be explained by incentives at work. This chapter further breaks down incentives into three different categories. The first of these is economic incentives, which is what we most typically imagine when we think of incentives. These are things like monetary and material rewards or punishments that drive us to make certain decisions. But incentives do not stop at the tangible: moral incentives exist, showing that humans have a moral compass, whether it is innate, as famed philosopher Adam Smith argued, or simply instilled by societal norms, as some others believe. Finally, social incentives are extremely powerful. These often have to do with reputation: the thought of others judging you positively or negatively for taking a certain course of action can be an extremely powerful motivator. We see all three of these kinds of incentives at work in the two core anecdotes Levitt presents in this chapter, regarding the cheating schoolteachers and sumo wrestlers. Schoolteachers are incentivized to cheat for economic reasons: they do not want to be fired or passed up for a promotion because of low scores. Conversely, they may be incentivized not to cheat for moral and social reasons. Sumo wrestlers with an 8-6 record may be incentivized to cheat because the 7-7 wrestler has given them a monetary bribe, because they are close friends with the 7-7 wrestler, or because they simply believe it is morally the right thing to do in order to prevent the other wrestler from dropping in the ranks. As Levitt points out, many of the most powerful incentive schemes have all three types of incentives in play. As a concept, cheating itself is based on certain mechanisms in the economics realm. Economics postulates that in his or her pursuits, a rational person will always seek to maximize utility, or get the most possible gain from a certain course of action. By cheating, a person may be able to gain more while putting in less work, thereby maximizing the marginal utility (the effort put in subtracted from the reward gained). Thus, even rational people are incentivized to cheat, just like these schoolteachers and sumo wrestlers.

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If the economy were allowed to work untouched, then it is likely that rational consumers and competitors would continue to cheat unchecked, since there is incentive to do so. However, this is where centralized agencies like governmental organizations come in. They seek to moderate the playing field and provide economic and social incentives not to cheat, as was the case with the board of Chicago Public Schools and the cheating teachers. This type of regulation works in small-scale situations like this, but it is also is at play in the larger economic world of firms, corporations, and businesses. Governmental regulation exists to make sure cheating remains at a minimum.

Freakonomics Summary and Analysis of Chapter 2 Summary The next chapter aims to answer the question, "How is the Ku Klux Klan like a group of real estate agents?" Levitt begins by going into the history of the KKK, founded initially in the aftermath of the Civil War by six men doing harmless midnight pranks, and later evolving into a multi-state terrorist organization targeting emancipated slaves. Within a decade of its beginning, the Klan was extinguished, but restarted again by the 1920s, when it began targeting not only blacks, but also Catholics, Jews, communists, immigrants, and other minority groups. While World War II caused the Klan to lie low for a while, it revitalized strongly after the war, with its headquarters in the city of Atlanta. There, Stetson Kennedy, a writer who was dedicated to ending bigotry, decided to go undercover and join the Klan in order to reveal its coveted secrets that might help lead to its destruction. He wormed his way into their ranks, learning all their secret customs, and eventually was invited to join the Klavaliers, who were the Klan's secret police. By this point, the Klan was a lot less violent than it used to be, and carried out many fewer lynchings; instead, the real power of the 1940s Klan was their fear rhetoric. Kennedy realized the best way to take the Klan down was to expose their secret information to the world in whatever way he could, so he fed these important Klan secrets to a radio show listened to which many children listened, called "Adventures of Superman." Once everyone knew all this information, it turned into a tool for mockery, and Klan membership fell drastically. Levitt attributes Kennedy's success to his understanding of the power of information. The KKK's power existed in the form of information, and once that information was exposed to the world, they lost the advantage they had from holding it. Similarly, after the advent of the internet, the price of term life insurance fell drastically because websites were created that allowed users to quickly compare the price of different policies. These websites dealt in the currency of information. The internet has served to balance out the possession of information, providing more to consumers than they previously had, but many experts are still able to use their informational advantage combined with other incentives like fear to rope consumers into a bad deal. The next part of the chapter goes in-depth on the real-estate-agent problem discussed in the book's introduction. Since a real estate agent has much less to gain from an increase in the selling price of your house than you do, she will try to convince you that a low offer is actually 11 | P a g e

