Last week has been a pretty unproductive week. Fell ill on Tue and Wed. Barely managed to work for a few hours on Thu. But by Friday I was back to normalcy. Generally one of the ways I get over from an inertia state to an active state is to read something interesting. So, picked up this frequel( from the back cover : nice name for freakonomics sequel ). I knew there was a lot of controversy relating to this book. Some people argued that authors got it completely wrong as far as global warming is concerned. Some argued it was a hotch potch of some articles.

Whatever others have to say about this, I have found this book a real page turner. Even though some people criticized the book saying that it was a mish mash of random thoughts, the author clearly mention their intention in the very first note. They identify the theme as “role of incentives” and their hypothesis is that people respond to incentives which are not necessarily predictable. These stories are based on “economic approach” where the underlying premise is that behavior is driven by a rich set of values and preferences.

While presenting this opinion about incentives, authors introduce a number of interesting examples like the following

Image 1.This campaign by US Dept of transportation urging people not to drive drunk. Authors estimate that walking while drunk is 8 times fatal than driving drunk. Simple alternative (a seemingly safe one) to driving drunk is actually more dangerous.

2. How Cable TV might have improved the status of women in India

There are 5 chapters in the book with each chapter filled with umpteen number of stories, where results are presented based on the economic approach, looking at micro data, trying to ask questions and teasing out some answers. In a sense, this kind of thing actually makes economics interesting I guess. Its the same with stock market . Long term predictions(read anything more than a couple of months) are very difficult. Near term predictions are also not great too. If one looks at stock market data, almost everyone is dealing with the same starting point, univariate time series of stock prices, option quotes. You can do a low frequency, medium frequency or high frequency analysis. More and more I get exposed to data, I have a feeling that there is money to be made only in high frequency trades ..

Coming back to the book,

ImageHow is a street prostitute similar to deparment store santa ?

The first chapter is about authors understanding demand curves of prostitutes. One of the challenges of asking questions about such topics is data. Everyone knows the more sensitive the topic is, the more difficult it is to procure data. Drugs, Violence, Sex are some of the things where getting data becomes a dangerous adventure. So, credit does go to Sudhir Venkatesh’s hard work to actually get the data in the first place. Once you have some structured data , slicing and dicing is the fun part and here is where the authors excel is bringing out some interesting observations. In creating a narrative, the authors come out with a lot of aspects about women, women’s lives, prewar prostitution etc. Here are some aspects mentioned in the book

  • It is hard to be a woman , be it developing countries or developed countries, say the authors. Practices such as breast ironing , abandoning girl childs in China, pay scale mismatch in corporate America etc. make it difficult to lead a woman’s life
  • Prostitution has by far managed to be a woman’s game( though things are changing pretty fast:) )
  • Prewar prostitutes were earning far more than the current street prostitutes. It is argued that one of the reasons could be the rise of premarital sex.
  • Whole lot of observations are based on the working paper, Empirical Analysis of Street-level Prostitution . It’s abstract says the following :
    • Combining transaction-level data on street prostitutes with ethnographic observation and official police force data, we analyze the economics of prostitution in Chicago. Prostitution, because it is a market, is much more geographically concentrated than other
      criminal activity. Street prostitutes earn roughly $25-$30 per hour, roughly four times their hourly wage in other activities, but this higher wage represents relatively meager compensation for the significant risk they bear. Prostitution activities are organized very
      differently across neighborhoods. Where pimps are active, prostitutes appear to do better, with pimps both providing protection and paying efficiency wages. Condoms are used only one-fourth of the time and the price premium for unprotected sex is small. The
      supply of prostitutes is relatively elastic, as evidenced by the supply response to a 4th of July demand shock. Although technically illegal, punishments are minimal for prostitutes and johns. A prostitute is more likely to have sex with a police officer than to
      get officially arrested by one. We estimate that there are 4,400 street prostitutes active in Chicago in an average week.
  • Reference to NYTimes article(The economy of desire) which makes a case(weak one though) that having a relative in the family with AIDS changes the sexual behavior as well as self-reported identity and desire of a person
  • Article supporting Larry Summers Hypothesis – He, Once a She, Offers Own View On Science Spat
  • Why legalizing sex work is dangerous for sex workers .. Taboo / Illegal things are priced at a premium. Once you remove restrictions, prices drop like crazy and thats bad news for escorts. From the freakonomics blog , here is an interview with a high profile prostitute.
    Link A Call Girl’s View of the Spitzer Affair

