Underlying Theme
Freakonomics by Steven Levitt and Stephen Dubner is an exploratory study of economics and the manifestation of its principles in everyday life. The main premise of the book can be described with the following quote: “Morality, it could be argued, represents the way that people would like the world to work — whereas economics represents how it actually does work” (Levitt and Dubner 11). To back this claim, the authors take several seemingly unrelated events and phenomena and tackle them from an economic perspective. The topics include the similarities in behavior between school teachers and sumo wrestlers, the effect of abortion legalization on the crime rates, the relation between parental care and child’s school performance, and the defining economic principles behind the illegal drug market, among others. By incorporating data mining techniques, the authors extrapolate the results which are unintuitive, amusing, and illustrative for those who seek the ways to apply measuring tools to a broader perspective. In essence, the book suggests the existence of a correlation between the seemingly unrelated phenomena and provides the reader with the tools to determine and evaluate the significance of the impact.
Specific Issues
Several issues brought up in the book are especially enlightening and, therefore, valuable. The first is the assertion of collusion between the sumo wrestlers in the top tier of the community. According to the book, the athletes who cannot win at least eight matches are demoted in their rank. However, such an event becomes statistically improbable once the victory count crosses a certain point. More specifically, on occasions where a wrestler with seven wins and seven losses faces the opponent who has eight wins and six losses, the former wins in the majority of cases (Levitt and Dubner 23). This fact contradicts the statistically determined outcome where the wrestler with more victories is expected to have a small statistical advantage suggested by his aptitude for winning. The analysis of the available data from the past sumo matches clearly shows the inconsistency between the rates of statistically expected and the actual outcomes in favor of the losing athletes. The authors come up with an explanation that the winning sumo wrestlers who already have their promotion secured collude with the disadvantaged ones as their final victory does not result in any incentivizing for them while hurts their opponents.
In the highly personalized environment with strong ties between the participant’s such behavior, while illegal and unethical, it is mutually supportive. The authors then compare the obtained results to a similar behavioral pattern among teachers and students within Chicago schools, where the former assist the latter in passing high-stakes tests with multiple choices. However, the evident parallel that can be drawn is that of collusion in the markets with an oligopoly structure. The easiest example comes from the price determination theory which postulates that prices can be artificially heightened through illegal agreements which decrease the companies’ independence and limit the choice of consumers. The sumo wrestling example provided in the book suggests that such agreement does not necessarily have to be shaped verbally and may, in fact, emerge from the mutual understanding of the issue and a common goal of boosting revenues. Even more importantly, the book provides us with a useful tool for locating the discrepancy and isolating it from the bulk of more voluminous yet less significant information (8-6 wrestlers versus 7-7 ones in contrast to those with other ratings).
Another relevant issue is illustrated in the book through the example of aspects of parenting and their mixed influence on the child’s test results. According to the evidence provided by the authors, their performance is correlated with several seemingly evident factors such as the level of education of parents, their involvement with parent-teacher associations, socioeconomic status, and the availability and accessibility of books as sources of information (Levitt and Dubner 152). At the same time, several other factors which at a glance look equally relevant to produce little to no correlation. These include more time spent with the kids prior to their acceptance to kindergarten, regular visits to museums, and the amount of time spent on watching television, among other things (Levitt and Dubner 154). While such results are not directly applicable to the economic theories, they can be used to illustrate the necessity of quantitative assessment of available data for determining the viability of each investment option. Such an approach can be especially useful as a part of the utility maximization model as it allows minimizing expenses based on inappropriate assumptions.
Finally, the book explains the seemingly unexpected low revenues of the individuals involved in the illegal drug trade. The analysis of the available data reveals the actual gains which are so low that it forbids some of them from leaving the home of their parents (Levitt and Dubner 93). However, the results become far less controversial when the supply chain model is applied. Since drug dealers are at the bottom of it, their revenues are not even remotely illustrative of the enormous cash flow that is characteristic of the industry. In this case, the application of the most basic economic concept provides us with otherwise unattainable insights.
Conclusion
As can be seen from the described issues, the authors deliberately choose the topics which are only remotely related to economics. However, this approach allows them to illustrate the diversity influence of economic factors beyond the traditionally narrow scope and present the issue from the unconventional angle.
Work Cited
Levitt, Steven, and Stephen Dubner. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. Harper Collins, 2005.