worth taking, even if she knows the house could actually sell for more if she were to keep it on the market longer. In order to convince you to take this offer, an agent will use the informational advantage she has over you to induce fear. She may tell you that the housing market is tanking, or that a nearby house worth much more had a lot of trouble selling. Real estate agents will also use different phrases in listings for the houses they are selling that convey large amounts of information to another agent or a savvy buyer. "Well-maintained," for instance, will sound like a compliment to the seller, but actually invites a buyer to bid low because it suggests that the house is old but not quite falling down. Specific words that are physical descriptions of the house itself are correlated with high selling prices—like "granite," or "maple"—as well as terms like "state-of-the-art." More ambiguous adjectives like "fantastic" and "charming" correlate to a lower selling price. But this abuse of information is not limited only to experts. We selectively portray information about ourselves depending on the type of situation we are in. We will likely describe ourselves in a very different way during a job interview than we would during a first date. The final segment of the chapter discusses whether or not people take pains to outwardly appear non-discriminatory in certain social situations, and whether this lack of discrimination is sincere or just a charade. The trivia game show The Weakest Link answers this question. Both blacks and women, two groups who are typically discriminated against, surprisingly are not discriminated against in this game: they are voted off at rates that correspond with their triviaanswering abilities. Levitt postulates that this is because, after the civil rights movement and the feminist movement, people do not want to appear like they are discriminating against these groups. Instead, though, the elderly and Hispanics are discriminated against, suggesting that players are still discriminatory in some way. Economists propose two different kinds of discrimination: the first is taste-based discrimination, when one person discriminates because he prefers not to interact with a certain type of person. The other is information-based, when one person believes another type of person has poor skills and discriminates against them for this. On this game show, Hispanics suffer the latter, with the elderly suffering the former. Further discrimination happens in the privacy of the home, specifically on internet dating sites. In their profiles, people overwhelmingly portray their looks as "above average." People also list whether they are looking for a match that is the same race as them, or if it does not matter. While the majority of white people said that race did not matter, they still send over 90% of their queries to other white people. This all proves that the information that people portray about themselves and the information that is actually true can be quite different.

Analysis While Chapter 1 focused primarily on the enormous role that incentives play in economic decision-making, Chapter 2 narrows in specifically on a phenomenon known as information asymmetry. Information asymmetry concerns interactions that take place where one party has more information than the other, such as when experts like real estate agents or car salesmen have more information about the product they are selling and the market they are selling it in 12 | P a g e

than the buyer. Information asymmetry does not necessarily have to be abused, but it often is, as evidenced by the difference between real estate agents selling their own house versus selling a client's. The abuse of information asymmetry is commonly associated with fear. Experts who have more information than buyers can use this to instill fear in consumers, who believe they may not be able to get a better deal elsewhere or that they need a certain product or service right away for whatever reason. But in certain social situations, this fear can be even more sinister, as evidenced by the Ku Klux Klan in the 1940s. Though the Klan themselves were rarely committing actual acts of violence in those days, they were able to use their informational advantage—all of the secrets about themselves that they knew, while others did not—to create an air of fear surrounding their group. Steston Kennedy demolished this fearful aura by eliminating the information imbalance between the KKK and the general public. Information asymmetry is one of those phenomena that distance idealized economic models from the way economics works in the real world. Economic models like the supply and demand curve rely on both parties—the producers who supply and the consumers who demand—having perfect information in any given transaction, but this is not always the case. When information asymmetry exists and the consumer has imperfect information, both curves will shift and the equilibrium point (where the supply curve meets the demand curve) will change, resulting in an inefficient market outcome. Levitt briefly talks about the internet entering the picture and leveling the economic playing field, becoming a great equalizer between consumers and experts and eliminating much of the information asymmetry that previously characterized transactions. This is an example of how technological change can affect the market. With the internet, consumers now have a wealth of information at their fingertips, and consumers who do adequate research before doing things like selling their house or buying life insurance are less likely to be taken advantage of by experts. The final part of this chapter talked about a different side of the role that information plays in everyday life. This focused on selective information: by carefully choosing what information we share about ourselves, our preferences, and our transactions, we drastically influence the way others perceive us. The study examining online dating websites is the best way to see this in action. People have an overwhelming tendency to portray themselves as "above average" because it will affect the responses they get from others seeking matches. They are also likely to portray themselves as accepting by putting "it doesn't matter" for their racial preferences, but often instead show a discriminatory bias in the queries to which they actually respond to. Selective information influences our daily interactions, and is itself a form of information asymmetry.

