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Freakonomics Transcribed

Karin: Welcome to the Cocktail Party Statement, where three MBAs summarize a business book and dissect the findings so you can make a statement at a cocktail party and sound like a pro. My name is Karin.

 

Aaron: I’m Aaron.

 

Phil: And I am Phil.

 

Karin: And today we are talking about Freakonomics by Steven Levitt and Stephen Dubner.

 

Phil: Steven Levitt, an economics professor at the University of Chicago, Stephen Dubner a reporter.

 

Karin: What it doesn’t give credit to, I mean, it does give credit in the book, but not as an actual author: Sudhir Venkatesh. Second reason is because we have less than six degrees separation from this: our professor, Aaron and I had him. I don’t think you actually had Venkatesh.

 

Phil: Didn’t luck out.

 

Karin: Alladi Venkatesh is the father of Sudhir Venkatesh and it turns out that his son had done his whole PhD on the whole gangs in Chicago. “By the way he contributed a whole chapter to the book Freakonomics and have you read that?” I said “Of course!” The third reason we’re doing this book is because they’re releasing it as a movie and it just got released on iTunes in the last couple days.

 

Phil: A pre-release before the theater release in November.

 

Karin: Right. Kind of weird the way they did that because it seems like that should be awesome and cool and a way for you to kind of budgetarily get a discount on that movie, right, Phil?

 

Phil: Well, I’ve rented movies from iTunes in the past and it’s $3.99 for the standard def and $4.99 for the HD. I signed into iTunes the other day to watch it and it was $9.99 for the regular version and $10.99 for the HD version. Which kind of blew me away.

 

Karin: It’s crazy.

 

Phil: I’ve always said in the past that I’d be more than willing to pay $10 to watch a movie in my home, rather than go to the theater, but when it finally came to fruition yesterday, I’m like, “that’s a little shocking.”

 

Karin: It’s kind of painful. Well, it’s just not what the market rate is. When you think about the on-demand movies or any of the movies you get from Netflix or anything that you’re watching in your house, you are not paying the same price as a theater ticket, so that just seems really high.

 

Phil: I think you’re paying the $5 premium of seeing it before it’s released in the theaters.

 

Karin: Sure, but this is not Star Wars.

 

Phil: Because all those pay-per-views and stuff like that, those are all after they’ve been released and they’ve already made all their money.

 

Karin: I totally understand that and get that idea, but this isn’t Star Wars, this is Freakonomics. This is a documentary.

 

Phil: Right, I would expect to pay that for a Spiderman 4, something like that, maybe not a documentary.

 

Aaron: I wonder how many of these sold.

 

Karin: I’d be curious to hear.

 

Phil: It’s interesting. You should go check it out because there are tons of people that are writing comments on there that are all like “Fuck Apple. I’m not paying $10 for this. This is ridiculous when every other rental is $3.99 and you’re asking us to pay $9.99.”

 

Karin: It seems really high.

 

Aaron: Well, it’s opportunity cost. You’re not going to a movie theater. It’s an early release. You’re paying for an early release.

 

Phil: Absolutely. I loved it. I brought it up on my laptop, I was lying in bed just watching it and it was great.

 

Karin: Just as a side note: it does release in theaters October 1st.

 

Phil: October or November?

 

Karin: October 1st is what I took off the website today.

 

Phil: OK

 

Aaron: Motive. (laughs)

 

Phil: Maybe it’s in select markets. (laughs)

 

Karin: Sure, I think it is actually, I think it probably is. The point I’m making there is that we’re way ahead of the curve, we’re putting this podcast out there way before it’s released as a major release.

 

Phil: Light-years.

 

Karin: Because we are…

 

Phil: Trendsetters.

 

Karin: Trendsetters and early adopters.

 

Aaron: Hence Ustream live this video, by the way.

 

Karin: Absolutely.

 

Aaron: For those listening to this podcast way after the fact we’re actually taping this live via Ustream right now where people are going to be able to log in.

 

Phil: We’ve got three viewers right now.

