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Freakonomics

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MIGUEL, Karl Ann D.
INTSOCI C33

Freakonomics by Stephen Levitt and Stephen J. Dubner

Introduction: The Hidden Side of Everything

There are several things required to understand the world through economics: first, knowing the incentives of all parties; second, realizing that conventional wisdom is usually wrong; third, understanding that most effects have subtle and distant causes and the most obvious is often the wrong one; fourth, specialists like salesman and lawyers use obscure knowledge to achieve their own ends and the internet helps to erode this advantage by making knowledge more freely available to people; lastly, data is invaluable to understanding the world.

Chapter 1: What Do Schoolteachers and Sumo Wrestlers Have in Common?

People all learn to respond to incentives, whether positive or negative from the outset of life. An incentive is simply a means of urging people to do more of a good thing and less of a bad thing. There are three basic flavors of incentive: economic, social and moral. Economic incentive is something material or tangible; moral is based of self-judgments; social is terribly powerful as it depicts what other people think of you resulting from your own actions or choices. Any incentive is inherently a trade-off; whatever the incentive, whatever the situation, dishonest people will try to gain an advantage by whatever means necessary.

Cheating is a natural act getting more for less. The government required the High-Stakes Testing as part of the No Child Left Behind policy. A teacher whose students test poorly can be censured or passed over for a raise or promotion. To catch a cheater it helps to think like one. The Chicago public school system fired dozens of teachers for cheating. It is true that sports and cheating go hand in hand. Sumo, the national sport of Japan, is said to be less about competition than about honor itself. Sumo wrestlers are ranked according to complex schemes. The eight victory is very critical, the line between promotion and demotion and is four times as valuable in the rankings as the typical victory. The wrestlers made a quid pro quo agreement: you let me win today, when I really need the victory, and I’ll let you win the next time. Two former sumo wrestlers went public to expose the match rigging within their sport, but they died hours apart. Meanwhile, Paul Feldman conducted a bagel study several years ago. He concluded that people cheated more often during bad weather and around stressful holidays.

Chapter 2: How is the Ku Klux Klan Like a Group of Real-Estate Agents?

Contrary to conventional wisdom, lynching of blacks decreased because they became more submissive over time. Ku Klux Klan steeped in all sorts of ridiculous and complicated traditions and secrets and the leadership generated revenues from initiation fees, annual dues, “protection money” etc. They were powerful because they horded information that others could not access, that is exactly the same principle employed by the lawyers and real estate agents. Since information is power, they use information asymmetry, accepting that someone usually an expert knows more than someone else usually a consumer, to try and get higher prices for their services.

Chapter 3: Why Do Drug Dealers Still Live with Their Moms?

Experts’ words are not always correct, but are hard to hard. For example, there is a saying that there were about 3 million homeless Americans, but that sure seemed high. In addition, women’s rights advocates claims that one in three American women will be a victim of rape or attempted rape, though the actual figure is one in eight. The image of a wealth, armed drug dealer is also a myth created by advocates. A scholar, Sudhir Venkatesh, lived among a branch of a gang the “Black Gangster Disciple Nation.” There he found out about the cultural and hierarchal relationship of the crack industry for six years. He got a compilation of documents and budget reports of the gang and this revealed that there was indeed a lot of wealth if and only if you were a leader. Drug dealing is not very profitable for the majority of people especially if you’re part of the foot soldiers or those at the bottom of the pyramid.

The invention of the crack is a huge success. They found that mixing cocaine with baking soda and water produced tiny rocks of smokeable cocaine. Since crack is only a small amount of cocaine made stronger, it is relatively cheaper than cocaine, making it affordable among poor people. This, in turn, is the cause of disintegration of the family, which has been a source of morals and strength of people.

Chapter 4: Where Have All the Criminals Gone?

The crime rate began falling in the early 1990s. Experts are trying to explain the drop in crime. Thus, they formulated the following hypotheses about this: innovative policing strategies, increased reliance on prisons, changes in crack and other drug markets, aging of the population, tougher gun control laws, stronger economy and increased number of the police. The following showed the strongest link to the drop in crime: increased reliance on prison, changes in crack and the legalization of abortion.