Freakonomics Summary and Analysis of Chapter 3 Summary This chapter asks the question, "Why do drug dealers still live with their moms?" It begins by explaining the phrase "conventional wisdom," which economist John Kenneth Galbraith 13 | P a g e

describes as information that reinforces a person's own interests and well-being. This means that, while conventional wisdom must be comforting and convenient, it does not necessarily need to be true. Despite this, though, it is often difficult to get people to doubt conventional wisdom. Levitt then spends the rest of the chapter disputing one particular point of conventional wisdom: that drug dealing, particularly crack dealing, is one of the most profitable jobs in America. While administering a survey throughout housing projects in Chicago in 1989, University of Chicago PhD student Sudhir Venkatesh got to know members of the Black Gangster Disciple Nation and became intrigued by their operation. The gang's leader, named J.T., was a college graduate as well, and his business background made him perfectly suited to be the boss. Venkatesh spent six years getting to know the gangsters and their operation, practically living in their projects with them. Venkatesh gained access to notebooks full of the gang's financial transactions, which proved to be invaluable knowledge for him. After Venkatesh's time living with the gang, he was awarded a three-year stay at Harvard's Society of Fellows, where he met Steven Levitt, and the two decided to collaborate on a paper about the gang. The rest of the chapter explains how the gang operates. The organization of the gang is a lot like any business, particularly McDonalds. Venkatesh had been living with one of about a hundred branches of the Black Disciples organization. J.T. headed this branch, and reported to a central leadership called the board of directors. He paid nearly 20 percent of his revenues to these men for the right to sell crack in his area, and the rest he distributed at his discretion. He had three officers under him, and beneath the officers were street-level salesmen called foot soldiers. At the bottom of the organization were the rank-andfile members of the gangs, who were not employees but who paid dues to the gang, hoping to eventually become foot soldiers. During the crack boom, J.T.'s branch of the gang brought in $32,000 in monthly revenues, but the cost of bringing all of that in was $14,000. J.T. himself got $8,500 per month, making his annual salary about $100,000 tax-free. The top bosses on the board of directors earned about $500,000 per year. People like J.T. and the other bosses could afford to live large, but everyone below them made very little. J.T. paid his three officers and around 50 foot soldiers only $9,500 per month, leaving his officers to take home about $700 a month and his foot soldiers only $3.30 per hour, less than the minimum wage. This dispels the conventional wisdom that all drug dealers are making a lot of money, and explains while they still live with their moms. Just like any capitalist enterprise, you must be near the top of the pyramid to make a big wage. According to J.T., he kept his foot soldiers' wages low in order to show them who is the boss. Things were difficult for foot soldiers, though, who risked arrest and violence every day, with a 1-in-4 chance of being killed. Despite this danger, though, dealers still took the job in the hopes that they could move up in the ranks and make it big, especially since these were often people who grew up below the poverty line and did not have many prospects for other careers. The dynamic in crack dealing fits with the notion that when there are a lot of people willing to do a job, the job does not usually pay well. Foot soldiers remained foot soldiers because they 14 | P a g e

were hoping to move up, and often when they realized they were not advancing, they quit the dangerous profession. This leads into a discussion of the things that determine wages: first, the number of people available to do a job; next, the specialized skills required; then the unpleasantness of a job, and the demand for the services that a job fulfills. The last part of the chapter moves to another strange question: what crack cocaine has in common with nylon stockings. The invention of nylon stockings took a product typically reserved for the high-class—expensive silk stockings—and made them affordable enough for the masses. The creation of crack cocaine did the same thing: people took cocaine, a classy drug for the rick and famous, and found a more inexpensive way to produce tiny rocks of smokeable cocaine, which was called crack. This started a crack boom that led to the rise of crack gangs like the Black Disciples. The advent of crack also hit black neighborhoods much harder than white neighborhoods, causing addiction that led to infant mortality, imprisonment, violence, and a widened education gap between black and white schoolchildren. This was when everyone expected the youth crime rate to skyrocket, but instead it fell—this paves the way for the in-depth discussion on the abortion topic proposed in the introduction that will happen in the next chapter.

