Everything is everything

First of all, let me be clear: this is not a book on economics. Indeed, you will find very little in Freakonomics: A Rogue Economist Explores The Hidden Side of Everything of relevance to business strategy or management. The Wall Street Journal quote on the cover hints as much: "If Indiana Jones were an economist, he'd be Steven Levitt."

Rather, it is a book on sociological issues, albeit by an economist using the tools of economics (which many sociologists too do)""postulating a model of social behavior based on incentives, identifying measurable variables that could relate to the model, and then using data analysis to test the postulated theory.

What this book does show you is how a brilliant economist looks at questions others do not even bother to ask. The authors admit there is no unifying theme to the book, although one could say challenging "conventional wisdom" is its theme.

In fact, it even points out that the phrase "conventional wisdom" was coined by John Kenneth Galbraith, eminent Harvard economics professor and former ambassador to India. Amidst its main narratives, the book treats the reader to a five-star buffet of fascinating anecdotes and digressions on various economic issues.

First a little bit about the authors. The book is a collaboration between Steven D Levitt, a professor at the famed department of economics at the University of Chicago, and Stephen J Dubner, a journalist who once profiled Levitt in The New York Times Magazine.

The results of such a collaboration sometimes make this book more readable than it may have been, and at other times make it annoying with gushing pieces by Dubner about Levitt.

(Full disclosure: this writer was a college classmate of Levitt's, and although did not know him well and has not been in touch with him since graduation, was good friends with and a dorm-mate of his future first wife.)

Steven Levitt is distinguished by being a winner of the John Bates Clark Medal""considered to be the "future Nobel Prize winner's medal"""awarded by the American Economic Association every two years to the best American economist under forty.

In the light of the furious controversy that Levitt triggered on the links between abortion and crime (more below), it would be valuable for the reader to note that he is not only very intelligent and well-educated, but also both compassionate and humble.

1) He lost his first child at age one to meningitis. 2) Here is a quote (from personal Harvard-related sources, not this book): "I spent two years doing management consulting before I fled back to the friendly confines of academia.

I did a Ph D at MIT, then spent three years at the Harvard Society of Fellows sipping expensive wine and contributing little to otherwise witty conversations."

Most of Freakonomics relates to Levitt's pet interest, crime, in a very broad sense. These topics range from how professionals of all types bend facts, to schoolteachers cheating to raise students' test scores, to racism and bigotry, to the economics of drug-dealing gangs, and to the causes of declining crime rates in New York City.

This last topic was the most controversial, and got Levitt demonised in a lot of the US press as a racist or as a eugenicist or even as a murder advocate. Levitt argues against the conventional wisdom on why crime rates in New York City (and the US overall) fell sharply during the 1990s.

He takes each common idea (such as better policing, more prisons, collapse of illegal drug prices, aging population, tougher gun control laws, strong economy and so on) and shreds it.

Then he proposes his own startling idea: the legalisation of abortion in the 1970s sharply reduced the number of unwanted babies born to low-income single mothers.

While it is beyond the scope of this review to comment on his methodology, essentially he analyses (!) crime and abortion data, controlling for several variables, to reach this conclusion.

For this writer, however, some of the most interesting parts of the book have to do with the conventional wisdom about a variety of risks (all analysis US-centric, of course).

For example, few gun control zealots know that a swimming pool at home is a hundred times more likely to kill a child than a gun at home. Or that, even during the mad cow scare, ordinary unhygienic conditions in the kitchen were far more likely to cause a death than mad cow disease.

Why does the US government authorise funds so easily for anti-terrorist activities instead of anti-obesity, even though the likelihood of an American dying of heart disease is vastly greater than that of terrorist attack?

The authors quote the "Risk Communications Consultant" Peter Sandman as saying that the risks that scare people and the risks that kill people tend to be very different. You tend psychologically to be less afraid of the risk you (think you) control.

Mad cow disease is scarier because there is nothing you can do to prevent infection in the meat you buy, while you (think you) can reduce the risk of E. Coli infection in your kitchen by cleaning more thoroughly.

This is also why more people are scared of flying than driving: you think you have better control of the car versus being in the hands of a pilot.

The last also points to an aspect of Levitt's work that does not get much press. He uses psychology more than most neo-classical economists, who presume human behaviour to be perfectly rational. This would put him in the league of the new generation of "behavioral economists" who try to adjust neo-classical models to reflect more realistic human behavioural assumptions.

Behavioural economics and behavioural finance are fascinating topics, but not directly addressed in Freakonomics. Perhaps Steven Levitt will address this in his next book.

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FREAKONOMICS: A ROGUE ECONOMIST EXPLORES THE HIDDEN SIDE OF EVERYTHING

Steven D Levitt & Stephen J Dubner
Penguin
Price: Rs 810;
Pages: 242