Why Levitt Is Wrong (About Book Tours, Not Oil)

Levitt and I don’t have all that many disagreements, at least not in public. But this one’s a little close to home. It began with this post, in which I wondered aloud if the tour was worth the publisher’s money. Steve followed recently with this post, which detailed why, from his perspective, the tour was a waste of his time. Well, in this case he’s guilty of thinking like an economist. Generally it’s not so bad to think like an economist — in fact, it’s served Levitt very very well over recent years. But when you look at the world through the eyes of a super-rational agent, you do tend to miss the scenery. Levitt acknowledges that he went on the tour because there were a variety of incentives at play — social and moral as well as the more obvious financial incentive. But then when he calculates the ROI, he essentially ignores the social and moral returns. So yes, it’s true that the financial return is probably (and I stress “probably,” since it’ll be a while before anyone can measure the long-term financial effect of this tour) pretty thin considering the time invested, but the returns in the social and moral realm are quite considerable. Levitt says he hates attention, and I know this to be (mostly) true. And yet, consider some of the non-financial benefits generated by the tour: a public platform from which to discuss our ideas; the likelihood that our ideas will be heard more in the future; the chance to see old friends from college; the chance to visit a few excellent bookstores, the Milken Institute, the Commonwealth Club, Yahoo! headquarters, and Google headquarters; the chance to ride around in the same black sedan that carried Jack Welch only a few weeks earlier, and hear some pretty entertaining Welch stories from the driver; the chance to participate more fully with bookstores and our publisher in this strangely successful publishing venture; and the chance to generally see more of the world and its inhabitants. (Along with, yes, as he acknowledged, the chance to be gone for a week and miss our families and other opportunities.) Now maybe it’s true that none of those returns really matter to Steve (though I think at least the chance to see old friends probably does matter). Or maybe — and this is probably the closest to the truth — this is a case where Steve’s incentives and mine are unaligned. For me, a writer, a high-profile book tour even as short as this one was a) mostly fun; b) mostly gratifying; and c) mostly productive. Did I miss my kids? Sure. Did I get any work done while I was gone? Not much. Still, the return seems well worth it to me. That’s because a book tour is a pretty essential element in my profession. In Levitt’s profession, however, it’s not. If anything, this whole popularity thing may be bad for his career. Some academics get horribly cranky when a peer deigns to sprinkle the guild’s wisdom upon the masses. So does a book tour make sense from his perspective? Maybe not. I guess the equivalent might be if the Quarterly Journal of Economics were to ask me to collaborate on an article about the economics of publishing; my response would be … um … “and I want to do this why?” All this said, I’m glad Steve allowed his arm to be twisted and came along on the tour. And if he tries to tell you again how miserable he was, asking him about the Pasadena laughing fit.

Ken Webb

I have a first run copy of the book. If I come up to chicago, can I track you guys down and have you sign my copy?

Look at it this way, you will not have to go on a book tour. :)

Peter Ostrovski

Great post. I think people miss the non-financial implications too often in calculating ROI. This is especially true of fledgling economists who have just learned the concept of opportunity cost. They begin calculating the opportunity cost of every activity they partake in strictly through monetary terms, while ignoring the social and moral benefits that said activity provides.

Anonymous

Yeah, it's good to know your discount rates and cash flows and everything else. But life isn't about maximizing efficiency.

Regulatory Checkbook

I am intrigued by Dubner's suggestion that Levitt counted noneconomic costs (e.g., absence from family, other "opportunities") but ignored noneconomic benefits (e.g., social, moral values) when calculating net benefits for the road trip. This is precisely what economists are accused of doing routinely when performing benefit-cost analysis. It has been my retort that we try hard not to ignore nonmonetary costs and benefits and are open to correction when we do so.

Perhaps upon reflection Levitt will change his mind and conclude that the tour did, in fact, have net benefits. If he reflects but remains convinced otherwise, I hypothesize that Levitt has seriously underestimated some nonfinancial costs Dubner mentions (e.g., discomforts of publicity, fearing the opprobrium of [jealous?] academic economists).

Anyway, the value of Levitt's post was in the thoughtfulness and rigor of the idea, not in the (perhaps preliminary) conclusion of the analysis.

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Steven D. Levitt

anonymous --

I am not maximizing efficiency, I'm maximizing utility. And I'm saying I would have preferred to stay home and forego the money, glory, etc. that went with the book tour.

Steve Levitt

Princess Leia

The old friends from college probably consider themselves extremely lucky just to have a chance to pay for Steve's book and to see talk in person, y'know.

As for the comment above: OH BROTHER. Thank goodness he has a co-author like you.

Princess Leia

... see him talk is what I meant.

The college friend is not miffed about anything at all.

Anonymous

Well, it's baffling and interesting to see that somebody LIKES touring. These days, I find travel to have become a dreadful and miserable experience, all the more so whenever it involves airlines or other "scheduled service providers" who almost invariably treat customers like dirt.