Analysis One of the main aims of this book is to prompt readers to question their everyday experiences and dig deeper beneath the fabric of their daily lives to uncover novel truths. It makes sense, then, that Levitt would challenge the idea of conventional wisdom, insisting that it must not always be trusted. The word "wisdom" in the phrase might suggest that conventional wisdom is always true, but Levitt dispels this myth with his analysis of the Black Disciples gang, which combats one piece of conventional wisdom that paints all drug dealers as making exorbitant amounts of money. The biggest takeaway from this chapter is the similarity between the crack dealing empire and corporate America. Levitt uses this unconventional example to teach readers about the structure of business firms and corporations, with a few high-level individuals at the top of the pyramid making the vast majority of the money, and hundreds and hundreds of lower-level workers below who support the higher-ups and split whatever small amount of revenue is left. This is the way most businesses in corporate America are structured, from Wall Street firms to McDonalds and everything in between. One of the primary ideals that drive American capitalism is the belief in a meritocracy, or the idea that hard work will allow anyone to rise and be successful. This mentality pulls low-level workers like foot soldiers into the organization, all under the assumption that they will be able to move up and reach those coveted positions as long as they work hard. An organization like the Black Disciples is a "winner-take-all" labor market, in which a lot of workers compete for very few high-level jobs. Most do not succeed in reaching these positions, but when they do, they take in an enormous amount of money for themselves, like the board of directors in the Black Disciples do. Other winner-take-all labor markets that Levitt describes are the

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entertainment and spots industries, where talented individuals compete to be among the elite few who "make it" in these industries. Like the previous sections, this chapter also includes a discussion of incentives, showing how they play into every facet of economics. Low-level workers like foot soldiers are incentivized to stay in the business by the tantalizing promise of moving up in the ranks and reaching a position of greater power. But their incentives do not always match up with the people in charge: while foot soldiers are incentivized to start turf wars so that they can get themselves noticed, a boss like J.T. wants to avoid this, to keep foot soldiers subordinate to him so he can continue to pay them what he pays them, and keep the rest of the profits for himself. Another important discussion in this chapter is the various factors that contribute to wage determination. Jobs that have a lot of people available to do them generally pay lower, while jobs that require a specialized skill not commonly found will pay higher. Obviously, jobs that are less desirable or even dangerous must pay higher, in order to give laborers enough incentive to remain in the position. Finally, if there is high demand for a certain service, jobs in that service industry will have higher pay, since more consumers are seeking it out. The chapter ends with a discussion that combines economics with sociology, and considers the impact that certain products like crack cocaine have on local communities. While the advent of crack cocaine certainly created a booming economy as well as opportunities for people to earn livable wages in an unconventional way, it also set many impoverished communities back because of the catastrophic effects of addiction or imprisonment. It also affected black communities far more than white communities, contributing greatly to the widened gap in racial achievement. This presents a nuanced view of the social impact of certain products entering the market.

Freakonomics Summary and Analysis of Chapter 4 Summary In Chapter 4, called "Where Have All the Criminals Gone?", Levitt expands on the crime and abortion correlation previously discussed in the book's introduction. He starts with a case study on Romania. When Nicolae Ceausescu became the communist dictator of Romania, he made abortion illegal. The aim was to boost Romania's population in order to strengthen the nation. Before that point, abortion rates were high in Romania, with four abortions for every live birth. Within one year of the abortion ban, the Romanian birth rate had doubled. These children born after the abortion ban would lead especially miserable lives, less successful in school and in the workforce on average than children born before them. They were also likely to become criminals. The abortion ban continued until Ceausescu lost his grip on Romania, when in 1989 he was captured and killed by protestors largely consisting of the youth of Romania—the ones who would not have been born, had he not instated the abortion ban. The Romanian abortion story is the reverse of the American crime story. When crime began to drastically fall in the U.S. in the early 1990s, experts sought an explanation for the fall. Levitt 16 | P a g e

