‘Freakonomics’ author takes on the everyday

In visit to university, best-selling economist says he studies how people fall prey to conventional wisdom

By: Alex Gennis
   One way to become a famous economist is to apply economic reasoning to everyday questions people want answered but that most economists overlook, such as the economics of drug trafficking and prostitution.
   That’s the route taken by Steven Levitt, author of the best-selling book "Freakonomics" and a prominent economist at the University of Chicago, who spoke to a crowd of several hundred students and community residents at Princeton University’s McCosh Hall on Wednesday.
   "My dad’s advice to me was to figure out what it is in economics that everybody is interested in, but all the other researchers are too embarrassed to study, and that’s how you’re going to find your way in economics," said Professor Levitt, who in 2003 was named the most promising U.S. economist under the age of 40.
   He admitted that in high school, he received the lowest score on the AP calculus exam and never had much capacity for math. Nevertheless, he went on to get a doctorate in economics from MIT and gained recognition by studying the economics of everyday life.
   "A lot of (what I study) is about how various people fall prey to conventional wisdom, even though it should be obvious to them that they are doing the wrong thing," Professor Levitt said.
   He spoke about a large retail company that spent millions of dollars on boosting TV advertising after a consultant it had hired noticed a significant rise in sales in the days following the appearance of its TV ads.
   Professor Levitt found that the firm was simply airing its ads before big holidays, and that after controlling for the effect of holidays on shopping patterns, the TV ads actually negatively affected sales.
   People in the business world often become victims of unsubstantiated claims that look convincing, he said.
   "In academics, to succeed you need to be utterly convincing to the whole academic community," said Professor Levitt. "In business, basically you only need to answer the important question halfway well. You only need to convince your boss."
   Some of his latest research concerns the altruism of individuals. He found that altruism is not enough to explain why some people give money to strangers.
   "It is not just about altruism," he explained. "It is also about maximizing self-image. Scrutiny is a very big determinant of how moral we are."
   Economic experiments in which a person gets $10 and is given the option to give away part or all of that money have produced misleading results, he asserted. Such experiments have found that, on average, people give away 30 percent of their wealth, suggesting that people are altruistic by nature.
   "The real reason people (gave away 30 percent of their wealth) is because the experimenters were standing over them with a clipboard," Professor Levitt said. "If others can see more clearly how much they are putting in, they will put more money in."
   He noticed that when the experiment was tweaked and people were also given the option to steal up to $10 of another person’s money, the average amount given went down to zero. Now people could portray themselves favorably simply by refraining from stealing despite having the option to do so.
   "I don’t want people to think that people in general are not altruistic," Professor Levitt explained. "All I am saying is that 20 years of economic research told us nothing about altruism."
   Although most economic topics are hard to study in the lab, Professor Levitt said he prefers to prove an economic theory through experiments.
   "For example, I am interested in studying the effects of prisons on crime," he said. The best way to see whether having more prisons decreases crime would be to conduct a direct experiment, he added.
   "I would force the prison system to release 10 percent of prisoners in one city and I would take another city and force a prison there to lock up 10 percent of prisoners who would not be locked up otherwise," he explained. "But every time I submit a grant to do this to the National Science Foundation, they turn me down, and that’s part of the reason that economists don’t really do experiments."
   His latest research concerns prostitution in Chicago. It revealed that 7 percent of the prostitutes’ clients are cops who use the prostitutes’ services as bribes for not turning them in. This research also allowed him to take a closer look at his own profession.
   "One thing that prostitutes and economists have in common is that they put a price on everything," he explained.