Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (Review and Reflections) OR HOW TO THINK OUT OF THE BOX?

What caused the death of Nicolae Ceaușescu. Poverty? Dictatorship? Ignorance towards his people?  What do you think? A little hint: In 1966, one year after Ceaușescu had become the Communist dictator of Romania, he made abortion illegal in order to increase the population.

By Olena Denysyuk

The reform had an effect: within one year of abortion ban, the Romanian birth rate had doubled. The lives of these babies were miserable, being born by poor and young mothers, who would otherwise have chosen abortion. These babies were more likely to become criminals. On Christmas Day of 1989, Ceaușescu learned from his mistakes the hard way. With a bullet to the head. From the people of his nation, tired of living in poverty. People, who probably wouldn’t be born if not for the abortion ban- the ban that gave him a bullet to the head- NOT the poverty, NOT the ignorance. The brutal mistake of 1966, which he was not prepared for.

This is one of Freakonomics’ examples of novel thinking- by looking deeper, finding the root of the cause, rather than focusing on generally accepted truth. This is a case of how to think out of the box.

So what is Feakonomics about?

 Freakonomics is NOT a book about economics, neither is it so freaky at all. This is a book about fundamental understanding and confusion about correlation and causality, i.e. FALLACIES in economics.

The book is written by economist Steven D. Levitt, University of Chicago and New York Times journalist Stephen J. Dubner. Levitt has a reputation for applying economic theory to diverse subjects, and is known for his work in the field of crime. In Freakonomics, Levitt and Dubner argue that economics is, at root, the study of incentives, where the answers to interesting questions are hidden. 

I think, the story is good reading for everybody, and especially, I think, for economists, forecasters and analysts. Economics is pretty much about correlations, derived by statistical/econometric measures to indicate whether two variables move together. It is easy to derive a correlation with 2-3 obvious dependent and independent factors. But in the real world, there are millions of dependent and independent factors. So, here the authors demonstrate how these factors can be “hidden”, overlooked and misrepresented by the media.

The book has shown how the correlations can, for example, be explained by the socio- and demographic problems (legalization of abortion in 60’s resulted in significant drop in crimes in 90’s in US). So I believe this an excellent demonstration how longer- term horizons (historical factors) can be included into the assessment of our reality, rather than thinking about the short-term. It also helps/motivates to realize how thinking critically at today’s demographics might help the forecasters to look way ahead to the future.

There is not an underlying theme as such; it is rather fragments of interesting cases. For example, they dig deep into the cases of sudden and violent increase in the number of crack dealers in late 80’s and the subsequent “mysterious” drop during the 90’s in USA, or PROPOSE  a provocative recommendation on HOW TO BECOME a BETTER parent. 

I like the book because it demonstrates how easily we can be misguided by conventional wisdom, misrepresentation of statistical facts or even by the UNDERESTIMATION OF the role of historical facts. “We have evolved with a tendency to link causality to things we can touch of feel, not to some distant or difficult phenomenon”- and such open-and-shut thinking is often a trap.” And the book is an excellent demonstration on how easy it is to use our critical and creative thinking when just thinking sensibly about people’s behavior, incentives and demographics.

At the same time, I believe this “case revelation” has its own weaknesses. Firstly, the authors dig into the hidden side of everything- and manage to find it. However, throwing away the “general” thinking, or the obvious – so to say- they push too much into the “novel way of thinking”.

 Therefore, sometimes I felt that the authors’ DESIRE TO MAKE A STRONG CASE MAY CREATE arguments against the authors’ own logic. For example, the authors sustain a hypothesis throughout the chapters, without even arguing for its premises, while telling us that we should not take the “stories” for granted. 

Secondly, some of their findings/arguments/hypotheses were pretty obvious to me, while the authors were heralding the same, as it was the discovery of the century. For example, one of the sub- messages is that we have to think backward.  

For example, if we wonder why there was a fall, in crimes, we, according to authors: “instead of wondering what made crime fall, think about this: why had it risen so dramatically in the first place?” I believe many people are good at discovering the truth of things, so the authors didn’t need to use a whole chapter on persuading us, like we are five in what is so common.

Some of the correlations were even ridiculous to me: "the typical prostitute earns more than the typical architect, because little girls don't grow up dreaming of becoming prostitutes, so the supply of potential prostitutes is relatively small”.  Where does the idea that prostitutes earn more than the architects come from at first place? How can the authors be sure that the prostitutes earn more? What are the premises for this statement? And who even think so?

The authors argue that “novel way of thinking and measuring the cause and effect isn’t necessarily a difficult task, nor does it require supersophisticating thinking”. I also agree that economics cannot be explained by the conventional macroeconomic analysis, and that the human behavior factor has a deeper effect on any economic development. Therefore, I agree that economists have to look after the hidden side of everything - a main message of the book. However, the challenge is how do we know what to look after, and what questions to ask. Here the books help us to open our eyes on it.

Why novel thinking?

In general, I think, the fundamental confusion about correlation and causality among these factors can cause severe mistakes in any decision making, economic analysis and forecasting- therefore everybody has to ask a lot of questions, even if they lead to nothing. Because at some point, they will lead to something surprising and innovative.

But as said – there are negative side to this novel way of thinking- not only in a book, but also in our real life: you might end up by not being understood by others, or stay with your novel way of thinking totally alone.

Admit it, at least once in your life you did judge or did reject claims when you had been given no good ground- according to your own perception; or you yourself were dumped because of you poor/ bad attempts to persuade. 

The authors promote this novel way of thinking, and ask the question “Will the ability to think such thoughts improve your life materiality”? The answer by the authors is “Probably not”. So why should you care about reading it or adopt a novel way of thinking?

Economy forecasters have a huge responsibility when “guiding” economic development, therefore, critical and sometimes freaking thinking is a must. This is all what is this book about.

But the bottom line is: if you ask enough questions, freakish as they seem at the time, you will eventually learn to think out of the box, or you can overturn conventional wisdom if you are lucky/clever enough to find a question that will yield interesting answers.

Like the authors, you would mostly of the time support your freaking thinking with crazy and pathetic arguments- and this is a beauty of the book-  you will not allow yourself to get blinded  by the conventional wisdom. So think broader, critically, creatively, even if sometimes it doesn’t lead you anywhere at first place, but on the long run, it’s an excellent skill to succeed.

FAKTA

Freakonomics and SuperFreakonomics also became a worldwide best-seller. A lot of other stuff happened, too. A blog. A documentary film. Jon Stewart and Beauty and the Geek! Lectures. A pair of pants. A radio show. Check out here, where you can also find some very interesting Podcasts.