 

Karin: We do!

 

Aaron: We had a select audience that we were marketing to this time so this is sort of a test and we’ll end up seeing how this—

 

Phil: Hey mom and dad, thanks for supporting us. (laughs)

 

Karin: So you can talk to us by instant messaging. What does that box say in the top right corner? What does it say?

 

Aaron: It says chat and social stream. If you post in social stream it’s going to end up posting to your Twitter or Facebook account; in chat it doesn’t post to any of those accounts.

 

Karin: But go in to chat and tell us who’s out there so we can kind of open it up and see who’s there.

 

Aaron: We’ll podcast it later so people can hear. This is a new format that we rolled out last session and now we’re rolling out some more technology.

 

Karin: So, we’re talking about Freakonomics and I always take my covers off so this is as much as we have for the cover.

 

Aaron: I have the cover.

 

Karin: You have the cover of the book.

 

Phil: It’s usually an apple with an orange inside.

 

Karin: Yeah, it’s right there. The format here is a little bit different than what we did in the past. The first thing we’re going to do is we’re going to talk about our cocktail party statement. This is a statement that we would make about this book if we were at a cocktail party to sound like we knew what we were talking about. The next thing we’re going to do is our cocktail party index, which we’ll explain at the time, we’ll do a SWOT, and then we’ll summarize and be done. So, our cocktail party statement. Go ahead, do you guys know what yours are? I have mine.

 

Aaron: Mine really follows the book cover. That what appears to be true on the outside, when you dig deeper, is a completely different story.

 

Phil: I was going to go along those lines too, I went with “rethink the obvious.” I think that’s what the strength of that book is. Aaron, what were your favorite parts of the book?

 

Aaron: I found it really interesting.

 

Phil: What chapters really jumped out at you?

 

Aaron: The abortion one, of course, was big.

 

Karin: I think he did that to get his name. I think that was purposefully controversial.

 

Aaron: Oh yeah, that’s pretty controversial.

 

Phil: He pissed off both sides of the argument with that study. It’s a fantastic study. It really makes you think about it.

 

Aaron: Summarize that part.

 

Phil: The really brief summary is that the reason why crime rates have dropped in the United States, half of the reason, is not because of more cops, different policing techniques, the lack of value in crack. The reason is, half the reason is, Roe v Wade being passed in, was it the late ‘60s? Early ‘70s? Because if you take those kids that would’ve been born–we’re going to get controversial here–those unwanted kids that would’ve been born, those unwanted kids as they grow up tend to go into crime. So when you have those abortions and the kids aren’t born there aren’t the people there to commit the crimes.

 

Karin: Right, because a high percentage of the unwanted pregnancies are from low-income families and then they are raised in less-than-desirable situations and because of that they have angst and bitterness and poverty and those are directly correlated with higher crime rates.

 

Phil: Right, and I just watched the movie as well, and I’ve also read the book, and when you read the book it comes off as really cold and uncaring and you can understand how people took it the wrong way. What’s nice about the movie is it allows Steven Levitt to explain exactly what he was coming from. It wasn’t saying that poor kids tend to be criminals, it was saying that allowing mothers to choose when they wanted to have kids, gave those kids a better chance of succeeding, and that’s really what the chapter is about. It just so happens that crime is in there, because, like I said, both sides of the argument took this way out of context.

 

Karin: Can I tell you what helps support your argument that I thought was one of the strongest things?

 

Aaron: Let’s go right into the strengths of the book in the SWOT, in context.

 

Karin: This is a little bit of a tangent but I’m just going to go into the part where he talks about regression, and I don’t know if this is in the movie.

 

Phil: They don’t explain the nitty-gritty in the movie.

 

Karin: In the book there is a whole part where they’re talking about regression and the difference between causality and correlation. So, what you’re talking about with the abortion stuff is the causality is where the people get all political, and all he’s talking about is the correlation. Is there a numerical correlation? Can you run a regression on those? Does x relate to y in a correlating way? Not in a causality way, but in a correlating way. That’s something that anybody who’s taken statistics, we’ve all heard that, but when you hear it in these kinds of terms it really helps to explain the difference. We’re not talking about cause, we’re not talking about the political, the drama behind it, we’re talking about a correlation–just the numbers.

