Behavioural Economics Book review Recommended Read

Book Review | Freakonomics

Changing perceptions is a task entangled with difficulties. And this task becomes even more daunting when it entails altering the perceptions about a subject as dry as Economics. Steven Levitt and Stephen Dubner, the two authors of ‘Freakonomics’ make a sincere effort to accomplish that in their book.

‘Freakonomics’ is a well-made mashup of pop psychology and behavioral economics. For those who have never looked beyond Paul Krugman and Joseph Stiglitz and have never perused a behavioral finance/economics book, this book will be like a breath of fresh air. Metaphorically, it will be more like the transmutation of ‘Ugly Betty’ into her drop-dead-gorgeous alter-ego. This book would definitely touch up, if not completely change, your perceptions about Economics.

Steven Levitt – the brains behind Freakonomics – is an intelligent, self-effacing Economist with a knack for viewing things rather differently. He has been heralded by Malcolm Gladwell as the most interesting mind in America. Levitt teams up with the Wall Street Journalist Stephen Dubner for this book.

Freakonomics is all about breaching the conventional wisdom and viewing things in a new light. And the authors do succeed in persuading the readers to incorporate this knack by demonstrating how people often jump to conclusions on the basis of correlations.

The duo professes that the correlation between two variables doesn’t necessarily point towards a cause-and-effect relationship between the two. This is, apparently, the premise behind most of the arguments presented in the book.

After laying the framework for the rest of the book in the first chapter, Levitt and Dubner unveil the truth behind the incentives of real-estate agents and the trigger behind their motivations in the second chapter. The duo reinforces the clichéd: information is power; how consequential ‘asymmetry of information’ is, in negotiations. They draw parallels between the organizational structures of a corporate entity and that of crack-selling, gun-slinging gangs from the ghettoes.

They capitalize on a study done by a PhD student of Indian origin. The study, however crazy and foolhardy it may actually have been, does throw up fascinating insights about the modus operandi of a criminal enterprise. Consider this one, for instance. Most drug-dealers (peddlers, mostly) stay with their moms. Now that’s not out of some ritual. That’s simply because that they don’t earn enough to sustain themselves.

The star chapter of the book is the one about the abrupt dip in crime rates in the early nineties and its attribution to the legalization of abortion back in the early seventies.  Levitt and Dubner have handled bold issues such as the legalization of abortion and its justifiably positive effects years later, quite well. I appreciate both Levitt and Dubner for their calling-a-spade-a-spade approach.

Freakonomics has its share of negatives, too. The book falters on two counts. First is the presence of a blatant self-congratulatory tone in the book. How come a smart and alert chap like Levitt shut his eyes to so-evident self-adulation, is beyond my comprehension.

The second weak link is the last chapter. In it, the authors discuss the names of African American Children and the possible correlations with their socioeconomic status. Now, by the time I reached the last chapter, I was pretty much cognizant of the absence of any unifying theme in the book. Still, the last chapter comes across as a real dampener. The observations made by the authors are anything but radical.

On the contrary, in some parts, it appears that the authors are rowing against the basic premise of the book. They seem to be reaching outcomes on the basis of correlations, thus, disregarding their own agenda.

Finally, no matter how hard I may try to avoid, the comparison between ‘Freakonomics’ and ‘The Undercover Economist’ is inescapable. Neither book has a unifying theme, whatsoever. Instead, each is a motley collection of chapters addressing a host of micro-economical issues.

Levitt and Dubner have a trait for sorting out piles of data and making sense out of it. Steven Levitt is a man of numbers whereas Tim Harford is a man of words. However, in my opinion, ‘The Undercover Economist’ scores over ‘Freakonomics’ in the choice of topics that are more relevant and related to Economics.

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