I think "service provider" has essentially become an oxymoron. So has "scheduled." I must, however, credit them with "dirt cheap", in real dollars, much of the time. The aviation industry seems to have a strange penchant not just for making us miserable, but for losing money hand over fist while doing so. I'd like you and Steve to analyze that for us.

Blar

Levitt, why did you write the book in the first place? With few exceptions, it seems like most of the benefits of writing the book were increased by your trip to California. These include:

- Making money
- Getting to discuss your work and ideas
- Having other people learn about your thinking on economics (this could be both an altruistic goal and a self-interested one)
- Gaining in prestige
- Forming relationships that might lead to future research (Is there anything interesting that you could do with that Google data set?)
- Good times with Dubner

Given the total benefits and opportunity costs of writing the book, I'd guess that the added opportunity costs of this trip were roughly proportional to the incremental benefits, and on some factors (like networking) the benefits probably increased more rapidly (relative to the costs) on the California tour than they did from the rest of the Freakonomics project. So does the importance of these benefits diminish marginally, so that a given incremental addition to your prestige, collaborative relationships, etc. is not worth as much as it was when you started on the book? And if so, is it rational for them to diminish marginally? Or, do you disagree about the rough proportionality? I'm sure that we can rule out the other way to resolve this apparent inconsistency - that you think that writing the book was not worth the opportunity costs.

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StCheryl

And let's not forget about how small children can make their parents pay for non-routine absences from home...

Peter L

> And I'm saying I would have preferred
> to stay home and forego the money,
> glory, etc. that went with the book
> tour.

If that was true you would have stayed home. Or did you act irrationally?

Erin Vang

I can't be the only reader who wishes you'd add to your title area a little headshot of each Steve with the labels Dubner, Levitt, Economist, and Journalist properly sorted and attached. Every entry I read, I begin by scratching my head and asking myself, "Is this Steve the economist guy, or Steve the journalist guy?"

Thanks for great reading, both here and between the book covers!

Anonymous

I want to hear more about this Pasadena laughing fit...

Gemini

Interesting discussion...you can tell who is the artist and who is the economist when discussing incentives to do a book tour. One considers social, moral --and dare I say artistic-- utility as they contribute to ROI, and the other "forgets." It must be the same neglect of non-monetary incentives that inspired the dig on "graying 'actors' who wait tables in New York," that appears on page 107 amidst the discussion on advancing to the top of the proverbial pyramid. Clearly a more careful consideration of actor/artist incentives would reveal that many are non-monetary. For many artists, the utility derived from artistic pursuits offsets the limited monetary rewards. In other words, they do it for love, not money. They aren't deluded about their propects for making it to the top, as pg 107 suggests. Many rationally choose to tradeoff potentially higher-paying career alternatives for the pleasure of experiencing an artistic life. While it might be romantic to consider artists to be irrational, I'd argue that closer examination of their incentives would reveal quite rational decision-making, once one remembers to consider the incentives which are non-monetary.

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Anonymous

Good for you, Steve.

Peter L, if he hadn't been on a book tour before, he mightn't have known what a timewasting pain in the ass it was going to be. Timewasting by his lights, which are the only ones that matter in this case. Imperfect knowledge, that's all. Screws up even the nicest models.

Ken Webb

I have a first run copy of the book. If I come up to chicago, can I track you guys down and have you sign my copy?

Look at it this way, you will not have to go on a book tour. :)

Peter Ostrovski

Great post. I think people miss the non-financial implications too often in calculating ROI. This is especially true of fledgling economists who have just learned the concept of opportunity cost. They begin calculating the opportunity cost of every activity they partake in strictly through monetary terms, while ignoring the social and moral benefits that said activity provides.

Anonymous

Yeah, it's good to know your discount rates and cash flows and everything else. But life isn't about maximizing efficiency.

Regulatory Checkbook

I am intrigued by Dubner's suggestion that Levitt counted noneconomic costs (e.g., absence from family, other "opportunities") but ignored noneconomic benefits (e.g., social, moral values) when calculating net benefits for the road trip. This is precisely what economists are accused of doing routinely when performing benefit-cost analysis. It has been my retort that we try hard not to ignore nonmonetary costs and benefits and are open to correction when we do so.

Perhaps upon reflection Levitt will change his mind and conclude that the tour did, in fact, have net benefits. If he reflects but remains convinced otherwise, I hypothesize that Levitt has seriously underestimated some nonfinancial costs Dubner mentions (e.g., discomforts of publicity, fearing the opprobrium of [jealous?] academic economists).

Anyway, the value of Levitt's post was in the thoughtfulness and rigor of the idea, not in the (perhaps preliminary) conclusion of the analysis.

Read more...

Steven D. Levitt

anonymous --

I am not maximizing efficiency, I'm maximizing utility. And I'm saying I would have preferred to stay home and forego the money, glory, etc. that went with the book tour.

Steve Levitt