Freakonomics Notes:

Chapter 1: What do Schoolteachers and Sumo Wrestlers have in common?

Daycare Center Dilemmao Fine late parentso Study done in Israel

8 late pick-ups per week $3 fine assessed

# of late pick-ups increased after fine was implemented Was the fine too low? Trick: balance the extremes Substituted the economic incentive for the moral incentive

o Parents were buying off their guilt Blood Donation Example

o What happens when you increase the monetary value Incentives are was Economics like to study

o Def: a means of urging ppl to do more of a good thing and less of a bad thingo Three types

Economic $3 sin tax on cigarettes A weak incentive for some

Social Banning smoking in public places Terribly powerful for most (Scarlet Letter)

Moral Making the war on terrorism about the ability to sell nicotine.

Who Cheats?o Everyone:

Cheating may or may not be human nature, but it is certainly a prominent feature in just about every human endeavor.

Cheating is a primordial economic act: getting more for less. 7 Million children disappear when parents had to list SSN

o Teachers Chicago Public School System & High Stakes Testing

NCLB (2002) mandates Standardized Testing Schools with low scores could be shut down

o Social Promotion eliminated = 3rd, 6th & 8th graders had to pass ITBSo Ripple Effects: Teachers have incentive to cheat

Teachers who’s students test poorly could be fired If students do well = paid better, praised, promoted Teacher cheating is rarely looked for! Hardly ever detected, rarely

punished. How Teachers Cheat

o Write the scores on the boardo Extra time for studentso “Teach to the Test”o Instruct students to fill in black questions

How Teachers Cheato Erase wrong answers & fill in correct answers

How can we detect it? Think like one. Don’t change too many Don’t change everyone’s Select a string of 10 answers Select ½ of your students Focus on the end of the test

700,000 sets of answers analyzedo What does a cheating teacher look like?

o Younger, less qualified, after incentives change Student’s Perspective

o Students who have a dramatic spike in test scores.o Students rarely get 6 straight answers correct.o Classes overall performance

6.8 = 6th graders, in the 8th month 4.1, 5.8, to 5.5

o Cheating only leads to future problems for the students 200 classrooms in all of Chicago’s Public Schools (5%) Identifying a Good Teacher

o Easier questions answered more correctlyo Gains carry over to the next grade

Arnie Duncano Who is he: Chicago native, Harvard Grad, Pro BB playero Allegiance laid with students & families, not teachers & unionso Re-administered the test to a random sample of classrooms

½ - suspected cheaters 25% - suspected good teachers 25% - mediocre teachers No one told why, administered by CPS administrators Results

Control groups – scores remained constant Cheaters – scored far worse, full grade level 12 Cheating teachers were fired Next year cheating fell by 30%

o Sumo Wrestlers Japanese national support

Sport is about honor, supposedly Sumo’s would never cheat to lose then, right?

Stats 11 years of data, 32,000 bouts, 281 wrestlers Ranking is everything

o 66 highest ranked wrestlers are “elite”, earn $170,000o 70th ranked wrestler earn $15,000

Ranking is everything to a Sumo Wrestlero 6 tournaments a year determine their ranking

Winning record, rank improves – Visa, Versa 8th Victory is very important!!!!!

8-6 v. 7-7 wrestlers were compared to id cheaterso Results

7-7 predicted win = 48.7% 7-7 actual % = 79.6%

9-5 v. 7-7o Results

Predicted: 47.2% Actual: 73.4%

8-6 v. 7-7 the next time they meeto 7-7 only win 40%o Let me win today, I’ll let you win next time

o Arrangements btwn Wrestlers Allegations of Match Rigging often make the Papers

Two former Sumos come forward with cheating claimso Both die just before press conferenceo Police “cover-up”, never investigateo Name-Names

