Injecting some Freakonomics into everyday life

We loved an article, written by the columnist Debra Pickett of the Chicago Sun Times, discussing how she is using the ideas of Freakonomics to navigate her daily life just a little bit differently.

Here is the text of the article:

Outsmugging the smug: Don’t try this at home
May 13, 2005

BY DEBRA PICKETT SUN-TIMES COLUMNIST

I’ve been reading Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (William Morrow, $25.95), the best-selling book in which University of Chicago economist Steven Levitt takes a look at the hidden factors — such as incentive systems, economic and otherwise — that make life work the way it does.

It’s a very dangerous book for someone like me, whose grasp of economics is not exactly firm, because its tone — the voice of Levitt’s co-author, writer Stephen J. Dubner — is incredibly friendly and approachable. Like Malcolm Gladwell’s The Tipping Point (Little, Brown: $24.95), Freakonomics makes me think I understand a lot more about the world than I actually do.

So, walking around this week, I’ve been keeping a keen eye out for truths that expose the often lazy and flawed thinking behind conventional wisdom.

Every time I saw someone in my baby-ridden neighborhood struggling with a $300 car seat, I felt a smug satisfaction at understanding, thanks to Levitt, that car seats really don’t do much to keep kids safe. It’s having the kid in the back seat, rather than on your lap up front, that makes the big difference. The “extra” safety of the 19-point restraint system in the 80-pound carrier is, statistically speaking, nominal at best.

It’s a rare joy to be able to out-smug the obsessive parents in the Strollerville section of Lincoln Park.

And I could barely contain the urge to photocopy the “What Makes a Perfect Parent?” section of Levitt’s book and distribute it to a few well-chosen mailboxes. It would only take a minute to highlight the passage in which a regression analysis of the Early Childhood Longitudinal Study demonstrates that neither having a stay-at-home mother nor visiting museums on a regular basis significantly improves a child’s performance in school.

But, really, who I am to point out to my Bugaboo-owning neighbors that all their child-rearing angst might be for naught? They’re fine people, after all, and shouldn’t have to suffer just because I read a book that has me convinced — for the moment, until the next big book comes along — that I have a deep and sophisticated understanding of the world.

City Council Logic 101

It was almost like a gift to me, then, when the City Council decided this week to prohibit drivers on Chicago streets from using cell phones, except for the hands-free kind.

Because I have absolutely no problem believing that having read a single book puts me in an excellent position to understand, comment upon, and, yes, even criticize the intricate workings of the aldermanic mind. And the cell phone ban is a fine example of council thinking.

Never mind all the studies that say it’s the talking, not the phone, that takes away from a driver’s concentration. Never mind that other things — like the pancake breakfast on a plate, being eaten with a knife and fork by a woman I saw heading south on Lake Shore Drive one morning — are equally distracting and that there are already laws against “distracted driving.”

The City Council went with classic conventional wisdom logic: it feels like cell phones are a menace to society, so it must be true.

And, because it’s far easier for the aldermen to take credit for passing a new law — look how productive! — than for avoiding the creation of a redundant one, they have to figure, “Hey, why not?”

For the first time in my life, I feel like I completely understand our city government.

How I’ll win my Nobel prize

Reading Freakonomics has me convinced that the entire universe works in an understandable way — just not in exactly the way most of us think it can be understood.

So I’ve been trying to apply Levitt’s rigorous logic to my own life, to get a better handle on why I make certain choices.

(Incidentally, this is not an exercise I would recommend to anyone who happens to be planning a wedding. It’s really best not to try to comprehend why a champagne toast costs $25 per person. Or why you feel, despite the cost, that you absolutely must have one.)

I started with some of the basic features of my daily routine, like the electric toothbrush I use. Is it really that much more effective than a regular toothbrush or do I just like its little humming sound?

And how about the little “stored value” cards I use to pay my CTA fare and to buy my tall soy latte? I feel, somehow, like they’re supposed to be a good deal — or at least that they should help me stick to my budget and keep track of what I’m spending — but they must also be a good deal for the businesses issuing them. What’s in it for them? And is having a Starbucks card actually making me spend more money there? Is that even possible at this point?

My imagination quickly moved to more esoteric questions, like why it costs so much more to get a manicure in Chicago than it does in New York.

Life is full of “freakonomic” conundrums. And I’m going to get right to work on exposing them.