Authors finally after all these stories, anecdotes, empirical evidence suggest that street prostitute is similar to a department store santa, they both take advantage of short-term job opportunities bought about by holiday spikes in demand

ImageWhy should Suicide bombers buy Life Insurance?

As I began reading this note, I had a feeling that it was similar to “outliers” , Gladwell, story all over. Thankfully the authors mention that the point was already made by several other books and stop belabouring the same point. The whole chapter revolves around Craid Feied who manages to set up a database for ER and thus revolutionizes information management systems in a lot of hospitals. Some of the interesting things mentioned in this part are

  • The effect of surname in academic profession 🙂 Link : The benefits of being economic professor A ( and not Z)
  • Deliberate Practice has 3 components. Setting specific goals, obtaining immediate feedbacks , and concentrating as much on technique as on outcome
  • Why terrorism is so cheap and easy ?
  • How the estate tax has an impact on the death rates of people who inherit tons of money ? very funny things mentioned in this context
  • The most interesting part is the fact that hospital database is being used to track terrorists

The authors answer the question about suicide bombers . The database suggests that one of the defining characteristic of a suicide bomber is , he /she doesn’t buy life insurance. So the quirky take on that fact is : Suicide bombers should buy life insurance to leave no trail behind them.

Unbelievable Stories about Apathy and Altruism

This part was a little dragging. Behavioral economics, apathy shown by 38 people towards a murder in a NY neighborhood, stories about altruism etc are the aspects touched upon

ImageFix is in – and It’s cheap and Simple

I think this is the BEST chapter in the book

Premise under which the narrative is built around : Cheap and Simple fixes often address problems that seem impervious to any solution.

  • Starts off with the story of Hungarian Scientist Ignatz Semmelweis who came up with a simple fix to solve perpetual fever, something witnessed immediately after child birth in many hospitals. Fix was : Disinfect your hands before operating on maternity patients. Simple but powerful fix which has saved innumerable lives till date.
  • Polio is another vaccine which can be considered as a fix. Instead of dealing with the problem after the fact, see to it it doesn’t arise in the first place.
  • McNamara fix of seat belts in cars to prevent fatalities
  • Nathan’s solution to hurricanes is fascinating. A little dig in to Nathan’s intellectual venture gives a superb account of what he and his team is up to.

What do Al Gore and Mount Pintabu have in common ?

Reader meet Nathan and his team again in this chapter where the solution to global warming is presented in a different way. There is a considerable debate about this chapter. I have no clue on what is right and what is wrong about global warming. The only thing I feel is the solution of actually spraying something in the air to global warming is lateral thinking.. Who knows, it might work.

To digress at this point, recently I came across an interesting example of lateral thinking. This was long time ago when prince of Turkey wanted to modernize the society. He did not want women to wear burkhas!. Well the usual boring way to stop women from wearing burkhas is to impose some law, penalty, etc… However he was a great lateral thinker. He passed a law where , “All prostitutes were ordered to wear burkha” .Behavior change among normal women was immediate !!. Terrific example of how you can fix things, change aspects of societal behavior by lateral thinking…… May be Nathan and his team need to be given a hearing and funding to see whether their lateral solutions works..Who knows, it might just work…

My takeaway from this book : Understanding data and teasing out answers to interesting questions is a great fun activity. If one spends enough time gathering data or visualizing data, one is bound to ask useful questions. Lateral thinking and open minded ness towards solutions usually result in interesting solutions.