Freakonomics, written by economist Steven D. Levitt and journalist Stephen J. Dubner, takes an unorthodox view at some questions you’ve probably never asked. In so doing, they explore “the hidden side of everything” as the book’s subtitle states.
Although the authors claim at the end of the book that there is no recurring theme to its pages, they do state a straightforward central premise:
If morality represents how people would like the world to work, then economics shows how it actually does work.
If nothing else, you’ll learn from this book how to break away from the standard perceptions and accepted norms that society often pounds into our heads. Through the power of the data, the authors’ analysis illuminates the differences between correlation and causality.
To illustrate what the authors mean, they use this analogy: With correlation, it would be fair to say that it only snows when it is cold. Since it doesn’t always snow when it is cold, there isn’t necessarily a cause and effect (causality) relationship. These two points do, however, have a strong correlation.
When analyzing numbers at your business you may be tempted to erroneously put pairs of results into a cause and effect relationship. For example, your company has a stellar fourth quarter with record profits. During that quarter you got a new CEO, introduced two new product lines, and opened a branch office in Chile. Would it be true to say that your new boss led the rise in profits? Not necessarily.
Unless you dive deeper into the data, you won’t know the exact effects of these events on your company’s bottom line. All three may correlate to increased profits because they happened at the same time; however, that doesn’t guarantee that any one of them caused the increase.
The wide ranging effects of incentives are illustrated in Freakonomics with stories and data from day care facilities, standardized school testing, and sumo wrestler tournaments. Through these you see why people do what they do even if that means cheating. People’s reactions to incentives may not always be what you’d expect them to be.
Experts can wield a great amount of knowledge to their advantage and often to your detriment. The authors compare the Ku Klux Klan to real estate agents. Both have used closely held information to their benefit. By spreading that knowledge to the masses, their power has been reduced. How can you leverage the power of information for your success?
How are these all related?
You’ll ask the question “how are all these stories related?” several times while progressing through this book. Nevertheless, the authors masterfully tie their stories and data together to bring out effective and thought provoking conclusions.
Freakonomics turned out to be an eye opening voyage through the world in which we live. Reading this book will help you take a step back and question society’s accepted conventions. You’ll find yourself asking more questions like: “What do the statistics and numbers I deal with every day really mean?” You’ll take a fresh look at your business or personal life and see how your actions are really affecting the world around you.