Beware of Populist Economics

The Freakonomics franchise certainly has legs. According to legions of admirers, in their best-selling series that includes Freakonomics, SuperFreakonomics, and now Think Like a Freak, University of Chicago economics professor Steven Levitt and journalist Stephen Dubner have taught us to use economic reasoning to shed light on real-life situations. In the process, they have also shown that economics can be fun.

But the fun quotient is ultimately diminished by the fact that their stock in trade is naive economics. Typically, Levitt and Dubner fail to understand that when a problem arises in a market, it generally provides an incentive for those involved to remedy the problem.

Take the sour-lemon story. "A new car that was bought for $20,000," they assured us in Freakonomics, "cannot be resold for more than perhaps $15,000. Why? Because the only person who might logically want to resell a brand-new car is someone who found the car to be a lemon. So if the car isn't a lemon, a potential buyer assumes that it is."

Stories like these have clearly appealed to those who enjoy clever portrayals of a dysfunctional world. But a little research would have revealed that, contrary to Levitt and Dubner, used cars with only a few thousand miles on them sell for almost the same price as when new. One obvious reason: Since car manufacturers allow warranties to be transferred to new owners, potential buyers know that even if they do buy a lemon, they will not be stuck with it.

In Think Like a Freak, the authors promise to teach us what "it takes [to be] a truly original thinker." But rather than promoting original or critical thought, their book tries to convince us of one main thing: People are stupid. We are thus confronted with half-baked theories similar to those in their previous books.

Take the example that Think Like a Freak starts out with: soccer players in the World Cup doing what is best for their own reputations rather than what is best for their team. We are told that, when a player kicks penalty shots, aiming toward the center has a better chance of success, but that fear of shame prevents players from doing so. The potential shame of kicking the ball right into the hands of a goalie standing in the middle of the goal, especially during the World Cup, keeps players from doing what is best for the team.

The data cited to support this view are a bit rough. We are informed that "only 17% of kicks are aimed" at the center of the goal, even though "75% of penalty kicks at the elite level are successful." But the real problem is that, per their usual habit, the authors assume no one else involved is smart enough to detect this cheating. If, by kicking the ball to the side, players really are failing to score, it defies belief that team owners and coaches would be blind to this abuse and allow it to continue.

Since the team's gain from winning is far greater than any shame the player risks, incentives can be used to make sure that players do what is best for the team. Stiff financial penalties can be imposed, including the penalty of being fired from the team. Then there are other kinds of possible shame, meted out to these players in front of other team members, for not serving the interests of the team.

In the ivory-tower world of Levitt and Dubner, however, owners and coaches are completely ignored, since including them would only ruin a clever insight. I contacted actual soccer coaches at three different colleges, and found that they did not agree with the authors' premise that the center shot in a penalty kick is the best strategy. Not surprisingly, then, players seem to obey their coaches' dictates on penalty kicks. (Disclosure: the author of this review sued Levitt and HarperCollins for defamation over Freakonomics in 2006.")

Levitt and Dubner also brag in Think Like a Freak about the authors' "truly original" thesis, presented in Freakonomics, that liberalizing abortion lowered crime rates. Abortion, they argued, lowered the number of unwanted children who would be prone to commit crimes. But again, the authors naively ignored the new set of incentives that legalized abortion offered.

What actually happened when abortion was legalized will sound ironic, but no more so than the unintended consequences of many other changes in laws and regulations. Multiple studies have shown that the availability of legalized abortion increased the incidence of unprotected sex, which led to more unwanted pregnancies, which in turn boosted the number of unplanned births, even offsetting the reduction in unplanned births due to abortion. The net result: an increase in the number of single-parent families who couldn't devote a lot of time to raising their children, an effect Levitt and Dubner ignored and one that more than offset what they focused on.

It would be nice to believe that Think Like a Freak and its prequels have promoted interest in sound economics. But alas, when you think like a freak, you think superficially, like most freaks probably do in real life.

John R. Lott Jr. is the president of the Crime Prevention Research Center and the author of the recently released “At the Brink: Will Obama Push Us Over the Edge?”