Freakonomics

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Themes and Colors
Incentives Theme Icon
Irrational Behavior, Experts, and “Conventional Wisdom” Theme Icon
Morality and Prescriptive vs. Descriptive Thinking Theme Icon
Nature vs. Nurture Theme Icon
Crime Theme Icon
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Incentives Theme Icon

At the core of Freakonomics is the concept of incentives. The concept of incentives is a way of explaining why human beings do things. In general, humans behave a certain way because they either perceive that behavior as offering a reward of some kind—a positive incentive, or “carrot”—or they avoid certain behaviors because those behaviors seem to lead to a punishment—a negative incentive, or “stick.” Intuitively, we all understand how incentives work: people work harder at their jobs if they’re offered the incentive of a higher salary; people may avoid eating certain foods if the foods offer a strong negative incentive of unhealthiness. Even so, Levitt and Dubner’s model of incentives can often be somewhat counterintuitive, and paints a uniquely balanced picture of human behavior.

Levitt and Dubner list three general categories for incentives (each of which could be positive or negative, in the manner described above). First, and perhaps most obviously, there are economic incentives; material incentives, often in the form of money or property. For example, if the government passes a law fining people for walking on the grass, then the negative economic incentive of the fine will deter people from walking on the grass. There are also social incentives; incentives based on human beings’ desire to be accepted and liked by other people. People are more likely to cheat on exams and shoplift when they’re alone, because if they were with their friends, they’d face the negative social incentive of being judged and scolded. Finally, there are moral incentives, based on people’s desire to “do the right thing.” In part, the reason that more people don’t kill and steal is the positive moral incentive of being “good” and feeling good about one’s behavior. This model of morality can be challenging, though, because in many religions and moral traditions, good behavior and self-interest are mutually exclusive. Economists, on the other hand, argue that people behave morally because they’re getting some “thing” in return for their behavior: the satisfaction of having done right. Freakonomics shows how the three incentives can be used to explain almost any kind of human behavior. If there is any measurable change in human behavior—a crime wave, a decrease in abortions, a spike in movie ticket sales, etc.—this change must be the result of a change in one of the three incentives.

Freakonomics does not address the question of which one of the three incentives plays the biggest role in influencing behavior, suggesting that Levitt and Dubner take a balanced view of human nature. In many of the book’s case studies, economic incentives seem to play the most important role: humans will choose whatever option yields the greatest material benefits. However, there are also many cases in which humans will ignore economic motives in order to impress other people or follow their own consciences. So in different cases, humans will behave selfishly, morally, or socially, or some combination of these. Ultimately, Freakonomics (and economics) defines human beings according to the things they desire and fear—material, social, and moral rewards and punishments. Human nature, one could argue, is a combination of these three competing desires, no single one of which is the most powerful in every case.

There are some obvious problems with the incentive model of human behavior, many of which are discussed in the following four themes. Incentives can be a reductive, overly simplistic way of talking about human nature, and many thinkers would argue that the three categories of incentives Levitt and Dubner propose overlap to a significant degree. Furthermore, while incentives can explain how a large group of people will behave, they can’t always describe what individual human beings will do (as the authors acknowledge in the Epilogue). Incentives can be very useful for studying and interpreting human behavior, but it’s important to recognize their limitations—and thus the limitations of economics itself.

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Incentives ThemeTracker

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Incentives Quotes in Freakonomics

Below you will find the important quotes in Freakonomics related to the theme of Incentives.
Introduction Quotes

And the millions of women most likely to have an abortion in the wake of Roe v. Wade—poor, unmarried, and teenage mothers for whom illegal abortions had been too expensive or too hard to get—were often models of adversity. They were the very women whose children, if born, would have been much more likely than average to become criminals. But because of Roe v. Wade, these children weren't being born. This powerful cause would have a drastic, distant effect: years later, just as these unborn children would have entered their criminal primes, the rate of crime began to plummet.

Page Number: 4
Explanation and Analysis:

In the introduction to the book, Levitt and Dubner discuss the declining crime rate in the United States during the 1990s. Although hundreds of explanations have been proposed for why crime went down so greatly in those years, few people have considered the possibility that Levitt and Dubner discuss here: the crime rate went down because of the Supreme Court ruling in Roe v. Wade, the 1973 decision that legalized abortions in America. Because abortions were now legal, millions of working-class mothers who would have otherwise been forced to raise unwanted children aborted their unborn children. Furthermore, studies show that children with negligent parents are significantly more likely to commit crimes as adults. Therefore, it follows that Roe v. Wade decreased the number of children that fit such a description, decreasing the crime rate in the process.

