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Superfreak On o Mics

This document provides an outline for a seminar on the book SuperFreakonomics. It summarizes key chapters including how economic incentives drive human behavior, factors that influence experiments, and how simple solutions can address big problems if they change incentives. The conclusion notes that understanding average outcomes helps build thinking based on reality rather than exceptions.

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Neeraj Sadarjoshi
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630 views

Superfreak On o Mics

This document provides an outline for a seminar on the book SuperFreakonomics. It summarizes key chapters including how economic incentives drive human behavior, factors that influence experiments, and how simple solutions can address big problems if they change incentives. The conclusion notes that understanding average outcomes helps build thinking based on reality rather than exceptions.

Uploaded by

Neeraj Sadarjoshi
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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SUPERFREAKONOMICS

A Seminar by
Neeraj Sadarjoshi
07M230
Contents
1. Introduction
2. “the economic approach”
3. Whom to blame, dealers or consumers?
4. A Typical Football Team
5. Terrorists & Revolutionists
6. Testing human tendency
7. Factors which affect lab experiments
8. Incentives to fight global warming
9. Big problems, simple solutions
10. Conclusion
1. Introduction
• Non-fiction book by
Steven Levitt and Stephen
J. Dubner, released in
early October. It is a
sequel to Freakonomics.

• Unifying theme : “People


respond to incentives.”
2. “the economic approach”
• A phrase made popular by Gary Becker, the longtime
University of Chicago economist who was awarded a
Nobel Prize in 1992

• the economic approach is not a subject matter, nor is it a


mathematical means of explaining “the economy.”
Rather, it is a decision to examine the world a bit
differently. It is a systematic means of describing how
people make decisions and how they change their minds.
3. Whom to blame, dealers or consumers?
• drug dealing or black-
market guns—most
governments prefer to
punish the people who
are supplying the goods
and services rather than
the people who are
consuming them
4. A Typical Football Team
• In the British national youth
leagues fully half of the players
were born between January
and March
• On a similar German team, 52
elite players were born between
January and March, with just 4
players born between October
and December.
• This “relative-age effect,” as it
has come to be known, is so
strong in many sports that its
advantages last all the way
through to the professional
ranks.
5. Terrorists & Revolutionists
• Children who are born
into low-income, low-
education families are far
more likely than average
to become criminals, so
wouldn’t the same be true
for terrorists?
5. Terrorists & Revolutionists
• Crime is primarily driven
by personal gain, whereas
terrorism is fundamentally
a political act.

• But a revolutionary and a


terrorist have different
goals. Revolutionaries
want to overthrow and
replace a government.
5. Terrorists & Revolutionists
• Why is terrorism effective?
▫ The probability that an average American will die in a given year
from a terrorist attack is roughly 1 in 5 million; he is 575 times
more likely to commit suicide.

• How can a terrorist succeed even by failing?


▫ British national named Richard Reid, even though he couldn’t
ignite his shoe bomb, exacted a huge price.
▫ In the United States alone, this procedure happens roughly 560
million times per year.
▫ Even though Richard Reid failed to kill a single person, he levied
a tax that is the time equivalent of 14 lives per year.
6. Testing Human Tendency
• The game: ULTIMATUM

• This path had been paved by the beautiful mind of John


Nash and other economists who, in the 1950s,
experimented a game-theory problem that came to be
seen as a classic test of strategic cooperation.

• It was invented to glean insights about the nuclear


standoff between the United States and the Soviet
Union.
6. Testing Human Tendency

• The game: DICTATOR

• The Ultimatum and Dictator games inspired a boom in


experimental economics, which in turn inspired a new subfield
called behavioral economics. A blend of traditional economics and
psychology, it sought to capture the elusive and often puzzling
human motivations
7. Factors which affect lab experiments
• Selection bias
▫ The best cardiologist in town probably attracts the
sickest and most desperate patients
• Scrutiny
▫ Do you run a red light when there’s a police car—or a
mounted camera—at the intersection?
• Context
▫ We act as we do because, given the choices and
incentives at play in a particular circumstance, it
seems most productive to act that way
8. Incentives to fight global warming
• If we were certain that warming would impose large and
defined costs, the economics of the problem would come
down to a simple cost-benefit analysis.

• Do the future benefits from cutting emissions outweigh


the costs of doing so?

• Or are we better off waiting to cut emissions later—or


even, perhaps, polluting at will and just learning to live
in a hotter world?
8. Incentives to fight global warming

• The economist Martin Weitzman analyzed the best


available climate models and concluded the future holds
a 5 percent chance of a terrible-case scenario—a rise of
more than 10 degrees Celsius.

• The bottom line is: global warming is caused as a result


of externalities
8. Incentives to fight global warming
• What is an externality?
▫ It’s what happens when someone takes an action but someone
else, without agreeing, pays some or all the costs of that action.
An externality is an economic version of taxation without
representation.

• Modern technology is so proficient that it often masks


the costs associated with our consumption.
When people aren’t compelled to pay the full cost of their
actions, they have little incentive to change their
behavior.
9. Big Problems, Simple Solutions

• Nearly 40,000 people died in U.S. traffic accidents in


1950

• The cleverest engineer or economist or politician or


parent may come up with a cheap, simple solution to a
problem, but if it requires people to change their
behavior, it may not work
9. Big Problems, Simple Solutions

• Every day, billions of people around the world engage in


behaviors they know are bad for them—smoking
cigarettes, gambling excessively, riding a motorcycle
without a helmet.

• WHY?
9. Big Problems, Simple Solutions

• And seat belts, at about $25 a pop, are one of the most
cost-effective lifesaving devices ever invented.

• Governments aren’t exactly famous for cheap or


simple solutions; they tend to prefer the costly-and-
cumbersome route.
▫ Even the polio vaccine was primarily developed by a
private group, the National Foundation for Infant
Paralysis.
9. Big Problems, Simple Solutions
• In a 1999 report called “To Err Is Human,” the Institute
of Medicine estimated that between 44,000 and 98,000
Americans die each year because of preventable hospital
errors—more than deaths from motor-vehicle crashes or
breast cancer—and that one of the leading errors is
wound infection.

• The best medicine for stopping infections?


▫ Getting doctors to wash their hands more frequently.
9. Big Problems, Simple Solutions
• It is hard to change people’s behavior when someone else
stands to reap most of the benefit.

• Surely we are capable of behavior change when our own


welfare is at stake, yes?
▫ If we were, every diet would always work.
▫ If we were, most smokers would be ex-smokers.
10. Conclusion
• Who among us wants to
describe ourselves as
“typical”?
▫ Knowing what happens on
average is a good place to
start. By so doing, we
insulate ourselves from the
tendency to build our
thinking—our daily
decisions, our laws, our
governance—on exceptions
and anomalies rather than
on reality.

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