Superfreakonomics

This is a long waiting book, but to my disappointment, it is not as interesting as the first one. And the topics selected in this book are somewhat too unusual that I wonder whether they will benefit the general public.

Yet, there are some points that worth to mention. “Instead of thinking of such stories as ‘economics,’ it is better to see them as illustrating ‘the economic approach.’ That’s a phrased made popular by Gary Becker, the longtime University of Chicago economist who was awarded a Nobel Prize in 1992. In his acceptance lecture, he explained that the economic approach ‘does not assume that individuals are motivated solely by selfishness or gain. It is a method of analysis, not an assumption about particular motivations … Behavior is driven by much richer set of values and preferences (p.12).”

That is also the reason that it took the authors 4 years to write this book as they have to wait until they had done enough research to confirm their observations:

(1) In children’s films, we have friendly, entertaining elephants like Babar and Dumbo. As for sharks, they are bad guys like criminals. This is how Jaws describes them. In fact, elephants kill at least 200 people every year. Meanwhile during the entire year of 2001, there were just 4 fatal attacks around the world.  “The economic approach isn’t meant to describe the world as any one of us might want it to be, or fear that it is, or pray that it becomes – but rather to explain what it actually is (p.16).”

(2) In many illicit markets, like prostitutes, drug dealing and black-market gun, most governments prefer to punish the sellers rather than the buyers.

Any introductory economics reference book will tell you that “when you lock up a supplier, a scarcity is created that inevitably drives the price higher, and that entices more suppliers to enter the market (p.25).” These policies will then become ineffective.

(3) “Two Australian scholars found that when their nation abolished its inheritance tax in 1971, a disproportionately high number of people died in the week after the abolition as compared with the week before (p.83).” As the heirs have every incentive giving their parent the best medical care money could buy, at least for one more week. It speaks loud and clear that everything is substitutable at the margin!

(4) In order to keep their cars from being stolen off the street, some car owners lock the steering wheel with a big and highly visible anti-theft device. The car owners explicitly tell a potential thief that it will be hard to steal their cars. It also implies that the nearby cars without the anti-theft device are better targets. A negative externality is generated.

There is another kind of anti-theft device which is a small and expensive radio transmitter hidden in the car. It does not stop a thief from stealing the car. However, if the car is stolen, the police can remotely activate the transmitter and locate the car. Since a thief cannot tell which cars have this device and he is less willing to take a chance on any car. The overall thefts in a city fall significantly and a positive externality is produced (p.173-175).

Which device would you install if you are a car owner? Which one do you think it is better if you are the mayor?

(5) A team of researchers taught monkeys that coins could buy the treats. To the researchers’ surprise, monkeys, like people, behave rationally. The monkeys had strong preferences for different treats. And when the price of a given food rose, the monkeys bought less of it. The law of demand held for monkeys too!

Levitt, Steven & Dubner, Stephen. (2009). Superfreakonomics. NY: Penguin Books.