Freakonomics

Steven D. Levitt and Stephen J. Dubner believe that “[e]conomics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing (p.16).” And they define incentive as “a means of urging people to do more of a good thing and less of a bad thing (p.17).” They further divide incentives into three different types, namely: economic, social and moral. According to them, an incentive is often a “tiny object with astonishing power to change a situation (p.16)”

Take a look at the following examples to see how incentives play a role in explaining human behaviours:

(1) In a day-care center, very often parents are late to pick up their children. Two economists conducted a study in Israel and found that the number of late-arriving parents went up, not down, after charging a $3 fine. Why? 

(2) Instead of make the most of his commission by selling a house at the highest possible price, a real-estate agent is likely to encourage a potential buyer to offer lower than its listing price. Why?

(3) A teenage drug dealer earns only US$3.30 an hour, no more than a McDonald’s burger flipper or a Wal-Mart shelf stocker. Yet drug dealing is regarded as the most dangerous job in America. Why would anyone take such a job?

This book overturns the conventional wisdom. It is provoking and inspiring. 

Answers are in p.19, p.64-69 and p. 89-99 respectively.

Levitt, S.D. & Dubner, S.J (2006). Freakonomics. NY: HarperCollins Publisher