29 crooked Stats prove their claim

11 incorruptible Data suggest most Sumos cheat

o Paul Feldman: the guy who brings in the Bagels Put out bagels & a cash basket

Pay on “your honor” Was making more money doing this than his regular job

White Collar Crime Data Research No victim (usually) Expectations: 95% payment rate “Honest Companies” – 90% or higher “Annoying but Tolerable” – 80-90% “Unreasonable” – below 80% Data

o 89% payment rateo Smaller firms pay more frequently than Larger firms

Known & caught Shamed

o Weather – pleasant weather = more $$$ Cold/Rain/Wind = less $$$

o Holidays – less $$$ Christmas, Thanksgiving, Valentines, Tax Day 4th of July, Labor Day, Columbus Day = more $$$

o Moraleo Execs steal moreo Worker bees pay more

Lessons Learned People are generally good without enforcement

Chapter 2: How is the KKK like a Group of Real-Estate Agents? KKK History

Founded by 6 Confederate Soldiers in TN Greek term for: “circle” Evolves into a terrorist group

o US Grant: p. 49-50 quote Loses influence within 10 years

o Jim Crow laws did away with the need for the KKKo Plessy v. Ferguson: “separate but equal” doctrine

Revives in 1915o The Birth of a Nationo Pres. Wilsono 8 million members by 1920

Ranged throughout the country Persecuted many, not just Af. Am.

o 1933: Will Rogers draws similarities btwn KKK & Nazis KKK goes underground

Revives after WWIIo Atlanta – KKK headquarterso Power – public fear

Police & KKK were working together Stetson Kennedy

o Family had long roots in American History & the KKKo He was anti-KKK

The terrorist arm of the white establishment of the South The KKK was in “cahoots” with the Police

o Sought to gather facts about the KKK Took advantage of seeming like a KKK member Infiltrated the Atlanta KKK

Wrote: The Klan Unmaskedo Interviews “John Brown” – the original Klan infiltrator

Learns: rituals, codes, etc. Joins the Klavaliers (flog squad)

Utilize fear & intimidation more than violenceo Lynching Stats

P. 54: analysis 1. Decreasing over time 2. # of lynches have negative correlation with Klan membership 3. Lynching’s were relatively rare What’s it mean:

Lynchings in early days worked Intimidation had worked, didn’t need to lynch anymore Blacks were “behaving” b/c of fear of lynching Incentives were working

o KKK of the 1940s was more political than violent Corruption

Scare off the unions Rallies generate cash donations

Death benefit association Kennedy serves as a Klan-buster b/c of his inside knowledge

Works with the GA governor Klan isn’t non-profit, non-political

o KKK of the 1940s was more political than violent New strategy needed

Get the Klan’s secrets out to the public at large Uses the radio to “get the word out”

Drew Pearson & Superman radio shows become the place to learn about the KKK

Made private information, public knowledge KKK membership begins to decline rapidly

Anti-Klan sentiment given info to attacko Kennedy understood the power of information

He had almost single handedly killed the KKK by giving out their secrets

The Internet & Information Ppl able to access information themselves

Term life insurance: basically the same for every carrier, the price is what matterso Customers able to go online now and find out for themselveso $1 billion less for term life in 1990, b/c consumers could comparison shop

Information is a beacon/deterrent 1 day old car: worst day in its life, loses 25% of its value in one day

o Why: why sell a one-day old car? Must be a lemon.o Wait a year – then sell it, lemons can blend in after a year.

Information-Asymmetry Experts know more than consumers The internet has shrunk the gap btwn experts & consumers

o Funeral Directors-Car Dealers-Real Estate Agents Corporate Scandals

Enron & Martha Stewart Experts – hiding true information, promoting false information

Information Criminals Experts depend on the fact that you don’t have the information they do They prey on your fear

Selling a House Fear not selling the house or selling it for less than its worth Feel fortunate to have an expert, real-estate agent

o Agents keep their homes on the market for 10 more days & get 3% moreo Agents patiently wait for the best buyero Agents – only gain $150 for selling it for $10,000 more

Example: p. 66 Studying “For-Sale” Ads

o Words are important: p. 67 & 68o Opinions v. Facts

o Agents use – objective terms when describing your house The internet has eroded the Real-estate agents information gap

The Weakest Link: Testing Discrimination Testing: Race, Gender & Age Voting strategy changes over the course of rounds

o Early Rounds – Eliminate the Weaker Playerso Later Rounds – Strategy switches – Eliminate the Good Players

Who is Discriminated Againsto Not Blacks or Females

Civil Rts & Feminist Movemento Elderly & Hispanics

Theories of Discrimination (p. 72) Elderly: Taste-based (prefer not to interact with that person) Hispanics: Information-based (believe person has poor skills)

Perceptions Hispanics eliminated early, kept later Elderly eliminated early & late

Internet Dating Sites: Data

o How forthright & honest?o What info is most/least desirable?o 26-35, whiteo p. 74: Self-described data

Women: above average looks (74%) Men: above average looks (67%) Photo is a necessity Men who want a long-term relationship are desirable

Don’t want: Secretaries Want: good looks

Women Race

50% of women, 80% of men – declare race didn’t matter 90% -- men sent emails only to the same race 97% -- women sent emails only to the same race

We often say one thing, but do another.o Dinkins Affect

Chapter 3: Why do Drug Dealers still live with their Moms?

