HW # 9 - Freakonomics Response

1. The Freakonomic "tools" that the economist and the journalist use to help explain the world include (a) identifying questions about accepted theories, (b) looking for incentives, and (c) finding out what to measure and how to measure it through the right data collection.

An example of the use of tool (a) is when they asked themselves why crime in the U.S. went down so dramatically in the 1990s and did not accept the conventional thinking that it was due to more police and better police strategies. They kept asking the question because they knew that crime went down everywhere in the U.S. not just in the cities with more police and better policing. What they found was that poor women were having far fewer babies beginning in 1973 when abortion was legalized. Crime had gone down in the 1990s because criminals had not been born thanks to legalized abortion.

An example of the use of tool (b) is when they were asking whether real estate people could be trusted to give you the best deal selling your house. They asked themselves what the incentive is for real estate agents to get a certain price for selling someone else's house versus selling their own house. It turns out that because they are only getting a small percentage fee if they made the effort to get a higher price than the one offered, it might not be worth the effort to look for another buyer. If it was their own house they were selling it, would be worth it to get the extra $10,000 or whatever the higher amount would be.

An example of the use of tool (c) is when the authors discovered patterns that suggested cheating in sumo wrestling and found data to prove their theory. In sumo wrestling there are 6 tournaments each year that determine whether a wrestler can significantly advance or decrease his ranking. These tournaments last 15 days during which each wrestler has one match for 15 consecutive days. If a wrestler records at least 8 victories, his ranking will increase, and if a wrestler records 7 or fewer victories, his ranking will decrease. They found out from their data that when a wrestler is on the cusp of entering that elite group (7 wins) of wrestlers and is wrestling someone who is already a member of that group with 8 wins, the wrestler who badly needs the win wins 80% of the time. What makes this fact even more interesting is that when the two wrestlers meet again in a future bout the wrestler who "throws" the match the first time around wins 60% of the time. That is a 40% drop off between the initial meeting and the second meeting causing the authors to believe that there was definite cheating going on in this the most sacred sport in all of Japan.

2. The Frekonomics authors think that the fact that two things are correlated does not indicate that one thing is the cause of the other. Two things that are correlated have some kind of relationship, but we don't know whether the first thing causes the second thing or the seconf thing causes the first thing or if there is something else that causes both things. For example, with the question of why crime went down so much in the 1990s the number of police and the reduction in crime were correlations and it was commonly thought that the increased number of police was the cause of the reduced crime level. The authors are able to prove that the actual causation was the reduced number of criminals due to legalized abortion - specifically of unwanted babies of poor women.

I agree that Freakonomics is a great example of the "hidden-in-plain-sight" weirdness of a lot of our social practices. For example, everyone believes that teachers are upright citizens. The Freakonomics authors showed that the high stakes testing in Chicago could cause schools with low scores to be shut down gave teachers a big incentive to cheat on their student scores. In the same way, we like to think today that organic food is always far superior to non-organic food, but Michael Pollan in The Omnivore's Dilemma shows that this is not always the case. Now that there are two huge organic food companies that provide organic food nationally they use up a tremendous amount of fossil fuels transporting all the foods even if they don't use fertilizer and pesticides made from petroleum. Also, because they are producing organic food in huge quantities, their "free-range" chickens have a very tiny space to "range" in.