The most important issue to understand concerning the rapid decline of crimes is the legalization of abortion. Mothers who are typically poor, uneducated, and are having serious problems are most likely to raise high numbers of criminal children. It is concluded that states with the highest abortion rates experienced the greatest crime drops, while states with low abortion rates experienced smaller crime drops.

Chapter 5: What Make a Perfect Parent?

Fear is a major component of parenting. A typical parenting expert puts forth extreme ideas that are very powerful and suggests danger to kids. Economic tools, regression analysis, for example, are used to figure out the role of various initiatives. Genetics plays an important role while child’s race is not important in determining a child’s future.

The following are the factors that has a strong correlation with test scores of a child: (a) child’s highly educated parents, (b) child’s parents high socioeconomic status, (c) child’s mother at the time of her first child’s birth, (d) child’s low birth weight, (e) child’s spoken language at home, (f) adoption of a child, (g) child’s parents involvement in the PTA, and (f) child’s number of books in his home. The list describes who the parents are: what genes they have, what their basic values are, and where they are in life.

Chapter 6: Perfect Parenting Part II; Or: Would a Roshanda by Any Other Name Smell as Sweet?

Blacks name their children very differently from everyone else, unlike whites, Asians and Hispanics, who name their children identically or little different. Black movement strives for a distinct identity, that’s why they use strange names. Parent’s socioeconomic status and education correlate with the names of their children. Chances are, a person with the white sounding name will enjoy a better life outcome because he is raised in a high standard background. One’s life outcome does not solely depend on one’s name, but actually on his background.

Reaction on Freakonomics

Freakonomics is a book written by Steven D. Leviit and Stephen J. Dubner explains “The Hidden Side of Everything” using economics where laypeople can easily understand. Unlike other books, there are a lot of topics tackled in the book that challenges the conventional wisdom of the readers. Unusual questions are used as chapter titles, where the authors also answer at the end of every chapter.

The first chapter entitled “What do schoolteacher and sumo wrestler have in common?” talks about how incentives work and affect persons’ behavior. Incentives do matter. When I was still in pre-school, my parents used to give me 100 pesos every time I get a hundred percent in my exams per subject. On the other hand, during weekends, I wasn’t allowed to go out of our house and play if and only if I can’t answer my mom’s questions about the topics discussed by my teachers for the week. The same works when I was in high school and in college. My parents would allow me to buy the things I want whenever I belong to the Dean’s List. Incentives do influenced my life in a good way. Incentives given by my parents made me do well in school and bring out the best of me. My parents always tell me that it’s okay if get not-so-high grades as long as they see that I work hard and not fail my subjects. Getting high grades is really a bonus that’s why they’re willing to give incentives. With that example, I could agree that incentives do really affect one’s behavior.

Next, second chapter “How is the Ku Klux Klan like a group of real estate agents?” looks at the power of information in markets. Information is very powerful in every aspect of one’s life. It is evident that one person knows better information about something than another party. This is what is pertained to in the book as “information asymmetry”. Most of the time, people were encouraged to buy something after an expert says that the product is really good and will really worth of our money. Knowing that they are experts, we usually accept what these experts say and believing their words are the only option that we have. We are unjustly enriched when these experts promote false information or hiding the true information about the product they are endorsing. My friends and other family members encountered the same incident regarding false information promoted by an expert, as they say. There is only one thing that I learned from their experiences; that is, to research or know more information about something in order for you to not be abused by others. Most people seek to profit not by normal means, but by exploiting this differential in information.

“Why do drug dealers still live with their moms?” is the third chapter, which talks about the “conventional wisdom” coined by John Kenneth Galbraith. Conventional wisdom is defined as the body of ideas or explanations generally accepted as true by the public or by experts in a field. Though widely held, they remained unexamined. I am one of the people, who think that every person who is engaged in a drug dealing business lives in a prosperous way. I learned that drug dealing is like any other business, where the persons in the highest level make the most money, while the “foot soldiers” or the ones who worked the most and the hardest struggle to make money close to minimum wage. The chapter reflects the income-gap and the immutable law of labor, as quoted from the book: “When there are a lot of people willing and able to do a job, that job generally doesn’t pay well.