I. Good QuestionsA. Question something that ppl really care about and find an answer that surprises them, then you have

asked a good question.1. Overturn the conventional wisdom (J.K. Galbraith)

B. Homeless Americans1. 1980: 300 million (1/100) homeless (Snyder)

a. Fabrication: self-interestedb. Journalists need experts as bad as Experts need journalists

i. Journalists & Experts are the architects of “conventional wisdom”ii. “Shock Radio”

c. Beware of Statistics!!!!!C. Listerine & HalitosisD. Crime in Atlanta

II. 1990s – Crack Cocaine & Elicit Cash & Drug DealersA. Supposedly one of the wealthiest occupations in the USAB. Most crack dealers lived at home with mom

1. Find the right data, find the right person!a. Researcher: Sudhir Venkatesh

C. Chicago Study1. Black Gangster Disciple Nation

a. JT – Gang Leaderi. I’m not black, I’m not African American – I’m a “nigger”ii. College Graduate – Business major

b. Venkatesh embeds himself with the gang for 6 yearsc. Booty – gang member who got the gang indicted

i. Turns over “books” to Venkatesh1. Sales2. Wages3. Dues4. Death Benefits

ii. Booty – eventually killediii. Venkatesh turns over “books” to Levitt – an economist

d. How the Gang Worked (Think McDonalds)i. Board of Directors

20 Men Made approximately $500,000/yr

ii. JT 100 Black Disciples leaders Pays Board of Directors 20%

× Can use 80% to pay whomever Has 3 officers

× Enforcer× Treasurer× Runner

25-75 footsoldiers× Sold the crack× Autumn busy× Summer & Christmas slows

200 rank & file× Paid dues – protection, chance to become footsoldier

Books (p. 90)× Revenues: $32,000/month

a. Sales: $24,800i. Licensing fees to sell other drugs.

b. Dues: $5,100c. Taxes: $2,100

× Expenses: $14,000/nonwage/montha. Drugs: $5,000b. Board Fees: $5,000c. Mercenaries: $1,300d. Weapons: $300e. Misc: $2,400

i. Legal fees, parties, community events, death benefits

× Expenses: $8,500/leader wagea. Tax free & less off the books license fees

× Expenses: $9,500/wages (officers & footsoldiers)a. JT - $66/hrb. Officers - $7/hrc. Footsoldiers - $3.30/hrd. Why do they live with mom?

i. Have no choice!!!ii. Very similar to corporate America! (McDonalds)

e. Job Conditionsi. Arrest & violence

25% of being killed Go to jail 6 times every 4 yrs

ii. Path to decent job was through drugs! 56% live below poverty 5% have college degrees Good job – janitor

iii. Criminals respond to incentives Chicago - # of ppl wanting to sell crack out-numbered street corners Supply & Demand

× Skill× Unpleasantness× Demand for services× Fulfillment

iv. Start at the bottom & work your way up For JT – it took him 6 years to make it to the top

D. Nylons & Crack1. DuPont invents Nylons in 19392. 1970s – Classiest Drug was Cocaine

a. Expensive & High doesn’t last longi. Free-basing extends the high

b. Crack becomes the spin-off = cheaperi. Tiny amount of cocaine, still with big high, but short time spanii. Real $$$ to be made, same time factory jobs were being eliminated

3. 1970s – Classiest Drug was Cocainea. Johnny Appleseed of Crack

i. Was the CIA involved?ii. Links Colombian cartels w/inner-city street gangs

b. Gangs been around since 1920si. Chicago – 1300 gangs in 1920ii. Made more mayhem than moneyiii. 60s & 70s – hayday for gang membersiv. 80s – tough on crime time

c. By 1980s – the gap btwn blacks & whites was shrinkingi. Then came crack (worst thing since Jim Crow)ii. Infant mortality began to soar, testing data, crime dataiii. Violence was various & relentless

Why did the crime wave fall?Chapter 4: Where have all the criminals gone?

