View Full Version : Freakonomics
Warrior-Mentor
10-17-2005, 12:46
Read this two weeks ago. Interesting read and analysis...
Author is an economist who uses statistical analysis to determine the factors behind things that happen....one example, if you remeber in the early 1990's the crime rate was rising through the roof and all the experts were predicting (basically) total chaos...a continued rise in crime with no end in sight.
Then, without forecasted reason, the crime rate started to drop...the experts started to change stories...now in retrospect...the author was able to determine the true reason behined the drop.
Roe versus Wade.
His explanation is thorough enough to convince me ...and he had a counter example, where abortion was outlawed and 20 years later crime actually resulted in a national coup.
He compares odd things like school teachers and sumo wrestlers, then statistically ties their behavior together...you have to read to understand...bottomline, people respond to incentives...
Interesting stuff.
JM
Author is an economist who uses statistical analysis to determine the factors behind things that happen
This is what I do for a living, btw. I am hoping I'll have the chance to work on a problem that affects you guys sometime. :cool:
Leozinho
10-17-2005, 17:30
Read this two weeks ago. Interesting read and analysis...
Author is an economist who uses statistical analysis to determine the factors behind things that happen....one example, if you remeber in the early 1990's the crime rate was rising through the roof and all the experts were predicting (basically) total chaos...a continued rise in crime with no end in sight.
Then, without forecasted reason, the crime rate started to drop...the experts started to change stories...now in retrospect...the author was able to determine the true reason behined the drop.
Roe versus Wade.
JM
Bill Bennet was in hot water again a couple of weeks ago for basically repeating this theory when he said crime would be reduced if all black children were aborted. (The idea is that children of poor, single moms are more likely to live a life of crime, and its these children that are most likely to be aborted. Hence, legalizing abortion reduces crime 20 years later. And since blacks make up a great portion of babies born into these situations, aborting all black babies would reduce crime, said Bennet. Of course, you can't say that in American without being branded a rascist.)
The authors point out several other factors that reduced crime in New York: increasing the number of policemen, the aging population, decline in crack prices (the profits margins dropped to the point that it wasn't worth it to crack dealers to wage bloody turf wars), increased use of incarceration.
I was suprised that the authors found no evidence that Bratton's "broken window" policing lowered crime.
One of the best non-fiction books I've read . (Crime in New York is just one chapter.) The other chapters are just as fascinating.
Roguish Lawyer
10-17-2005, 17:38
Related to incentives:
Purchased 6 yogurts at the grocery store. Instead of swiping 1 yogurt and pressing Quantity 6 (fastest solution), she swiped them 1-by-1.
She didn't look like she had an IQ of room temperature, so I said, "Hey, why don't you just swipe 1 and press Quantity 6?"
She answered, "Because we are measured [incented] based on how fast we swipe each thing, and stopping to do that makes me slower."
In other words, she had recognized that the metric being incented was average swipe rate, with no weighting, penalty, or adder for how multiple quantities of the same item are handled. So based on how she was being measured, multiple quantities of same item was a chance to improve her average. Yet from the customer point of view, Swiping 1-Quantity 6 would certainly be the fastest result and therefore perferable.
So of course after learning that, I immediately started tag-team bar code swiping the rest of my cart with her. Mentally justifying confusing the Store Manager by her super-fast metric with the rationale that she incented me to help her.
The moral of the story being, Be Careful What You Incent.
FrontSight
Excellent little case study, FS.
NousDefionsDoc
10-17-2005, 19:10
I've never seen anyone use "incent" in a sentence...
Bill Harsey
10-17-2005, 19:50
I'm getting a headache reading this stuff and I wasn't even with AL for his pre-birthday party.
Cincinnatus
10-17-2005, 20:47
"Freakonomics" was a fascinating read. IIRC, "Bad Science" was in a somewhat similar vein. An example of the kind of things discussed is the Dow Corning law suit where 10,000 women who have had breast implants are shown to have developed connective tissue diseases (e.g. lupus), causality is presumed and the manufacturer forced into bankruptcy. After studies are done by, IIRC, Brigham and Woman's hospital, the Mayo Clinic, Harvard Medical School, and New England Journal of Medicine that show the incidence of connective tissure disease among woman with silicon implant is identical with the incidence among women in general.
NousDefionsDoc
10-17-2005, 20:56
I know what it means, I just never saw anyone use it before...
Moral hazard is one of my favorite topics, although I am not sure the Abraham Lincoln example really fits. Moral hazard usually refers to the subtle alteration of an individual's unobservable risk-seeking behavior. The unobservable part is key, otherwise parties would just contract in such a way as to discourage the behavior. In the Lincoln example, the boys' propensity to assume debt was easily observable.