The authors’ conclusions might seem surprising, callous, or even barbaric. But Levitt and Dubner are simply doing their jobs as economists—analyzing the data (crime statistics, as they correlate with abortions) and suggesting conclusions based on the data. Levitt and Dubner aren’t saying that abortions should be used to fight crime; rather they’re just interpreting the data as it stands. The distinction between interpreting data and advocating a specific plan of action is very important to understanding Freakonomics, and defends the authors from unfair accusations of immorality and callousness.

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Chapter 1 Quotes

We all learn to respond to incentives, negative and positive, from the outset of life. If you toddle over to the hot stove and touch it, you burn a finger. But if you bring home straight As from school, you get a new bike. If you are spotted picking your nose in class, you get ridiculed. But if you make the basketball team, you move up the social ladder. If you break curfew, you get grounded. But if you ace your SATs, you get to go to a good college. If you flunk out of law school, you have to go to work at your fathers insurance company.

Page Number: 16
Explanation and Analysis:

This passage establishes the theory of incentives—a concept at the core of Freakonomics. The “incentives model” of human behavior suggests that humans do things for only two basic reasons: to achieve a positive incentive or avoid a negative incentive. As the examples in this passage suggest, incentives can be used to explain a startling range of human behaviors.

The concept of incentives can be used to explain many different forms of behavior, but it’s not a perfect theory. Critics of incentives argue that incentives paint an amoral, overly logical picture of human nature. Critics also argue that the theory of incentives doesn’t address some important points—for example, how conscious human beings are of their responses to incentives (as the examples above would suggest, humans can respond to incentives in a rational, logical manner, or an instinctive manner—in effect, humans can choose to respond to some incentives, but not others). Incentives are most effective when they’re used to study large groups of people, not individuals. A single human being may or may not respond to strong economic incentives, but on average, a large group of people will.

Is it possible, then, that an 8-6 wrestler might allow a 7-7 wrestler to beat him? A sumo bout is a concentrated flurry of force and speed and leverage, often lasting only a few seconds. It wouldn’t be very hard to let yourself be tossed.

Page Number: 39
Explanation and Analysis:

In this part of Chapter 1, the authors apply the theory of incentives to an unlikely walk of life: sumo wrestling. Levitt and Dubner try to test a hypothesis—that sumo wrestlers will respond to strong economic incentives, even if doing so requires them to occasionally throw a match. In order to test their hypothesis, the authors study matches between two different kinds of wrestlers: wrestlers who have a 7-7 record going into the 15th and final round of a tournament, and wrestlers who have an 8-6 record (and have little economic incentive to win the match, since they already have a positive record, and will move on to the next round).

The passage is a good example of how economists can use the theory of incentives, coupled with rigorous scientific methods, to study human behavior. As the passage suggests, it is almost impossible to prove to a certainty that specific sumo matches are rigged (since it’s so easy to cheat convincingly). Therefore, the only way to study cheating is to look at the large group of sumo wrestlers and study their overall behavior. In effect, the authors are conducting an experiment, analyzing the overall behavior of a large group of sumo wrestlers, and controlling for factors like talent, motivation, and economic incentive. Ultimately, the authors conclude that it’s very likely that a significant number of sumo wrestlers accept bribes to throw rounds.

The theme of Smith’s first book, The Theory of Moral Sentiments, was the innate honesty of mankind. "How selfish soever man may be supposed," Smith wrote, "there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it."

Related Characters: Adam Smith (speaker)
Page Number: 49
Explanation and Analysis:

The theory of incentives can paint a pessimistic, amoral view of human nature. At times, the authors have shown, human beings will sacrifice their moral or religious beliefs for the sake of material rewards like money. However, the authors conclude their chapter with a more optimistic account of human behavior. Even if humans will sometimes sacrifice morality for money or prestige, they also tend to have an innate desire to do the right thing. The passage quotes the famous economist Adam Smith, the author of The Wealth of Nations, often touted as the founding text of modern capitalism. Smith maintained that humans instinctively want to do good.

