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Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Leavitt and Stephen J. Dubner

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Leavitt and Stephen J. Dubner was an excellent book that changed the way some people thought about the economy, including myself. I really enjoyed Freakanomics for many reasons, the primary one being that it looks at the economy in a different light. Leavitt is less interested in numbers and data and more interested in why people act the way they do. Dubner on the other hand, is a numbers geek and we can see evidence of this throughout Freakanomics with charts, graphs, and statistical evidence to support their claims. Freakanomics explains the hidden phenomenons of everything from what schoolteachers and sumo wrestlers have in common from why drug dealers still live with their mothers. Not only will you see positive correlations from unrelated groups, you will see outliers as well. Expect the unexpected as Freakanomics made me laugh many times and my imagination run wild.

Freakonomics

What do Schoolteachers and Sumo Wrestlers have in Common?

The main thing schoolteachers and sumo wrestlers have in common is they both cheat. In Japan, you probably wouldn’t know sumo wrestlers cheat unless you are involved in the organization. A sumo wrestling tournament consists of each wrestler having 15 matches in 15 days. The evidence is in the data with sumo wrestlers, a 7-7 sumo wrestler gets to advance when he wins his next match. There have been several instances when a 7-7 sumo wrestler meets a 8-6 sumo wrestler and the 7-7 sumo wrestler wins over 75% of the time. That’s an odd discrepancy, but what’s even more odd is when these two wrestlers meet again in a new tournament the wrestler who formerly lost with an 8-6 record almost always wins.

Schoolteachers frequently cheat as well. Why do Schoolteachers cheat? The simple answer to this question is because it’s in their best interests. Teachers are viewed in a positive light when their students do well. Both of the authors looked at the data from the SAT scores in the Chicago school system going back fifty years and found some surprising results. They saw many instances where the last eight questions were filled out on the tests correctly. Why would a student fill out the first 20-30 questions on a test and then skip to the end where the hardest questions were and fill out the last eight questions correctly. Additionally, they found patterns of data which suggested the schoolteachers were cheating on the tests repeatedly.

Freakanomics

How is the Ku Klux Klan like a group of real-estate agents?

How is the Ku Klux Klan like a group of real estate agents is a good question. First of all you have to look at the history of the Ku Klux Klan here. The Klan would use secret information, they would get as much of it as they could and use it to their advantage. Once the Klan’s secrets were exposed and they were no longer interesting they had trouble attracting new members and the Klan slowly died off. What this chapter is trying to say is that some people have more information than others and they use their secret information for their own benefit against those people who don’t know the secrets. This is the case with Realtors, they use their information against those people who aren’t in tune with the housing market. For example, a realtor may look at an average listing of $310,000 and when an offer comes in at $300,000 that realtor will push his clients to sell their house knowing full well the clients could probably get the full $310,000 if they kept it on the market a few weeks more. Why would a realtor, who’s suppose to be looking out for your best interests do this? Many reasons, while you will gain an extra $10,000 if you keep the house on the market for a few more weeks how much will the realtor gain. After brokerage fees, agency fees, etc. the realtor actually will only gain about $150. This $150 does not amount to much for the realtor when he/she could be out showing new houses, trying to get new clients, etc. Additionally, they may incur an extra $100-200 of advertising costs if you wish to hold out and have the house on the market for a few additional weeks. There is further evidence that shows this with the average home price when you are comparing what similarly priced homes go for when they are owned by a realtor vs. an individual/family. We see the realtor’s homes always stay on the market for a longer period of time and sell at a premium price.

Freakanomics

Freakanomics Conclusion…

This is a very fascinating book and there are many parts of the book I didn’t touch on like parenting, childrens names, drug dealers, crime, etc. While a lot of what is said in this book may be common sense, you see a lot of outliers and fascinating topics. Having a degree in Economics, it’s one of my favorite books because it changes the way you look at things. I highly recommend this book to all of my friends.

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