Book review: SuperFreakonomics, by Steven Levitt & Stephen Dubner

The authors make economics fun, but they should have used their power to micro-investigate the City.

by Richard Reeves
Last Updated: 25 Oct 2010

They're back! Not many writing duos, let alone economists, could get away with putting this on their front cover. But then Steven Levitt and Stephen Dubner's first book, Freakonomics (2005), was no ordinary volume. An international bestseller packed with tales of statistical derring-do, it made stars of Levitt, an economics professor at the University of Chicago, and Dubner, a writer for the New Yorker and New York Times. Far from being the dismal science, in their hands economics is fun.

SuperFreakonomics is more of the same: colourful case studies, startling statistics and amusing anecdotes, all underpinned by a genuine desire to uncover the often inconvenient truth.

Levitt and Dubner's approach is distinguished by a reverence for real-world behaviour. They are sceptical about theoretical models, lab-based experiments and complex econometric reasoning. They lampoon their overly conceptual colleagues as people who say: 'Well, it may work in practice, but does it work in theory?'

Levitt and Dubner summarise their own approach in four words: 'People respond to incentives.' The Levitt-Dubner stance does not assume that everyone is always a rational, utility-maximising machine. But it does assume that the laws of supply and demand, pricing, and cost-benefit calculations feature in almost every area of human life. (And monkey life too, but we'll come to that.)

The most striking example in SuperFreakonomics is prostitution. Drawing on the work of Sudhir Venkatesh, Levitt and Dubner show that Saturday nights are less busy but more profitable for prostitutes than Fridays (because the customers buy 'more expensive services'); that the price of oral sex has plummeted in the past half-century (because the taboo surrounding it has gone); and that prostitutes working with pimps make more money for fewer 'tricks' - because the pimps find better customers for them.

Indeed, the impact of pimps on earnings is greater than the impact of real estate agents on the price of houses. Or as the Freakonomists put it, in playful mathematical terms: 'Pimpact > Rimpact.' Tables show the average price, on Chicago's South Side, of 'manual' sex ($26.70), oral sex ($37.26), vaginal sex ($80.05) and anal sex ($94.13). All this is handled in a scientific, amoral fashion.

Levitt and Dubner do not do morality. Indeed, they rather delight in puncturing assumptions about people's altruism. They devote a chapter to the work of Levitt's University of Chicago colleague John List, who has attacked some of the basic tenets of the games that behavioural economists have been playing in recent years. These games, most famously the 'ultimatum game', put volunteers in situations where they have to decide how much of a pot of money to share with another player. The findings had shown people to be extremely altruistic, freely giving up as much as $6 out of $20.

But List has found that in real life people actually rip each other off all the time. His conclusion is that the lab games, which relied on student volunteers, reveal only 'the science of just those sophomores who volunteer to participate in research and who also keep their appointment with the investigators'. Under the watchful eyes of the researchers, these 'do-gooders' did good.

If this sounds quite technical, it is a bit. But the Freakonomists always keep the reader engaged. The book is littered with great facts and amusing anecdotes. My favourites included the finding that drink-walking is, on a per-mile basis, eight times more dangerous than drink-driving (only for the drunk individual, of course); that 200 people are killed by elephants each year, compared to four by sharks; and that seat belts cost, on aggregate, just $30,000 for each life saved, compared to a cost of £1.8m per life for passenger airbags. And the book is written with irresistible swagger and humour: I loved learning that US doctors call motorcyclists 'donorcyclists'.

Now, back to the monkeys. Levitt and Dubner report on an experiment to introduce a coin currency to a colony of capuchin monkeys. Having been taught that the coins had value, the monkeys began trading with them, and even, at the end, started selling sex for money: 'the first instance of monkey prostitution in the history of recorded science.' (At this point, the zoo wisely ended the experiment in 'capuchin capitalism'.) But the data on the monkeys' behaviour showed that they were 'statistically indistinguishable from stock market investors'.

However, SuperFreakonomics fails to tackle real stock-market investors, quite an odd omission, given the financial crisis that has occurred since the success of their first volume.

Levitt and Dubner insist that they are 'micro-economists', who are focused on the intricacies of small-scale human incentives. But, given their starting philosophy that 'people respond to incentives', they should have turned their attention to how the incentive structures of the financial services sector helped to bring the world close to economic meltdown. Bankers might not be as funny as monkeys or as interesting as hookers, but they are surely more worthy of micro-economic investigation.

Having gathered a global audience, Levitt and Dubner should have done something more useful with their power, and applied their approach to Wall Street and the City, where things were a little more freaky, and a lot less super.

- Richard Reeves is the director of Demos

SuperFreakonomics: Global cooling, patriotic prostitutes, and why suicide bombers should buy life insurance
Steven D Levitt and Stephen J Dubner
Allen Lane £20.00

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today