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Freakonomics Summary – August 2022

Author: Steven D. Levitt, Stephen J. Dubner

Short Summary
Freakonomics (2005) serves as a bridge between economic analysis and everyday situations. In this Freakonomics summary, you will learn how most of our daily actions are governed by certain incentives.
freakonomics summary
Source: amazon.com

Detailed Summary

Freakonomics explores the hidden aspect of things that are a part of our lives. If you feel like you have lesser knowledge you turn to the people around you, people who are experts. These experts in return use their knowledge to socially, economically, or morally exploit their clients. They can sense the fear and anxiety a customer has and can use it to their advantage. The internet has reduced this exploitation to some extent. Customers can now look for the factors to consider before making a huge transaction or forming a big decision.

Still, experts such as salespeople, real estate agents, and even governments incentivize people for the worst. Leaving out information, and making a customer cancel a good purchase is just as bad as making someone buy an inefficient product. In Freakonomics summary, you will learn the ways you get incentivized every day. You will also get to know about information asymmetry and how you can reduce it. Let us dive in and learn how incentives and the economy at large govern the real-life world.

Freakonomics Summary Key Points

Why You Act the Way That You Do: Incentives or Bribery?

If you have taken out the time to observe human behavior you would know have found out that there is almost always a reason behind the things we are doing. The author calls these reasons incentives. Incentives can be good or bad. They can also be directed by the people around us. If someone wants you to behave in a certain way, they will give you an incentive so that you change your behavior.

The authors of Freakonomics categorize incentives as economic, social, and moral. Now if you want someone to act the way you want you should try to find something that covers all of these types. For example, imagine that a teacher has to make sure that his students get an A grade. For this, he can try to drive an incentive that covers all these categories. He can tell them that if they fail, they will have to pay double to repeat the course, they will be embarrassed in front of their friends and their halfhearted efforts will make them feel ashamed and guilty. In this way, you can mix your incentives in your daily life and make others do something you desire.

One Shoe Does Not Fit All

In your daily routine, you might have seen people giving incentives every now and then. Incentives as we have established can be good or bad. For example, you would not steal from your neighbors. Why? Because it has social and moral implications. If you get caught, the whole neighborhood will hate you and you will also feel bad thinking about the time he has been good to you.

But if incentives were global and they would fit everyone and every situation, why would some people still steal or rob? The answer is in the heading of this Freakonomics summary key point; one shoe does not fit all. If an incentive works for you, it might not work for anyone else. If some incentive is working in one part of the world; it can be totally useless in the other part. In short, incentives depend on context, geography, people, and circumstances.

Information Asymmetry is the Reason Experts Cheat on You

Most of us consider ourselves naïve or less knowledgeable when it comes to taking bigger decisions and making huge purchases. So, instead of learning about a new market or teaching ourselves; we take the help of experts. Experts such as real estate agents, therapists, financial counselors, and salespeople. Experts have worked in their respective fields and have developed information symmetry. You on the other hand do not have enough information as a layman and this creates an information asymmetry between you and your agent, they know their way around things and their fields. For example, if I am going to buy a newly launched robotic vacuum cleaner, I will trust the salesperson and the store manager more than my previous knowledge of vacuums. I trust them to provide me with an efficient product because of their expertise. In this situation, information and expertise are like the currency at hand.

Steven D. Levitt and Stephen J. Dubner consider this expertise and the information asymmetry as a means of exploitation. In Freakonomics, they mention a survey that shows that the incentive that a customer has in mind is different from the one in the mind of a real estate agent. Many real estate agents are more likely to keep their houses longer on the market but when a customer wants to sell, they advise taking quick action.

Freakonomics Quotes

“Morality, it could be argued, represents the way that people would like the world to work, whereas economics represents how it actually does work.” ― Steven D. Levitt

“An incentive is a bullet, a key: an often tiny object with astonishing power to change a situation” ― Steven D. Levitt

Freakonomics Summary Review

Freakonomics will open your eyes to the ways you have been incentivized for the good and exploited for the bad. If you are someone who wonders a lot about how people act the way they do and how the economy works at a global level you will enjoy this book. Freakonomics summary takes a look at the sociological aspect of the economy.

To Whom I Would Recommend Freakonomics Summary

  • To students of economics who can learn about the economy from a more sociological perspective.
  • To the couple who solely relies on experts in different fields for their every decision.
  • And to anyone who knows why they have failed at online dating.
Freakonomics Summary - August 2022

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