It’s important to note that Smith wasn’t saying that humans would do something for nothing. On the contrary, Smith argues that good behavior is, in a sense, selfish—humans do the right thing because they want to experience the pleasure of morality; in terms of incentive theory, good behavior means responding to a moral incentive. Even when humans perform a good deed, there is an economic “transaction”—the exchange of the good deed for a good conscience. There’s a famous saying, “There ain’t no such thing as a free lunch.” As far as economists go, this saying sums up the theory of economic, social, and even moral incentives.

Chapter 2 Quotes

Roughly half of the white women on the site and 80 percent of the white men declared that race didn't matter to them. But the response data tell a different story. The white men who said that race didn't matter sent 90 percent of their e-mail queries to white women. The white women who said race didn’t matter sent about 97 percent of their e-mail queries to white men.

Page Number: 81
Explanation and Analysis:

In this passage, the authors discuss the relationship of racism and bigotry to online dating. There’s a tremendous amount of data about people’s preferences in online dating (since there are millions of online daters). In practice, a majority of white online daters will date other white people. But interestingly, most of these daters claim that race isn’t a factor in their dating preferences—despite the overwhelming evidence to the contrary.

The conclusions of the authors’ dating studies are a little depressing, but perhaps unsurprising. For the most part, online daters are intelligent enough to realize that specifying their attraction to certain races would invite criticisms of bigotry. So instead, many online daters claim that they’re open to all races, and then just date within their racial group.

Chapter 3 Quotes

So how did the gang work? An awful lot like most American businesses, actually, though perhaps none more so than McDonald's. In fact, if you were to hold a McDonald's organizational chart and a Black Disciples org chart side by side, you could hardly tell the difference.

Page Number: 96
Explanation and Analysis:

In this chapter, the authors study the structure of crack gangs in Chicago’s South Side. In doing so, they conclude that the structure of crack gangs has a lot in common with other, more legitimate businesses. For instance, a crack gang is a lot like a McDonald’s franchise. Just as local businessmen must pay the McDonald’s corporation for the right to operate under the McDonald’s name, a crack gang in Chicago must pay the most powerful gang in the city, the Black Disciples, a “cut” of the drug profits in return for the Black Disciples’ protection and approval. Similarly, the profits for selling crack—just like the profits for selling hamburgers—flow from low-level workers up to the “top of the pyramid.” Thus, the leader of a small local crack gang makes a six-figure salary, while the lowest-level drug sellers make less than minimum wage.

The authors aren’t saying that it’s morally acceptable to sell crack, or morally unacceptable to work at McDonald’s. Rather, the authors are simply making a descriptive point about the way drug gangs operate—at a structural level, they’re like any other business. Such a descriptive point has some political ramifications, however. Levitt and Dubner’s research challenges the stereotype that drug dealers are innately evil people by showing that drug dealers use the same basic methods to sell drugs that ordinary businessmen use to sell other products. Whether selling crack is moral or not, drug dealers are trying to make enough money to succeed in life—an economic incentive that any working adult should be able to understand.

So if crack dealing is the most dangerous job in America, and if the salary was only $3.30 an hour, why on earth would anyone take such a job?
Well, for the same reason that a pretty Wisconsin farm girl moves to Hollywood. For the same reason that a high-school quarterback wakes up at 5 a.m. to lift weights. They all want to succeed in an extremely competitive field in which, if you reach the top, you are paid a fortune (to say nothing of the attendant glory and power).

Page Number: 102
Explanation and Analysis:

In this passage, the authors try to explain a seemingly inexplicable phenomenon: why do so many people want to sell crack on the streets of Chicago, considering that they have a 1 in 4 chance of being murdered for doing so? Such behavior seems to contradict every instinct of self-preservation in the human body. And yet, as the authors show, human beings are capable of irrational behaviors of all kinds, so long as they’re convinced of the potential rewards for their behavior. The drug dealers who work on the streets for minimum wage sell crack so that they can potentially “climb the ladder” and become powerful drug lords later in life.

Like many of the other points the authors make in this chapter, the explanation for why drug dealers risk their lives for the sake of money is both a descriptive, amoral point, and an argument with potentially major political ramifications. For decades, the War on Drugs has demonized drug dealers, accusing them of destroying neighborhoods and families, perpetuating the achievement gap, etc. Levitt and Dubner don’t deny these points at all, but they do insist that drug dealers are “still people,” subject to the same motives and incentives as any other human beings.

DuPont had pulled off the feat that every marketer dreams of: it brought class to the masses. In this regard, the invention of nylon stockings was markedly similar to the invention of crack cocaine.