Just as soon as I call the caterer to order that champagne.

We (Dubner and Levitt) are always interested in hearing about cases where the Freakonomic view of the world pays off, especially in unexpected ways. Send them our way.

david

i found myself thinking of your book as i counted the number of almonds in my trail mix. i wondered if there was a person whose job it was to calculate exactly how few of those babies they need to stick in the pack in order for people to feel like they're getting their money's worth. are focus groups put together? do they collect data? exactly how few can they get away with? 'cause we all know there are never enough. same with cashews. same with pineapple. right? it's mostly the cheapest fruit and the cheapest nuts.i can't decide if this is more freakonomics or more larry david.either way, you guys are in good company.

RhazesSpellizzi

david...of course those who distribute mixed nuts to many end markets consider the optimal mix of nuts that are desired and the associated cost....i'm sure it involves focus groups and w/ the overriding thesis being what is the fewest, yet most costly nut, that we can supply w/out losing our core customer/still attracting the new customer etc.

Dave Brewington

it's sad that it takes a "rogue" economist in the 21st century to explain what sociologists have known since Durkheim. most economists rely on too-simplified assumptions about individual human behaviour: humans are atomized, interest-maximizing entities and we don't have to pay attention to the cultural and social contexts in which they are embedded to make sense of human action. the example of how parents raise children is particularly salient: to be an upstanding parent, one must act "as if" she or he is an upstanding parent, even if the practices involved make little to no statistical difference in the immediate performance of the child. deeply embedded social and cultural institutions (e.g., "be a good parent") guide much more of human behavior than the rational calculation of individuals. The idea of the rational calculating individual is itself a historically specific construct emanating from the British tradition of political philosophy a la Adam Smith, which most American economists have swallowed hook, line, and sinker. Neo-institutional and globalization sociologists such as John Meyer and Roland Robertson and their colleagues and students (i count myself as one such student) have theoretical and substantive contributions that speak to the freak nature of social life that mainstream economists too often willingly ignore.

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Anonymous

A reasonable guess to answer David's question about contents of trail mix:Linear programming is a long-used mechanism for maximizing profits when many variables must be considered. In the early '70s, we used to call the result "The least-cost food formula". The trail mixer need not even run focus groups, but could vary the contents continually knowing the current (even if changing) costs of components and the current sales and profit results (the latter are quickly gotten these days since automated checkouts and just-in-time ordering and delivery are so ubiquitous).

Bill

You can make a real difference.The analogy between what destroyed the Ku Klux Klan and the insurgency in Iraq seems quite real. A Baghdad cartoon in the NY Times showed a car dealer with a shadowy customer pointing out the cars which were best for car bombs.With your combined influence you can get the US Gov't to launch- for lack of a better expression- a ridicule campaign.

Runedude404

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Anonymous

It seems like a swing of sentiment: some 10 years ago people are against applying economic theories to every aspect of life; now it is trendy to explain everything in economic context.I think if we overextend econ theory uncritically, the swing will happen again. For one, the "mobile phone ban". I do not actually agree with the analysis. Yes, the underlying cause of car accident is talking and/or distraction. However, there is always a TRANSACTION COST in the enforcement: how can policeman stop a driver if he cannot prove the driver talking? Use of mobile phone is the proxy of this talking activity: if you hold up a mobile phone, it is very likely you are talking!

Ken

I don't have much to say on the article, but I saw a blurb on your blog in the New York Times have been enjoying it for the last few hours. I'm definitely going to pick up the book tomorrow.

portorikan

Just wanted to say hi. I read the book recently, well, "read" it on my ipod from Audible. Good stuff. Thanks for writing it. I'll be looking forward to "reading" it again to see what I missed the first time through.Holla!;-)

Psychic Advice

Hi thereIt's good to see someone keeping things in their correct context! Regards

JLP

I always wonder about the insurance coverage you can get with almost any purchase. I mean, if it was that great a deal for the customer, why would the store sell them? Somebody's losing in this game and my guess is that it isn't the retailer.I was at Best Buy once and in line in front of me was a lady buying a $89 radar detector. The cashier asked the lady if she wanted to buy their service plan for $14.95 or something like that. Well, the lady was immediately confused and looked to me for my approval. I just nodded my head "no" and she told the cashier no. Of course the cashier gave me a dirty look and asked me why I did that. I just said that it didn't make sense to pay so much for so little.Anyway, I thought it was funny and I think it is a perfect example of thinking like a freakonomist!JLPAllThingsFinancial

