American Economist, Author of Freakonomics
American Economist, Author of Freakonomics
I gave up a long time ago pretending that I knew stuff I didn't know. I mean, I just-I just don't know very much about the field of economics. I'm not good at math, I don't know a lot of econometrics, and I also don't know how to do theory. If you ask me about whether the stock market's going to go up or down, if you ask me whether the economy's going to grow or shrink, if you ask me whether deflation's good or bad, if you ask me about taxes-I mean, it would be total fakery if I said I knew anything about any of those things.
It is said that sunlight is the best disinfectant.
Few people think more than two or three times a year, Shaw reportedly said. I have made an international reputation for myself by thinking once or twice a week.
I think the problem with schools is not too many incentives but too few. Because of tenure, teachers' unions, and the fact that teachers generally aren't observed in their classrooms, they can do whatever they want in class.
It is understandable, therefore, that the movement to stop global warming has taken on the feel of a religion. The core belief is that humankind inherited a pristine Eden, has sinned greatly by polluting it, and must now suffer lest we all perish in a fiery apocalypse.
Colleges and universities, meanwhile, have no such qualms about torturing their applicants. Think about how much work a high-school student must do to even be considered for a spot at a decent college. The difference in college and job applications is especially striking when you consider that a job applicant will be getting paid upon acceptance while a college applicant will be paying for the privilege to attend.
Come up with a terrible idea? No problem?just don?t act on it.
Congress passed legislation requiring a five-year mandatory sentence for selling just five grams of crack; you would have to sell 500 grams of powder cocaine to get an equivalent sentence. This disparity has often been called racist, since it disproportionately imprisons blacks.
Consider the Iraq War. It was executed primarily on U.S. claims that Saddam Hussein had weapons of mass destruction and was in league with al Qaeda. To be sure, there was more to it than that?politics, oil, and perhaps revenge?but it was the al Qaeda and weapons claims that sealed the deal. Eight years, $800 billion, and nearly 4,500 American deaths later?along with at least 100,000 Iraqi fatalities?it was tempting to consider what might have happened had the purveyors of those claims admitted that they did not in fact know them to be true.
Consider the kind of questions that kids ask. Sure, they may be silly or simplistic or out of bounds. But kids are also relentlessly curious and relatively unbiased. Because they know so little, they don?t carry around the preconceptions that often stop people from seeing things as they are. When it comes to solving problems, this is a big advantage.
Daniel Kahneman has written: [W]e can be blind to the obvious, and we are also blind to our blindness.
Data, I think, is one of the most powerful mechanisms for telling stories. I take a huge pile of data and I try to get it to tell stories.
David Lester, a psychology professor at Richard Stockton College in New Jersey, has likely thought about suicide longer, harder, and from more angles than any other human. In more than twenty-five-hundred academic publications, he has explored the relationship between suicide and, among other things, alcohol, anger, antidepressants, astrological signs, biochemistry, blood type, body type, depression, drug abuse, gun control, happiness, holidays, Internet use, IQ, mental illness, migraines, the moon, music, national-anthem lyrics, personality type, sexuality, smoking, spirituality, TV watching, and wide-open spaces. Has all this study led Lester to some grand unified theory of suicide? Hardly. So far he has one compelling notion. It?s what might be called the no one left to blame theory of suicide. While one might expect that suicide is highest among people whose lives are the hardest, research by Lester and others suggests the opposite: suicide is more common among people with a higher quality of life. If you?re unhappy and you have something to blame your unhappiness on?if it?s the government, or the economy, or something?then that kind of immunizes you against committing suicide, he says. It?s when you have no external cause to blame for your unhappiness that suicide becomes more likely. I?ve used this idea to explain why African-Americans have lower suicide rates, why blind people whose sight is restored often become suicidal, and why adolescent suicide rates often rise as their quality of life gets better.
But as incentives go, commissions are tricky. First of all, a 6 percent real-estate commission is typically split between the seller?s agent and the buyer?s. Each agent then kicks back roughly half of her take to the agency. Which means that only 1.5 percent of the purchase price goes directly into your agent?s pocket. So on the sale of your $300,000 house, her personal take of the $18,000 commission is $4,500. Still not bad, you say. But what if the house was actually worth more than $300,000? What if, with a little more effort and patience and a few more newspaper ads, she could have sold it for $310,000? After the commission, that puts an additional $9,400 in your pocket. But the agent?s additional share?her personal 1.5 percent of the extra $10,000?is a mere $150. If you earn $9,400 while she earns only $150, maybe your incentives aren?t aligned after all.
But if there is one thing we?ve learned from a lifetime of designing and analyzing incentives, the best way to get what you want is to treat other people with decency. Decency can push almost any interaction into the cooperative frame. It is most powerful when least expected, like when things have gone wrong. Some of the most loyal customers any company has are the ones who had a big problem but got treated incredibly well as it was being resolved. So while designing the right incentive scheme certainly isn?t easy, here?s a simple set of rules that usually point us in the right direction: 1. Figure out what people really care about, not what they say they care about. 2. Incentivize them on the dimensions that are valuable to them but cheap for you to provide. 3. Pay attention to how people respond; if their response surprises or frustrates you, learn from it and try something different. 4. Whenever possible, create incentives that switch the frame from adversarial to cooperative. 5. Never, ever think that people will do something just because it is the right thing to do. 6. Know that some people will do everything they can to game the system, finding ways to win that you never could have imagined. If only to keep yourself sane, try to applaud their ingenuity rather than curse their greed.
But if you are hell-bent on persuading someone, or if your back is truly against the wall, you might as well give it your best shot.
But in both instances, the dissemination of the information diluted its power. As Supreme Court Justice Louis D. Brandeis once wrote, Sunlight is said to be the best of disinfectants.
But one need not oppose abortion on moral or religious grounds to feel shaken by the notion of a private sadness being converted into a public good.
Cheating is a primitive economic act. Get more for less.
Children read books, not reviews, he wrote. They don?t give a hoot about the critics. And: When a book is boring, they yawn openly, without any shame or fear of authority. Best of all?and to the relief of authors everywhere?children don?t expect their beloved writer to redeem humanity.
As I see it, most major philanthropists have been bullied into giving. They feel social pressure to give. It has become a cost of doing business.
As scientists like to say: The plural of anecdote is not data.
As the behavioral sage Daniel Kahneman has written: [W]e can be blind to the obvious, and we are also blind to our blindness.
As W.C. Fields once said: a thing worth having is a thing worth cheating for.
As we suggested near the beginning of this book, if morality represents an ideal world, then economics represents the actual world.