Page Number: 107
Explanation and Analysis:

The passage makes a potentially surprising comparison between the sale of nylon stockings and the sale of crack cocaine. Nylon stockings were popular in the early 20th century because they replicated the look of high-class, expensive silk stockings, but for a small fraction of the price. Similarly, crack cocaine became popular in America because it mimicked the effects of cocaine, a drug that was widely seen as a symbol of power, glamor, and wealth.

The passage makes an important point about why people buy things: often, people make purchases to boost their social prestige. Even if two products have the same price and are equally satisfying in a material sense, people will often prefer the product that is perceived as being “classier” and more socially prestigious. In such a way, the consumption of crack cocaine is a powerful reminder of the power of social incentives: people desire the approval of other people, and therefore, they desire products that other people desire.

Chapter 4 Quotes

So even for someone who considers a fetus to be worth only one one-hundredth of a human being, the trade-off between higher abortion and lower crime is, by an economist's reckoning, terribly inefficient.

Page Number: 145
Explanation and Analysis:

At the end of the chapter, the authors double down on their controversial position on abortion, and make an even more controversial argument for measuring the “effectiveness” of the abortion rate’s influence on crime. The premise of their argument is that a fetus is worth one one-hundredth of an infant baby’s life. Therefore, it follows that economists can measure the “net” effectiveness of the abortion rate on crime, factoring in the premise that abortion is a form of murder (or rather, one hundred abortions are equivalent to the murder of one child). Overall, then, the abortion rate has been a highly “inefficient” way of fighting crime.

The authors’ argument could be interpreted as provocative, since it puts human life in overly mathematical, material terms, and judges these lives with bloodless words like “efficient” and “inefficient.” It’s likely that Levitt and Dubner know they’re being provocative by making observations about abortion—perhaps they are trying to rouse readers away from the conventional wisdom and toward a more objective, rational way of talking about the real world, or at least trying to keep them reading the book.

Chapter 6 Quotes

There is a clear pattern at play: once a name catches on among high-income, highly educated parents, it starts working its way down the socioeconomic ladder. Amber and Heather started out as high-end names, as did Stephanie and Brittany.

Page Number: 204
Explanation and Analysis:

At the end of the chapter, the authors identify a strange trend in naming: names that are initially popular among affluent families tend to “trickle down” to the middle and lower classes over a certain span of years. Thus, a name like “Heather” was popular in the 1970s and 80s among affluent families, but is now most common among working class families.

The passage emphasizes an important point about human behavior: humans seek the approval of their peers, and often act out of a desire for social prestige. Thus, people give their children affluent-sounding names in order to receive the social incentives of being perceived as a “fancy” family, or in the hopes that their children will grow up to achieve a higher level of wealth and status. However, the process of giving a child an affluent-sounding name is still subject to the laws of the market: the more people give their children such a name, the less social prestige it carries, until eventually, the name becomes associated with middle or working class families.

Epilogue Quotes

The second child, now twenty-eight years old, is Roland G. Fryer Jr., the Harvard economist studying black underachievement.
The white child also made it to Harvard. But soon after, things went badly for him. His name is Ted Kaczynski.

Related Characters: Roland Fryer , Ted Kaczynski
Related Symbols: The white child and the black child
Page Number: 211
Explanation and Analysis:

The book concludes with a description of the two “hypothetical” children discussed in the earlier chapters. As it turns out, these children weren’t hypothetical at all: the black child was Roland Fryer, while the white child was Ted Kaczynski, the Unabomber, one of the deadliest terrorists in American history.

On paper, Kaczynski had every conceivable advantage in life: whiteness, maleness, a brilliant mind, loving parents, an affluent background, etc. By contrast, Fryer had tremendous disadvantages: an abusive father, a poor neighborhood, racial oppression, etc. But where Kaczynski squandered his advantages and ended up becoming a dangerous murderer, Fryer overcame obstacles and became a great success at Harvard University. In all, the examples of Kazcynski and Fryer illustrate some of the limitations of economics. Economics is good at describing how, on average, a large group of people will behave. But when dealing with a small “sample size”—in this case, only two people—economics can’t predict what people will do. Kaczynski cannot be “explained” in terms of his background, his IQ, or other metrics. There is a limit, in short, to how much economics as a whole can tell us about people, and on the individual level there is always a level of randomness and other unknown factors that cannot be measured.