Summarising Steven Levitt’s “Freakonomics”

Home »  Finance »  Summarising Steven Levitt’s “Freakonomics”
Summarising Steven Levitt’s “Freakonomics”
Deepika Asthana - 06 February 2020

Freakonomics by Steven Levitt and Stephen Dubner is a book that everyone must read. It succinctly contests many perceived truisms that conduct and influence our lives dispels many of life’s myths by employing unconventional, yet simple methods of data collection and analysis. In the book “Freakonomics” Steven Levitt and his co-author, journalist Stephen Dubner make the novel use of economic research tools to study events and problems that we encounter in our everyday lives. The book can help you make better decisions by showing you how your life is dominated by incentives, how to narrow the information asymmetry gap between you and the experts that exploit you and how to really tell the difference between causation and correlation. My top four takeaways from the book.

Incentives are the cornerstone of modern life

Every individual on this earth understands the concept of give and take. Consequently, most of us have a similar response to incentives. These incentives influence our reactions/ behaviour or the outcome of any event. Economics, at its root, is the study of incentives – how people get what they want, or need, especially when other people want or need the same thing. There are basically three kinds of incentives:

  1. Economic – usually involving gain or loss of time and/or money.

  2. Social – when chances are you’ll look good in front of your peers or be isolated from them.

  3. Moral – appealing to your conscience and inner drive to do the right thing.

The more types of incentives are combined, the more powerful the incentive gets.

Experts, more often than not, only serve their own agenda

In every field there is an information asymmetry or knowledge deficiency. This is the basic reason why we go to experts – because of the implicit belief that they know more than what we do and that they give us advice that is purely in our best interest. However, this is not always the case. You want to know why? The answer is incentives.

Do not confuse causation with correlation

Just because two things can sometimes occur simultaneously, you must not always believe that one causes the other. This is where most of us err. The assumption two that the outcome of a certain task is dependent on the occurrence of a certain event is a mistake. While correlations do exist, it is also important to understand that chance plays an important role in our lives. Do not predicate your behavior or your decisions on the occurrence of a certain event.

Imperfect information is the bane of humankind

Imperfect information can be detrimental to the growth of an economy. It gives rise to an economic condition that economists call market failure. Market failure is a condition in which markets do not allocate a society's resources in an efficient manner. Thus, it is incumbent upon the consumers of good and services to glean the correct information and react accordingly.

RBI Keeps Repo Rate Unchanged at 5.15%
Wedding Loans Becoming Popular Among Millennials

Related Articles