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Carmi

Extended warranty coverage from the Circuit City returns profit margins that are an order of magnitude greater than the actual item purchased. The cynic in me says retailers - and, by extension, all members of the manufacturer/wholesaler/retailer supply chain - operate in their own best interests, and not those of the consumer.Is it any wonder that it is almost unherad of for consumers to actually negotiate the transaction price? If we think the asking price is a ripoff, we should, in theory, be allowed to bargain 'em down.But, with the exception of the stereotypical automobile dealership, few venues remain where we are consumers are actually able to tilt the playing field in our favor.It's enough to make me want to toss my half-caf latte from the Starbucks into the trash when it gets cold.

JLP

Even if the warranty coverage was a good deal for the consumer, the retailers are banking on the fact that the customer will either lose proof of purchase, their warranty papers, or forget that they bought the coverage in the first place.JLPAllThingsFinancial

James VI

If a retailer is willing to sell a waranty for a certain time period, one would assume that the product would be designed to last that lomg. Why else do most computers have a three-year warranty? My last computer started stufffing up about a weak after its warranty expired.

jonnybigtime

While I believe extended warranties are a ripoff, the fact that the retailer benefits from selling them is not enough evidence that they are a bad deal for the consumer. I generally believe that trade benefits both parties and that the surplus from trade is split between the seller and the buyer.

Jim Voigt

Re: WarrantiesI am a loser. I actually have tracked all the money I did NOT spend on warranties over the course of the past 22 years (since I was 20). I also tracked the amount of money I spent on replacing or fixing the things for which I did not buy a warranty. In other words, do you really save any money by buying extended warranties?I am currently $3,246 ahead of the game. And that includes an $1,800 car repair that I could have avoided with a $1,400 extended warranty (net loss of $400, my biggest ever.)So in the risk-management game, the better bet is to take the guaranteed savings of not buying the extended warranty and hope that stuff will not break.Of course, if you beat the snot out of your cars or throw bricks at your big screen during the Super Bowl, you may want to reconsider my advice. Everyone is different, but I'd bet my buying and maintenance habits are about average.Summary: Don't buy any extended warranty unless it will cover a broken power-seat motor on a Chrysler Concorde. Hmm.... sounds like a good name for a Freakonomics chapter... I'll sell the rights to it. How would we possibly determine the value?

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Russell

After reading Freakonomics, a friend pointed me to a site that had an interesting article on parenting, What's Holding Black Kids Back?. It reinforces several of your observations (adding books to the home and other similar interventions don't help), but seems to disagree with the conclusion that parenting doesn't matter. It's just that the key to successful parenting seems to be the drive to make your kids excel rather than the various purchasable tools for doing so.

Jim Voigt

The tools, tricks, books, parenting magazines and all of that mean nothing when used in a vacuum. But let's be clear. It is not that these tools are useless, they are useless when parents depend upon them as the sole source of inspiring their children. There is no formula for raising great kids. There is no school you can send them with a tuition check and expect to have a well rounded child returned to you. There isn't even a good definition of what it means to be a "great" kid.The analysis in the book leaves out the critical element of parenting: you're supposed to inspire your kids. Not just hollar at them when they're bad, toss a book at them and expect them to read it. Kids will live the way you do. Parenting is less about diapers and parent-teacher conferences and more about leadership.Yes, if you depend on books and educational t.v. shows to raise your children for you, it won't work. But use if you do use these, be as excited about learning as your kids are. Be passionate about what you're doing, even if you think it's boring. Your kids are never bored by your life, they've never lived one yet. It's all new to them. Don't teach them from an early age that they're not worth the (at least) three hours a day you really should be spending with them. That's a lesson they'll learn insantly and remember forever.Want your kids to be great? Be great first. They'll follow your lead. Just make sure it's the type of lead you'd like them to be following.

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JLP

Jim,What an excellent comment! You are so right! I wish our school district would figure this out. Instead, they try to throw money at the problem.If you don't mind, I'm going to reprint your comment on my blog.JLPAllThingsFinancial

Christopher Davis

My usual counter to an extended warranty hard sell is "oh, these are that badly built? I guess I'll have to head to [pick another, preferably 'more upscale', store] to see what they have that doesn't break so easily."