 

Phil: And that’s where politicians usually get lost in statistics.

 

Karin: Exactly. Can I go back? Sorry to jump around, but can I go back and do my cocktail party statement?

 

Phil: Have you found it finally? (laughs)

 

Karin: (laughs) I found it. In the beginning it talks about how the book is all about stripping down the layers and seeing what’s happening underneath, and that incentives are the cornerstones of modern life, and questioning conventional wisdom will lead you to these unexpected answers.

 

Phil: Fantastic.

Phil: I don’t know if you guys are watching at home, but Karin hates talking to a microphone (all laugh). She does anything she can do to avoid talking to a microphone.

 

Aaron: How we’re framing this, we’ve got the cocktail party statement out of the way, so we’ll slide into the SWOT analysis, those strengths and weaknesses.

 

Karin: Do you want to do that or do you want to do the index?

 

Aaron: Let’s do the index first. Describe the index for us.

 

Karin: The index, unfortunately we don’t have a slide for that, we’ll do that next time.

 

Phil: We’ll have it on our website, go to our website.

 

Aaron: CocktailPartyStatement.com

 

Karin: The vertical axis is utility. So, this is how practical the book is, how much real world application there is, how many how-to’s, whether it’s case-based, all these things that you can relate to something you could do today or tomorrow. That’s the vertical axis. The horizontal axis is the quality and this is where it relates to our cocktail party statement. That’s the quality of the information, anywhere from a Wine Cooler, to a Beer, to a Margarita, to Wine, to the best of the best: the Martini, which looks like our logo.

 

Phil: Top shelf martini.

 

Karin: We haven’t really talked about this so we’ll talk it through right now. My index for this: I would say, utility-wise, I don’t think this is very useful. I think it’s kind of low.

 

Phil: I’ll disagree.

 

Karin: Ok, well I’m talking about mine (laughs). I think it’s all theory, I don’t think it’s like Groundswell where they give you these how-to’s and whatever, so I’m going to say a 2 on useful and the quality, though, I think is a 4. Freakonomics is such a great book.

 

Aaron: I gave it a Wine-3 as well. I really liked it, but application to my work everyday? The reading was great, couldn’t put it down, I thought it was interesting, but as far as applicability, me using it on a day-to-day basis?

 

Phil: I think you guys are so simple-minded (all laugh) that you’re completely losing the point on this.

 

Aaron: Could possibly be.

 

Phil: This is a Martini-4. I’d almost give it a Martini-5.

 

Karin: Really?

 

Aaron: Really?

 

Phil: I’ll tell you why.

 

Karin: Why? I don’t think it’s that useful.

 

Phil: Yes, this book is so useful, because what this book teaches you is that you’re looking at information incorrectly. If you take this into your everyday jobs, your common, ordinary, everyday job, you reevaluate the situation. Chances are you’re set up in a situation where it’s “step one, step two, step three, step four.” This is telling you “think outside the box. What’s going on here? Is there a better way to do it?” I think, in that sense, it’s quite practical and useful, and that’s why I gave it a Martini-4.

 

Karin: That’s really high.

 

Phil: It’s like Tipping Point. When this first came out this was earth shattering. It is practical. Selling your house? What does he say about that? That’s a useful technique.

 

Aaron: I would love to nominate some weaknesses for that one.

 

Karin: So, that’s our index. Let’s move on and spend the remainder of our time in that SWOT thing, because that’s where we are talking about the book a little bit more and diving a little bit deeper, so let’s go there.

 

Aaron: Just to frame it, SWOT analysis is typical strengths and weaknesses, opportunities and threats, and the “t” we changed to trends and technology.

 

Karin: But we also just open it up.