reviews the eight most-cited explanations for this drop. He reveals that only three of these have been shown to have contributed to the drop in crime, and that the number-one cause for the drop in crime is not even mentioned in newspapers at all. The strong economy, which was the number-six most cited cause, had not been proven to be correlated with a crime drop at all. The number-two most cited cause, increased reliance on prisons, actually did have a significant impact. Imprisonment acts as a deterrent to crime, despite being an extremely costly procedure, and accounted for roughly one-third of the drop in crime. Capital punishment (i.e. the death penalty), however, did not significantly reduce crime, since executions so rarely happened in the United States anyway. An increased number of police in cities did have a significant effect on lowering the crime rate. However, the number-one most cited cause for the drop—innovative policing strategies, such as smart policing and cracking down on small crimes to prevent larger crimes—has not been proven to have a strong effect, primarily because these strategies only went into play in big cities like New York well after crime had begun to fall. Levitt then leads an in-depth discussion of one of the other cited causes: increased gun laws. But policies on both sides of the political spectrum had not been shown to reduce crime. Gun control laws like the Brady Act were unsuccessful because of a thriving black market for guns that existed anyway, and right-to-carry laws—the right-wing policy that advocates for putting more guns in the hands of the right people—do not bring down crime either. One explanation that did have some effect on the crime drop was the bursting of the "crack bubble," when profits for dealing crack began to fall so the crack-dealing tournament lost its allure and gang violence abated. Levitt moves on to explanations that center on demographic change. The first—the aging of the population—was too slow to explain the sudden crime drop. The demographic change that did have an effect was the legalization of abortion, as discussed in the introduction. By the year 1900, abortion was illegal across the U.S. By the 1960s and 70s, abortion slowly became legal in extreme circumstances, and then on January 22, 1973, abortion was suddenly legalized across the entire country in Roe v. Wade. The decision acknowledged that when a woman does not want to have a baby, she usually has a good reason, often acknowledging that the state of her own life is not conducive to raising a child. In the wake of Roe v. Wade, 1.6 million American women had abortions by the year 1980. Because it had also gotten less expensive, the type of woman likely to take advantage of legalized abortion was unmarried, poor, or in her teens. Had these children been born, they would have been 50 percent more likely to live in poverty and thus extremely likely to have a criminal future. Levitt acknowledges that it may be more comforting to believe that the newspapers were right and the crime drop was due to brilliant policing or clever gun control. He says this is because we prefer to link causality with things we can touch and feel, rather than with a distant or difficult phenomenon. But legalized abortion undoubtedly had a dramatic effect on the crime rate: states with higher abortion rates had higher drops in crime, and states that legalized abortion earlier saw crime start to drop before other states. 17 | P a g e

Analysis The primary takeaway from this chapter is that large effects sometimes have distant, unexpected causes. Aside from abortion itself being a controversial subject, the main reason why it is difficult for people to accept Roe v. Wade as the number-one factor contributing to the crime drop is that, since it happened nearly 20 years before, it seemed so far removed from the present. It is easier to believe that some direct action we have control over—like changing policing strategies or instating gun control laws—produce the immediate consequences we seek, but often discovering the real cause involves taking Steven Levitt's approach and digging deeper into the data. Using the story of Romania as a reverse case of what happened in the United States helps Levitt to accentuate the latter account. Since Romania experienced the exact opposite effect—banning abortion led to a drastic increase in crime approximately a generation later—it is clear that abortion truly is linked to crime. It also paints a chilling picture of the kind of crime levels that may have been similarly seen in the U.S. had the Roe v. Wade decision gone the other way and the crime rate continued rising. But it is important to remember that correlation does not always prove causation. Even if two things show a relationship, one may not necessarily be causing the other—further analysis of the data through isolation of the variables in question is necessary in order to prove causation. Levitt does this in his analysis of all of the additional explanations cited to explain the 90s crime drop; while innovation policing strategies appeared to be correlated with the crime drop, in reality it was the rise in the number of police officers—which went along with the change in policing strategies—that had the more significant effect. This chapter also introduces the concept of black markets. A black market—sometimes called an underground economy, or a shadow economy—is a market characterized by behavior that is, in some way, noncompliant with the law. This means that black markets are either selling illegal goods—drugs, for instance—or selling legal goods in an illegal way, like guns being sold without background checks or permits. It is often difficult to enforce laws regulating the sale of certain goods because of the prevalence of black markets, as Levitt notes in his analysis of the effectiveness of gun control laws. Finally, the content of this chapter highlights the importance of knowing the difference between positive versus normative analysis. A positive analysis is objective and fact-based. Positive analyses explain a phenomenon that is observable through data, such as the fact that legalized abortion and low crime rates are correlated. Normative analysis, however, is subjective and value-based. A normative analysis of this phenomenon might ask the question of whether or not abortion should be legalized. This chapter only consists of positive analysis, not normative analysis—even though Levitt's data has shown a relationship between these two factors, he does not attempt to pass a value judgment on the idea of legalized abortion itself.