Financial crises present the classic example, the idea being that the risk appetite of investors and financial institutions can be altered by the presence of a lender of last resort, such as the IMF. Such increased appetite might be reflected in asset prices that deviate far from fundamental value, as they believe that the LOLR will "bail out" investors in the case of a sudden collapse. The securities most affected tend to be sovereign debt, which countries issue in both local and foreign currencies.
After the Asian financial crisis, I was engaged by one of the bulge bracket investment banks to help them understand how moral hazard might have impacted the sovereign debt markets, and to devise an early warning system for future crises. Typically, this bank's analytical models were only capable of explaining about 35% of the spread between the price of US Treasury bonds (considered to be risk-free) and long-term foreign currency debt. I.e., over any given period, 65% of the variation in asset prices was unxplained by their models. The new insight that I left them with was that, at the most fundamental level, countries are not that different from corporations. The value of the debt of each can largely be explained by (1) susceptibility to exogenous shocks (2) liquidity (how accessible their assets are), and (3) solvency (how many assets they have). Combining data available from the various multilateral institutions, I was able to create economic metrics that approximated the inputs for a corporate bond rating model. The new r-squared, or percent of price variation explained, improved to about 95-98%. That remaining residual was the portion of the price unexplainable by reference to economic fundamentals - i.e., investor sentiment or moral hazard when the debt was overvalued. By tracking that residual, the bank has been able to identify periods of increased risk-seeking and to place pressure on the governments and multilaterals involved (as well as make some nifty trading decisions).
:lifter
Roguish Lawyer
10-18-2005, 09:20
I know what it means, I just never saw anyone use it before...
I'm not sure it's a real word. I think she is abbreviating "incentivize." But I have not looked it up.
As much as it pains me to say, 'incent' appears to be an accepted term. However, from what I read, its origin is (obviously) from the noun 'incentive', and it became an accepted verb due to its widespread use, not unlike the inclusion of the slang terms 'bling' or 'chick flick' in recent dictionary editions, or the widespread use of the verb 'orientate' (I truly hate this word) in the military. So, in the end, incent came about not because it was proper english, but rather because it was too exhausting to continually correct FS's eggheaded mentors and peers who insisted on making up their own language rules. :rolleyes:
Roguish Lawyer
10-18-2005, 14:26
As much as it pains me to say, 'incent' appears to be an accepted term. However, from what I read, its origin is (obviously) from the noun 'incentive', and it became an accepted verb due to its widespread use, not unlike the inclusion of the slang terms 'bling' or 'chick flick' in recent dictionary editions, or the widespread use of the verb 'orientate' (I truly hate this word) in the military. So, in the end, incent came about not because it was proper english, but rather because it was too exhausting to continually correct FS's eggheaded mentors and peers who insisted on making up their own language rules. :rolleyes:
Correct! It is not in the Oxford English Dictionary, which I consider to be the definitive source. Also not in m-w.com, which refers you to the collegiate version you have to pay for. It is here, however:
http://dictionary.reference.com/search?q=incent
College girl!
NousDefionsDoc
10-18-2005, 16:20
It is indeed a word and it is used correctly in this case.
Warrior-Mentor
10-18-2005, 17:08
It is indeed a word and it is used correctly in this case.
Not to be confused with:
Incite in·cite (n-st)
tr.v. in·cit·ed, in·cit·ing, in·cites
To provoke and urge on: troublemakers who incite riots; inciting workers to strike. See Synonyms at provoke.
See also FrontSight
Incence in·cense (n-sns)
tr.v. in·censed, in·cens·ing, in·cens·es
To cause to be extremely angry; infuriate.
See also FrontSight
Incense 1 (nsns) n.
An aromatic substance, such as wood or a gum, that is burned to produce a pleasant odor.
The smoke or odor produced by the burning of such a substance.
A pleasant smell.
Flattering or fawning attention; homage.
Incense 2\In*sense"\, v. t. [Pref. in- in + sense.]
To make to understand; to instruct. [Prov. Eng.] --Halliwell.
Incest in·cest n.
Sexual relations between persons who are so closely related that their marriage is illegal or forbidden by custom.
The statutory crime of sexual relations with such a near relative.
Incontinent in·con·ti·nent adj.
Not restrained; uncontrolled: incontinent rage.
Lacking normal voluntary control of excretory functions.
See also ... well, you get the idea :eek:
"I love 'verbing' words."
-Calvin
Huh Huh Huh...he said incontinent