 

Aaron: Strengths. I love exactly what you’re talking about, the proving that the way that we think could possibly not be framed well. I loved the broken window theory when they started getting into New York and talking about how everybody thought it was Giuliani, but actually it was his predecessor that really lined him up and it had nothing necessarily to do with him. Sure, it was cutting edge police.

 

Phil: That’s the abortion issue.

 

Karin: No, no.

 

Phil: But isn’t that part of the abortion thing? That’s the crime thing he talks about.

 

Aaron: Yes, exactly.

 

Karin: But they’re saying that the broken windows–this was different than Tipping Point.

 

Phil: You see what he’s making the case for is that it wasn’t anything that anybody was doing.

 

Karin: Right.

 

Phil: Which goes into the abortion thing.

 

Aaron: Some people were saying that crime was going down because of certain different factors.

 

Phil: He briefly goes over this in the movie. What they do is they combine all these chapters into one.

 

Karin: Yes, it is the abortion thing.

 

Phil: People were saying it was more cops, better policing techniques, broken windows, crack cocaine, harsher punishments, and what he said is that that only explained half of it.

 

Karin: If that.

 

Phil: This other thing, which was Roe v. Wade, explained the other half. That’s what that chapter talks about.

 

Aaron: I really liked that and I had never heard it framed like that because in other books I’ve read, the whole broken window Giuliani thing is always like “it was him, who caused it all,” so to think that maybe it could have been something else…

 

Phil: Clinton also took credit for that too, just to balance both sides of the argument.

 

Karin: It was Bratton. It was the guy that he hired.

 

Phil: Who’s now at LAPD.

 

Aaron: It was him who got on the cover of Life or something and so he got fired soon anyway.

 

Karin: It was 18 months later he was fired.

 

Aaron: It’s a really interesting read so as far as readability this book flew by for me; it was really fun. I really did like talking about how we’re not looking at the right things and we really need to think outside the box and not necessarily look at exactly what’s in front of our face, because we always want the causality to be us. We’re egocentric enough to be like “well we did that.” Actually, no, the economy did that, not you, stupid.

 

Karin: Not just “we did that” but “I have the ability to change that.” I think people are always looking for these tools. They think, “How can I be a millionaire? And how can I do that thing?” and we found this in a couple different books. It’s never as easy as it looks, there’s no quick fix, and this is another thing where it’s not what it looks like. Can I talk about my favorite part? It wasn’t what I think everybody else talks about for this book. Everybody talks about the abortion thing and the crime and whatever but I loved this “What Makes a Perfect Parent.” I loved that. That was the part that I read the easiest and fastest because there’s all this stuff about how you can really foster these children and you can do all this Baby Mozart stuff and he talks about having a swimming pool versus having a gun in your house.

 

Aaron: I’m turning to that page right now.

 

Karin: (laughs) I have that highlighted, probably the same parts that you do. I knew this just from being a lifeguard forever, that a swimming pool is the most dangerous thing in any family’s house, even a bathtub is really dangerous because kids can drown in two or three inches of water. I love this line that he talks about where the New York Times says the basic reality is that the risks that scare people and the risks that kill people are very different, and the risk that you control, and there’s this formula about how risk equals hazard plus outrage.

 

Phil: In the movie, Dubner has a great line that summarizes this whole chapter. He says that you might be the parent that goes out and buys nine books on how to be a better parent. Reading those nine books is not going to make you a better parent. But the fact that you’re willing to go out and buy nine books and read them makes you a better parent.

 

Karin: Right. This was great for me because it really underlined a lot of these ideas that I already had, even just about airport security and stuff like this. We’re not still taking our shoes off at the airport because there’s a risk. There’s really almost zero risk. The shoe-bomber guy, the shoe-tier guy–that was so long ago. There’s almost zero risk that anyone would try that exact same thing, but the public—

 

Phil: Now you’re getting into Black Swan.

 

Karin: –No, because it’s about outrage, that’s where I’m going with this. The public needs to feel that when they go through security they’re being covered. It has nothing to do with the potential risk.