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Freakonomics Summary and Analysis of Chapter 5 Summary Chapter 5 asks the question, "What makes a perfect parent?" Every parent and "expert" has their own notions on the best way to parent a child, and these notions often contradict one another. Experts will always sit to the extreme of one side of a parenting issue, because experts who are not firm in this way rarely get any attention. This kind of expert must also engage people's emotions and appeal to fear. Parents are especially susceptible to this kind of fearmongering, with another human's life in their hands. But Levitt argues that parents are afraid of the wrong things. He uses data to show this: a parent who keeps their child away from a friend's house because her parents keep a gun, but instead allows her child to spend a lot of time at another friend's house with a swimming pool, is misguided, because the child is 100 times more likely to die in a swimming accident than because of a gun. There is a difference between the risks that scare people and the risks that kill people. Additionally, risks that we have some control over are less scary than those that are completely out of our control, which explains why people are more afraid to fly in airplanes than to drive in cars. We are also more afraid of immediate risk: the prospect of dying of a terrorist attack scares us more than eventual death by heart disease, which is long and drawn out. Peter Sandeman, an expert on fear and risk, proposes the following equation: Risk = hazard + outrage. When hazard is high and outrage is low, people underreact. When hazard is low but outrage is high, people overreact. While things like swimming pool precautions might save hundreds of children's lives per year, parents have instead been focusing their attention on things that save far fewer lives, like expensive car seats, child-resistant packaging, or flame-retardant pajamas. The main question of this chapter, though, comes when Levitt asks how much parents actually matter. After examining the link between abortion and crime and seeing the effects of an unwanted child subject to neglect and abuse being born, it is clear that bad parenting matters. But the nature-nurture debate instead asks how much a good parent ultimately determines how their child will turn out. A woman named Judith Rich Harris argued in her 1998 book called The Nurture Assumption that parents mattered less, and peers had a much larger effect on a child's personality. To examine how much parents matter, Levitt examines the cases of two boys. The first is a white boy raised in a Chicago suburb with attentive parents who are involved in his school and read to him. He performs well in school and manages to skip a grade. The black boy is born in Daytona Beach, Florida, and his mother abandons him at age two. His father is a heavy drinker who beats him. He does poorly in school and eventually begins selling drugs. Most would assume that the second boy does not stand a chance, while the first boy will go far in life.

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Levitt examines educational data concerning school choice, which allows parents to opt to send their children to the best school possible. Critics of school choice worry that it will leave the worst students behind in the worst schools. Chicago Public Schools used a lottery in its school choice system. The data revealed that in a student's academic achievement, school choice barely mattered at all. Students who won the lottery and went to a "better" school did no better than equivalent students who lost the lottery and stayed at their neighborhood school. Yes, the students who opted out of their neighborhood school were more likely to graduate overall, but all this says is that the students and parents who used the school choice system tend to be smarter and more academic to begin with. Next, Levitt talks about the Early Child Longitudinal Study (ECLS) run by the U.S. Department of Education in the late 1990s. It measured the academic progress of more than twenty thousand students from kindergarten through fifth grade. This data was analyzed through regression analysis to show correlation. This data shows that the test gap between black and white children disappears after controlling for variables like the income and education level of the child's parents. However, this gap reappears within two years after entering school, despite these variables being controlled for, and continues to grow. This may be a result of school segregation, and the fact that black children typically attend schools with a bad learning environment. Levitt presents sixteen variables tested by the ECLS. Eight of these are strongly correlated with success in school, either positive or negative, and eight have little relationship with academic success at all. The factors that matter are the parents' education level, socioeconomic status, age, language spoken at home, involvement in the PTA, the child's birthweight, whether or not the child was adopted, and whether or not there are many books in the home. Conversely, the makeup of the child's family, a move to a better neighborhood, whether or not the mother stayed home from work, whether or not the child attended Head Start, whether or not the child is spanked or watches television, and whether or not the parents read to the child all had little-tono effect. All of this suggests that most of the things that matter in parenting are determined even before the child is born. It is more about the circumstances that a child is born into, rather than anything specific the parents do. Parents who are well educated, successful, and healthy tend to have children who test well in school. Parents matter a great deal—but not in the ways that most people think.