I. IntroductionA. Nicolae Ceausescu outlaws abortion Romania

1. Goal: boost it’s populationa. Abortion had been ramped = main form of contraception

i. 4 abortions to every live birthb. Result: birth rate doubles

i. Life was pretty miserable for these children & all Romanian childrenii. These children test poorly & were more likely to become criminals

2. In 1989 – overthrown

II. Crime in America in the 1990sA. Crime was the National ConversationB. Quickly begins to fall – very quickly!!!

1. Returns to 1950s stats2. Why: based on number of LexisNexis citations

a. Innovative policing strategiesi. NYC – Rudy Giuliani & William Bratton

Vow to fix crime in the 1990s Bratton – implements new ideas

CompStat Focus on the areas with the most crime

Broken Window Theory Crack down on petty-crimes

Resigns after 27 months Homicide rates drop 73.6%

Innovative strategies have little affect Crime well on its way down before Giuliani & Bratton

Btwn 1991-2001 = 41% increase in the # of officers Hired primarily by Dinkins – previous Mayor

ii. Few other cities try what NYC did Crime falls at same rate in those cities w/o innovative strategies

iii. Increased number of police Indeed – more cops, less crime 50% decline in the # of officers btwn 1960-85

Crime rises significantly during this time period Accounts for apprx 10% of the crime drop

b. Increased reliance on prisonsi. $25,000/yr to incarcerate a personii. Accounts for 33% of crime drop

c. Changes in crack/drug marketsi. 1988 – 25% of homicides were crack relatedii. 1991 – changes beginiii. 5% of all arrests today are Crack related

Profits have gone away More popular, more competition, lower prices

iv. 15% of crime drop in the 1990sd. Aging population

i. Baby Boomers coming of Age in the 1990s Not as criminally active as teenagers

ii. Did nothing to bring down crime in the 1990se. Tougher gun laws

i. What is a gun? Great disrupter of the natural order

ii. Anyone can get a gun if they want one 66% of homicides include a gun Guns last forever Switzerland example – guns do not cause crime

iii. Recent Gun Initiatives Brady Act (1993)

Waiting period & background check Economists understand that the black market over takes any law 20% of criminals buy guns legally

DC & Chicago – est. hundgun bans Lagged in crime reduction in 1990s

What has worked Increased penalities for those caught carrying an illegal gun

Gun Buy Back Program Good photo op, that’s about it Not a good enough incentive # of guns surrendered insignificant

Fewer than 1000 guns often donatediv. More guns less crime (John R. Lott – aka – Mary Rosh)

Deters criminals Right to carry laws

f. Strong economyi. P. 109-110

g. Increased # of policeh. Other

i. Increased use of capital punishment Only 478 executions in all of the 1990s Only 4% decrease in homicides

i. Abortioni. Timeline

By 1900 – most states had outlawed abortion By 1960s – abortion allowed in extreme circumstances By 1970 – 5 states had made abortions “broadly” legal

1973 – Roe v. Wade – makes abortion federally legal (Blackmun’s quote - p. 125)

By 1980 – 1 abortion to every 2.25 live births

j. Abortion - continuedi. Reasons for an abortion

In a bad marriage In a bad financial situation Too young, not enough education

ii. Abortions cost less than $100 Unmarried, teenage, poor women now getting an abortion Previoulsly – only middle/upper class females could afford a safe “illegal”

abortioniii. Consequences

Drop in infanticide Abortion used as birth control

Conceptions up 30%, births drop 6% By early 1990s –crime begins to fall

Missing children who were most likely to become criminals Is this true?

Chapter 5: What Makes A Perfect Parent

ECLS Survey (late 1990s) Correlations: relationship btwn two variables

Not causation Regression Analysis: correlations btwn 100s of variables.