 

Aaron: Well, the government, too, because they feel that they’re controlling a certain situation.

 

Karin: Yeah, but less so, because they actually understand the true risk, they actually understand the numbers behind that, so they understand the public outrage and the fact that it wasn’t caught beforehand. So, now you’re taking your shoes off and you’re taking your shoes off for years to come for no apparent reason and it’s just going to be pointless except you’re going to feel better, and that’s a big difference. That’s a big deal.

 

Phil: Absolutely.

 

Aaron: I like in this chapter that he says we should be making decisions on a death-per-hour basis. (laughs)

 

Karin: Yeah, that got crazy.

 

Aaron: When you talk about pool deaths, what was he comparing? Oh, guns, and how pool deaths are so much more risky than actual guns in the home. He was talking about parents not letting their kid go over to somebody’s house because they have a gun yet a pool is not a problem because they inherently think that they control the risk when they don’t.

 

Phil: You could also use that argument to say: what’s more dangerous, a gun or a car? And a car is more dangerous than a gun.

 

Karin: Even a plane or a car, and he talks about just your own mental state, you’re in less control.

 

Aaron: It really got into to a lot of stereotypes and expectations that we have as a society that were completely unfounded.

 

Karin: He went a lot into testing and that was the part where it got a little bit long for me. He talks about this school’s testing versus that school, and does it matter what schools your kid goes to? It was a little bit long but it was still really good, I thought. Bottom line it kind of doesn’t matter. It matters a lot more about whether you’ve got a lot of books in your house; what your socioeconomic status is.

 

Aaron: I guess my only beef with that is that, I think he mentions it briefly, you look at the Forbes list and how many people go on to bigger educations and who doesn’t, do schools really matter? Well, he’s still only testing test scores. It’s not measuring personal skill, it’s measuring book smarts but it’s not measuring street smarts or people smarts which can be just as important, it doesn’t matter sometimes.

 

Phil: Which is what Outliers talks about.

 

Karin: But some of those things matter, especially at high school levels, about where you end up in your next few steps.

 

Aaron: I know, but that’s what I’m saying: for some of the biggest, wealthiest people in the world, it doesn’t matter.

 

Karin: They didn’t test well.

 

Aaron: They drop out of school.

 

Phil: Right, I see what you’re saying, but in Outliers, what he’s talking about, to bring that in, is that it doesn’t matter what school you go to, it’s what you do with it. I think he’s getting at that, too. You can test high and go to Harvard and be a nincompoop or you can go to Chico State and be a Nobel Prize winner. Well, maybe not Chico State.

 

Aaron: Don’t judge (laughs). You know what, me being a nerd, I sort of wanted to see more data. It’s just “believe me about the numbers.” Especially when he goes back to the realtor part, he’s like, “oh, realtors sell their houses so many percentage points more.” The frustrating thing is, being in the industry as a realtor, you know what sells and what doesn’t.

 

Karin: I saw some problems with that, too.

 

Phil: Completely disagree.

 

Karin: He talks about the realtors and their cut, right?

 

Aaron: Right.

 

Karin: He just had a blanket statement for that and that’s not how it works if you’re a high-end real estate agent. Our top agents, their cut to the company was much less than a brand new agent. So, a top agent, number one in an office, she’s maybe giving one or two percent back to the company, where a brand new agent is probably giving at least ten or twelve percent.

 

Phil: Really?

 

Karin: Absolutely. It’s a huge difference.

 

Phil: You guys are completely missing the economic point he’s trying to get across. He’s talking about incentives on this, and the incentive to sell a house for $300,000 instead of $290,000 is very little; they just need their money so they can go on and work somewhere else. So, no matter what their cut is, while for you the homeowner it’s more beneficial to sell your house for $300,000, for them $290,000 is the equivalent of $300,000. Or, if we want to go big numbers, $2.9 million is the same as $3.0 million.

 

Aaron: He leaves out an important point. A lot of agents will go ahead and keep that in office or negotiate a different rate so that’s not completely true, partly because he doesn’t know the industry.

