by Dean Whittaker

Freakonomics is a well written look at why what we accept as “conventional wisdom” may be wrong because it is based upon factors that may correlate with our expectations rather than real causes. For example, the drop in the crime rate in the 90’s in New York was thought to be caused by better police methods, a new mayor, a new police chief, and stricter sentencing for crimes. While all of these have a correlation to the drop in crime, it is in fact the legalization of abortion in the 1970’s that is causal, since it lowered the number of individuals most likely to become criminals.

Levitt and Dubner have a central tenet about economics. “Economics is, at its root, the study of incentives: how people get what they want and need.” They go on to say that all incentives are economic, social or moral.

Levitt, an economics professor at the University of Chicago , studies crime and has come to the conclusion that just about everyone “cheats” at something if the stakes are right. He uses an example of a bagel distributor who uses an honor system to pay for bagels, which he delivers to office break rooms. Turns out that the workers on the higher floors (executive levels) were less likely to pay for their bagels than those on the lower floors (manager level).

Freakonomics will cause you to re-think some of your commonly held beliefs and will challenge your assumptions about others. The authors remind us that regression analysis (the statistic measure of correlation) is more of an art than a science.