Thursday, December 28, 2006

musings on Freakonomics

I admit to not reading a lot of nonfiction, especially if it is unrelated to my career. But recently, when I was dragged to a *-Mart, the cover, title, reviews, and introduction of Freakonomics pulled me in, hard. Merely the book's approach, applying the data mining and incentive-based reasoning of economics, intrigued me, let alone the colorfulness of the topics and conclusions. And I think it should go without saying that rethinking old assumptions through a high-level, objective analysis is a worthy goal, at least for anyone seeking the whole truth.

On the other hand, I can also see some weaknesses here. First of all, the reliance on statistics, while being the foundation of the book's claimed authority, can make for dubious evidence. There are three kinds of lies: lies, damned lies, and statistics. Dizzyingly intricate data manipulation can certainly illuminate patterns in a particular sample, but the more the data must be "massaged" and interpreted to reach an answer, the less convincing the evidence becomes. Second, the disagreements between economists when discussing even their own subject matter don't inspire confidence in bringing other topics under the same treatment. To be fair, their attempts to decipher the behavior of something as mind-bogglingly complex as the economy are admirable. It is unfortunate that they can't rely on direct experimentation the way that sciences, such as psychology, can.

Third, their picture of humanity is, of course, simplified. As others on the Web have commented, this book's subject matter is more like that of sociology and psychology than traditional economics. As I understand it, economics treats people as rational agents who balance their decisions in order to maximize profit and minimize cost. (I'm reminded of some comments that Yul, the last Survivor winner, made about one of his competitors, Jonathan. Yul said that he could predict Jonathon's actions simply because Jonathon was a rational player out to win the game for himself. In this sense, Yul was thinking like an economist.) This model assumes a competition is in place for the available payoffs, but there are other ways that people interact, such as sharing, collusion, or the extreme opposite: self-sacrifice. Sociologists would place greater emphasis on these other modes. The economic view would fit with the idea of government being a "social contract" in which free citizens cede some powers in order to have other needs filled.

The book acknowledges this third weakness, by describing social and moral "incentives" (so it's more blessed to give than receive only because the giving act benefits the giver in some way?). Essentially, the economic model of human behavior is not falsifiable. If people act to gain positive incentives and reject negative incentives, then an incomplete analysis of any given situation indicates that the analyst needs to consider more incentives. Funny thing is, I'm pretty sure I've encountered this idea before: radical behaviorism. Push a lever, get a fish biscuit. The fiction book Walden Two presented a utopia brought about with those methods. In case it's not clear, I find that philosophy highly distasteful. Higher brain functions are A Good Thing.

Freakonomics doesn't duck such objections. It invites them. In fact, one of the points made by the book is that the decision to cheat or steal, i.e. breaking rules in order to obtain a resource, is like any other (economic) decision: it simply has strongly negative social and moral incentives. Since everyone acts economically, therefore most everyone cheats, but only when it makes (economic) sense. For instance, when the negative social incentive is infinitesimal because of an infinitesimal chance of being caught, or the negative moral incentive is puny because the otherwise rightful resource holder can "afford" to not have it. Truly, someone must have a firm, crunchy moral center indeed to turn down those opportunities. Or someone can try to engineer additional incentives against cheating, like the designers of Walden Two. It may be true that most people have moral limits, and "every man has his price", but that doesn't mean I must like it or condone it. A utopia would work well, if we could only manage to get around the people problem.

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