 

Phil: But you’re missing the point. It doesn’t matter what the rate is. The biggest chunk that they get, the one percent of $290,000 is almost the same as one percent of $300,000.

 

Karin: As far as your point about the data and him substantiating his point, I will say he does compare it to what their behavior is when they’re doing it for themselves. They keep it on the market for a minimum of ten days longer and wait for extra offers and stuff.

 

Phil: Meanwhile they’re telling people “sell, sell, sell,” and that’s what he’s getting at, that their interests are not aligned with yours.

 

Karin: I think that’s the whole point of the book. We’re probably splitting hairs.

 

Aaron: I know.

 

Phil: I am willing to bet he has the stats to back it up.

 

Aaron: He just oversimplified a few points where it doesn’t make me feel like he was controlling the right factors, unfortunately, so for me I sort of blew it off.

 

Phil: I will bet heavily on the Steven Levitt side of this argument.

 

Aaron: Well, unless he shows me his data, sorry. (laughs)

 

Phil: I love the book, I love the movie, the movie went over houses, parenting, names…

 

Karin: The abortion thing.

 

Phil: …Abortion, sumo wrestlers cheating–I thought that was fascinating.

 

Aaron: I did think that was pretty interesting.

 

Phil: He makes a statement in the movie, without ever having seen these matches, and just looking at the data—oh and teachers cheating on the tests, that was fantastic–he’s like, without even looking at the data, no, excuse me, without even watching those sumo wrestlers wrestling, or seeing the teachers take these tests, we can tell by just looking at the data that people are cheating, and that’s fascinating.

 

Aaron: That was a good part, I almost forgot about that. I did forget about that.

 

Phil: Is this the one where he talks also, in the book, about the Ku Klux Klan?

 

Karin: Yes.

 

Phil: They left that out of the movie, which I thought was a detraction. Also, the one that I really wish they did, which is the one Venkatesh did, was the drug dealers in Chicago. When I read that book I was like, “that is amazing.”

 

Karin: It was amazing. Let’s talk about that for a minute. Sudhir Venkatesh, who is the son of our professor, who we’ll just mention again…

 

Phil: We’ve covered that three times. Name-dropping. (all laugh)

 

Karin: Just in case he listens! The survey questions that he was sent out to ask were “how do you feel about being a poor black person in this gang?” And he literally almost got killed.

 

Aaron: I’m amazed that he wasn’t killed.

 

Phil: Yeah.

 

Karin: I think he basically made it through by the skin of his teeth

 

Phil: He’s got to have balls of steel.

 

Aaron: Luckily the gang leader had a MBA.

 

Karin: Yeah, was it a MBA or a BA?

 

Aaron: I think it was a MBA.

 

Phil: From the University of Michigan or something.

 

Karin: To make a really long story short: he comes across this one guy, gets in good with the gang, kind of gets friendly with them and they help him find some better questions and ways of really understanding what’s going on in the gang. One of the guys in the gang does something inappropriate–he kind of predicts his demise, and he’s about to die, and he almost gets killed–he hands over to Sudhir these notebooks that are basically the books and accounts of the gang for the last number of years, which is this information that has never been seen. It shows who’s in charge, how many people are underneath, how they bill, what they’re making, and it’s this amazing amount of information and it’s fascinating because it’s run like a corporation.

 

Aaron: The chapter is basically talking about why crack dealers still live with their mothers.

 

Karin: Right, so the bottom line is that when it all drips down these bottom line crack dealers, who are pretty much at the bottom of this whole pyramid, are not even making minimum wage.

 

Aaron: Right, and the risk is super high but they’re willing to do it because taking the risk could mean a huge payoff, which only a few people succeed at. Man, it was a little disheartening.

 

Karin: The one part I highlighted in this–

 

Phil: Yeah, there goes that back-up career.