Analysis The beginning of this chapter once again discusses the incentives that experts have to act a certain way, just like in Chapter 1. In all cases, experts must present an extreme view if they want to get noticed, and this is especially true for proclaimed parenting experts. An expert is incentivized by the prospect of fame and notoriety to use tactics that elicit fear in his or her listeners so that they will heed their advice and take their approach. This fear-mongering by experts is successful precisely because of the reaction to risk that Levitt discusses in the next part of the chapter. There are certain kinds of risks that we respond to 20 | P a g e

more strongly than others, even if this response is misguided—immediate risks, for instance, seem more frightening, as do risks that we have no control over. Sandeman's risk equation equates risk to the combination of outrage and hazard. Parenting experts have incentive to focus on those risks that are high in the outrage factor; this outrage prompts frightened parents to buy a certain product, thereby creating success for the expert. Risk and fear illustrate some of the many ways in which psychology interacts with economics. Parenting is a particularly difficult job because as consumers, parents are relying on the kind of imperfect information that creates the kind of information asymmetry discussed in Chapter 2. Parents are uncertain exactly what tactics will produce the healthy, successful child they hope to raise, so they are extremely susceptible to being misled by the advice of many voices claiming to know better than them. Levitt attempts to use various data about parenting's correlation with academic success in order to break this information imbalance and reveal that what a parent does does not matter as much as everyone thinks. A regression analysis is one of an economist's most important tactics for determining correlations between certain variables. With a regression analysis, an economist is able to isolate a pair of variables in order to see how they are related. The analysis does this by matching up all of the variables except the ones in question—for instance, Levitt analyzed two children who were alike in every way except for race and academic achievement—to ensure that any confounding variables do not come into play. Although a regression does not prove causation, it allows an economist to come as close as possible to pinpointing the relationship between two factors. The important takeaway from this chapter is what Levitt sums up at the very end: what matters in parenting is who the parents are, not what they do, and most of this is determined before their child's birth. This can be both comforting and frightening to a parent: comforting because they can take solace in the fact that minute decisions they make will likely have no effect on their child's upbringing, but frightening because it means so much of the way their children turn out is beyond their control. Like Levitt mentioned early in the chapter, we fear the things we cannot control most of all.

Freakonomics Summary and Analysis of Chapter 6 and Epilogue Summary The final chapter of this book discusses whether or not the name parents give their child matters. Levitt gives an anecdote about a New York City man named Robert Lane gave his son the name "Winner," and then named his next son "Loser." Contrary to what his name suggests, Loser Lane succeeded in life, moving up in the New York City police department, where his colleagues called him Lou. Winner Lane, however, has been arrested nearly three dozen times. He tells another story of a woman who accidentally named her daughter Temptress, meaning to name her Tempest - the girl eventually went on to do things like bring numerous men into the house while her mother was at work. Levitt then presents the conundrum: does the name given to a child affect his life, or are the parents' lives reflected in his name? 21 | P a g e