The next chapter, “Where have all the criminals gone?” reveals the effect of legalized abortion, its impact on crime. The authors mentioned that there is a trade-off off more abortion with less crime. In my opinion, abortion itself is classified as a crime, a violent one. Killing an innocent child with a future ahead of him/her is really an immoral act. For a Catholic like me, life is really valuable. What if the aborted child will be one of those who will discover a cure for HIV? Or, what if the child will be the next president of the Philippines who will bring change in our country? These thoughts may be some of the things that are running through the minds of those who don’t want to legalize abortion especially here in the Philippines. Contrary to the questions earlier, I really asked myself, is it still immoral if the aborted child will be a criminal if he/she will be alive? Predicting the future of a child is a hard thing to do. In my opinion, why forbid a parent from aborting a child if the parents cannot give the child sufficient care and basic needs? On the other hand, I still believe that allocating the resources properly is the answer to this societal problem that leads not only for lessening crimes but also reducing the number of poor people.

Then, the chapter “What makes a perfect parent?” answers different questions like “Do parents matter?” This chapter is what struck me the most. Of course, parents do matter. I agree on what is said in the book that fear is a major act of parenting. I believe that no parent wants his/her newborn to be hurt. A lot of parents spend a lot of their energy and money just because they are scared. Reflecting about this chapter, I remember my parents when I asked them to allow me participating in a karate competition when I was 9. At first, they don’t, but after some time they allowed me because I indeed do want to join. That was my first time, so my parents, especially my mom, were really scared for me. Luckily, I won, but I got hit in the face giving me black marks on my cheeks and nose. Since then, my mom did allow me to continue my sport, in one condition: she will not watch any of my matches, though she will come after the tournament. In that way, I could understand that she still supports me in whatever I want to do, but the fear that her daughter will get hurt is still evident in that case. In the eyes of the children, parents are maybe overreacting, but we should understand that our parents are just thinking about us, our welfare.

Meanwhile, the last chapter “Perfect parenting part 2: Would a Roshanda by any other name smell as sweet?” discusses a view of parenting using economic aspects. It focuses on the economic implications on the children’s names especially for the white Americans and the African-Americans. I never thought that even the names of children would really reflect the economic gap between the whites and blacks. I believe that choosing the child’s name is one of the first things that parents should really think about, the name that their child would use until they grow old. My parents’ priest friend suggested that my mom and dad should get the names of their children from the names of religious saints that’s why my big brother’s name is Paul Michael, from Saint Paul and Saint Michael. It is good that I know the history of my brother’s name, but for my name? I don’t know where my parents get mine. I am usually mistaken to be a guy because both my first and last names pertain to a guy. My name reflects my personality: I depict a strong aura from the outside, but when I’m alone I also breakdown and wish that all will come back the way it used to be.

Overall, I find the book to be an interesting one. Though I am not a person who reads book a lot, I was able to learn a lot especially that the author used economic examples, which I think made me understand the contents more since I am a business student. The book made me see things differently, and I never thought of asking the similar questions probed in the different chapters of the book. It really is an eye-opener for me on what is really happening in the society.

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Freakonomics Reaction Paper

...Reaction Paper Freakonomics: Documentary Emmanuel S. Garcia Managerial Economics Land Bank of the Philippines Freakonomics was a good way to introduce the basic concepts of economics applied in everyday living and what we can learn from that. It primary aim seems to open the eyes of the general public to the fact that economics should be a conscious part of our way of life. Generally, what it says is that economics is a good tool in understanding and eventually helping us decide important aspects of our day to day living. The innovative ideas presented in the various segments tries to alter a lot of perspectives on how we think. At the end of it all, it leaves one with the thought that "conventional wisdom" is not what we thought it was. For example, it was interesting to note how the principle "Rational people think at the margin" was discussed in the movie as a real estate example. Explained in layman's terms, agents tend to advice homeowners to sell their house even at a lower price if the marginal benefit for the agent is low. The documentary demonstrated the pervasiveness of incentives in society. I agree to Levitt and Dubner’s premise that it is commonly accepted that for most people, given the right price or the right incentive, 1. cheating will always be considered by the most affected people as an option 2. there will always be a desire to maximize the incentive 3. certain behaviors could be changed. The first premise was elaborated further on the......

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