 

Karin: –A crack gang works pretty much like the standard capitalist enterprise; you have to be near the top of the pyramid to make a big wage, but because there’s that huge pyramid and at the top you have the potential to walk down the street and wear those big furs and the gold chains and all that stuff, they see that and it’s promoted. There’s the dream, the dream that I’m going to get get out of this crack den and that’s what I’m going to do. Everybody believes that and because of that potential they’re all competing for this glamour.

 

Phil: I’m just going to go back real quick for the strengths, another strength of this book: this really brings in behavioral economics and there’s another book that hopefully we will read, which is Predictably Irrational. The fundamental belief of current economic theory is that humans are rational. This is starting to talk more about how we’re not rational; we’re actually irrational in our behavior. So, this whole behavioral economics has really taken over and the technology, if we can call it that, trend, that’s what this was the precursor of; that’s why I ranked it so high.

 

Aaron: Well, weaknesses. Did you guys have anything else?

 

Karin: The only summarizing idea I had was while I was reading this, the one thing that kept swimming around in my head, is the difference between our traditional definition of econ that we got in micro was the competing for scarce resources, and that’s the idea. Here it’s much more about incentives, which is a minor difference, but–

 

Phil: It’s more behavioral.

 

Karin: It’s behavioral but it’s also about having your eyes on that prize and competing for that incentive. So, when you look at that gang idea, you’re willing to put up with the crap and that less-than-minimum-wage thing, because you’re competing for that incentive at the end, the prize, whatever. Which is also a scarce resource, so it’s not completely different.

 

Phil: I understand what you’re saying. In the book, I can’t remember if it tells about this, but I know that in the movie he talks about two things: one, he potty trained his daughter with M&Ms.

 

Aaron: I think that happened to you. (laughs)

 

Phil: The second thing was paying kids for school grades.

 

Aaron: I think he mentions it very briefly.

 

Phil: He goes more into it in the movie, which is probably one of the coolest parts of the movie. He talks about how he and his wife are trying to potty train their daughter, and she just won’t do it. So, he’s like, “you know what, honey? Let me take over. I’m the master economist. I can figure this out. We’re going to use incentives.” What he does is he starts giving her bags of M&Ms every time she uses the toilet. Within three days she will go to the bathroom, pee for a little bit, come out and say “I just peed, I have to go to the bathroom again, can I have my M&Ms,” and he says “within three days my three-year-old daughter had outsmarted an economist, that just goes to show you what we think we can do on a government, worldwide basis,” which was one thing. Then they do this test at a high school in Chicago, Chicago Height, and they have two different students, and they have the parents. The one student where the mother doesn’t really care, she even doubles the wager, and then this other kid who the mother is on him every night: “are you doing your homework, what happened on the test, did you read the book” etc. So, you see these kids go throughout six months and the kid with the more parental mother does a lot better than the kid who had double the incentive. It was $50 a month if you got all Cs. If you got all Cs you got $50 a month and you were then entered into a contest to win $500 dollars. The one kid’s mom, who was not that great of a mom, says, “I even told him that I’d double it.” So, this kid could make $100 if he just got his grade level above C in all of his classes, and his grades go down through the six months. The other kid, he’s suffering through it, and finally in the last month he makes all Cs and Bs, he gets the $50 and he also wins the $500. It was a great incentive.

 

Karin: Anything else on the SWOT?

 

Aaron: I would like to see some of the data and how they were pulling out and measuring some of the things. It would have been really interesting, because some of it just got skirted over and it’s like, “trust me, these are the numbers.”

 

Phil: I’m sure if you emailed him he would send you the studies that are on it.

 

Aaron: Trends and technology? I’m not sure.

 

Karin: I don’t think it’s about that. I don’t think it’s the right book for that.

 

Phil: I disagree. The trend is, the technology is, that this is behavioral economics. It’s a new way of looking at it. This is the new big thing right now in economics. You’ve got Predictably Irrational by Dan Ariely, he’s an economics professor at Duke.

 

Aaron: We’ll wrap it up.

 

Karin: Make sure that you subscribe and download the podcast at iTunes.