Levitt reveals that all of the names previously discussed belonged to black children, and introduces Roland G. Fryer Jr., a young black economist at Harvard who specializes in the study of black underachievement. He wondered if the distinctive nature of black culture— including the names they give their children—caused the economic disparity between blacks and whites, or just reflected it. In an examination of naming data from California, Fryer noticed that the drastic divergence between black names and white names only began in the 1970s. He points out that parents living in predominantly black communities who give their children traditionally white names may be penalized by neighbors for "acting white." Levitt lists what were found to be the twenty "whitest" and "blackest" names for both girls and boys, and then talks about the different ways people perceive white vs. black names. In a fake study, identical resumes were sent out to employers with only the names different, and the "white" resumes always gleaned more job interviews. The naming data from California ultimately revealed that a person with a distinctively black name does typically have a worse life outcome than a person with a distinctively white name, but only because they are usually born into very different circumstances. Those with distinctively black names typically come from low-income, low-education, single-parent backgrounds, and this is why they tend to stay in that cycle as they grow up themselves. Names are an indicator, rather than a cause, of a person's outcome. The next section of the chapter asks where names come from and whether there is a pattern to the way they fall and rise in popularity. The California naming data answers these questions as well. When sorting baby names by socioeconomic status of the parents, there is a clear disparity between names given by middle-income, low-income, and high-income parents, with the same being true of high-education parents and low-education parents. Typically, names that are purposefully misspelled also signify a low-education parent. More naming data also reveals a very quick turnover of naming popularity. Within twenty years, nearly every single name on the top name popularity lists provided changes. The data also reveals a pattern: names catch on among high-income, highly educated parents first, and then start working their way down the socioeconomic ladder. Levitt postulates that parents, whether they realize it or not, like the sound of names that sound "successful." He proposes what may be the new list of most popular names in the year 2015. He sums up the chapter by remarking that parents choose a name to signal something about the expectations for their child, even though the name likely will not end up making a difference. In the book's epilogue, Levitt says that there is no one unifying theme to Freakonomics. Instead, there is a common thread having to do with thinking sensibly about how people behave in the real world. It calls for a novel way of looking at things, of being skeptical of conventional wisdom and looking for ways in which things are not quite what they seem. The most likely result of reading this book is finding yourself asking a lot of questions, like the ones that titled each of these chapters.

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He ends the book by flashing back to the two boys discussed early in Chapter 5. The black boy, who grew up disadvantaged with a father who was an alcoholic, overcame the odds against him and became Roland G. Fryer, Jr., the Harvard economist. The white boy, who had an extremely privileged youth, also went to Harvard—however, this boy was Ted Kaczynski, who became the infamous Unabomber.

Analysis The final chapter of this book continues the idea discussed in Chapter 5: that it is not what parents do that influences their children's success, but the way that parents are. This was true of the parenting techniques talked about in the previous chapter, and it is true of baby naming as discussed here. This is another case of the difference between correlation versus causation. While certain names might be correlated with success, they do not necessarily cause this success. Instead, names are a reflection of the parental circumstances that the child was born into, which is a much larger predictor of success than a name. Not for the first time, Levitt includes a sociological component to his analysis, showing how closely the field of sociology is related to economics. By presenting the work of Roland G. Fryer, Jr., Levitt is able to show how names are a reflection of the racial divide in our society. Traditionally black names are typically given by low-income, low-education parents, partly in fear of repercussions for "acting white." In part because of their names, these children are often not afforded the same opportunities to move up in society—as evidenced by the employers who will hire a white sounding name over a black sounding one when presented with identical resumes. This perpetuates the vicious cycle that creates the drastic black-white achievement gap across the United States. In his analysis of naming trends and patterns, Levitt talks about how the name choices of the most high-income, high-education parents become increasingly obscure. An economic term that can be applied to this situation is the snob effect. The snob effect occurs when the demand for a certain good (in this case, baby names) among the high-income population is inversely proportional to its demand among the low-income population. This effect suggests that highincome, high-education parents may choose a more obscure name for its "snob value," in order to demonstrate social superiority the way one might buy an expensive sports car or work of art. By the same mentality, demand for a name among high-income parents decreases when the relative scarcity of a name diminishes—in other words, the name becomes more popular. As high-income parents stop using this name for their children, it no longer becomes associated with success, and thus its marginal value decreases. Once this happens, overall demand for the name goes down, because the snob effect is no longer in play. All of this together explains the naming trends and patterns observed in the California naming data. As Levitt acknowledges in the epilogue, after reading this book for the first time it may seem disconnected, with many unusual stories and explanations that are not linked together in any concrete way. However, Freakonomics is not meant to present one big takeaway; instead, like Levitt says, it is meant to encourage a novel way of thinking and observing and interpreting the world. Levitt has applied the various tools and concepts of economics to interesting real23 | P a g e

world situations, ones that readers interact with every day. Yes, learning what this book has to teach is a great way to begin a study of economics, but it is also helpful for going out and engaging with the world on a day-to-day basis.

Reference  

https://www.gradesaver.com/freakonomics http://www.supersummary.com/freakonomics/summary/

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