Does a child with a lot of books in his home, do better than a child with few books? More art than science

Black/White Test Score Gap If income level & econ level, & mother’s age at birth is controlled – the gap disappears By the end of 1st grade, a black student is already behind his white counterpart

The typical black school is “bad” Schools are virtually segregated today The typical white student attends a school that is 6% black The typical black student attends a school that is 60% black There is virtually no black/white gap in “bad” schools There is a black/white gap in “good” schools

Rural area students score lowest, suburban score median, & urban students score highest Girls test higher than boys, Asian test higher than Whites

Strong Correlations to High Test Scores (p. 153) Highly educated parents High SES Mom 30+ when kid was born Low birthweight Speak English Adopted Parents involved in PTA Many books in the home Two by Two

Highly educated parents v. Family Intact IQ is strongly hereditary

High SES v. Moved to better Neighborhood SES indicator of success in general

Mom 30+ v. Didn’t work btwn birth & K Mom has advanced ed or career (wants a child), but the family in a more advantageous

position Low birthweight v. Head Start

Low birthweight – do poorly, strong forecaster of bad parenting (smoking, drinking, etc) Head Start teachers are paid poorly and educated poorly, in a room with many “poor”

kids English v. Go to Museums

Hispanic students tend to test poorlyo Do tend to catch up to their peers in the upper grades

Adopted v. Spanked IQs correlated with Biological Parents rather than Adopted Parents Spanking doesn’t really hurt/help kids

o Maybe honesty is more important than whether you spank PTA v. Watching TV

More likely a representation of parental involvement Watching TV does not turn a kid to mush

Books at Home v. Parents Read to them Daily Emily v. Isaiah v. Ricky (p. 159) Books at Home is usually a symbol of SES Those who buy books – tend to value education, are smart & well educated

First list describes what parents are v. Second list describes what parents do Reality – technique is overrated Most of the things that mattered were determined long ago matter

Who you are, who you married, what kid of life you lead. Nature v. Nurture

Adoption Studies Adopted parents: better paid, smarter & more $$$ Adopted children: test poorly

o By the time adopted children had graduated, they had changed!o The influence is what makes the difference.

Chapter 6: Perfect Parenting Part II – Would a Roshanda by any other name smell so sweet?

What’s In A NameWinner Lane v. Loser Lane

Loser succeededo Lou

Winner failedo Criminal

AMCHER, Temptress (Tempestt)

What kind of signal does a child’s name send to the world – and most important, does it really matter?

The Study of Black Underachievement (Dr. Roland G. Fryer, Jr.)Stats (p. 166)Is distinctive black culture a cause of the economic disparity between blacks & whites or merely a reflection of it?

What’s in a name? Black power movement accelerates differences btwn white and black names. California data

o Reliable??? – is CA really reflective of the rest of the nation? Most “black” names

o Deja, Precious, & Shancieo Mom’s: unmarried, low-income, undereducated, teenage, black neighborhood, & distinctive

black name herself Whitest Names (p. 169 – Girls & Boys) Blackest Names (p. 169 – Girls & p. 170 - Boys)

What does it matter?o Audit Studies

Identical Resumes with “traditional” white names v. Minorities Jake v. DeShawn

o Name Changes are at an all time high Would DeShawn do any better if he changes his name?

o P. 173: Synopsis Indicator – not an outcome (correlations not causation)

Where does a name come from anyway? Shithead (shuh-TEED) How does a name migrate through the population, and why? A babies name & connection to their level of income (1990s)

o Middle Income White Girl Names (p. 174) o Low Income White Girl Names (p. 175)o High End White Girls

Alexandra Lauren Katherine Madison Rachelle

A babies name & connection to their level of income (1990s)o Low End

Amber Heather Kayla Stephanie Alyssa

o High End White Boy Benjamin Samuel Jonathan Alexander Andrew

o Low End White Boys Cody Brandon Anthony Justin Robert

o High-Education Parents – White Girls Katherine Emma Alexandra Julia Rachel

o Low-Ed Kayla Amber Heather Brittany Brianna

o High-Ed Boy Benjamin Samuel Alexander John William

o Low-Ed Boys cody mackin Travis brandon guthrie Justin Tyler

o Most Pop White Girl Names Not a single Top 10 Name from 1960 are on the list in 2000 Only one from 1980-2000

Sarah Mooreo High End White Girl Names of the 1990s

Alexandra Lauren Katherine Madison Rachel

o Low End Amber Heather Ladd Kayla Stephanie Alyssa

o High End Names 20 years ago become Low End Names 20 years later The family, just a few blocks over (with a higher SES) drive the naming game! It filters down through the SES hierarchy

Like names that “sound” successful