Freakonomics

Introduction: How Incentives Drive Human Behavior

In the early 1990s, the United States was gripped by a terrifying vision of the future. Experts predicted that a new generation of superpredators would soon drown the country in a wave of unprecedented violence. Criminologists and politicians alike warned that the chaos was inevitable and that the worst was yet to come.

Then, something strange happened when crime suddenly began to fall. Instead of rising as predicted, the murder rate plummeted to its lowest level in decades. While experts rushed to credit better policing or a booming economy, the real cause was much more subtle and distant. It traced back to the legalization of abortion twenty years earlier, which meant that children most likely to be born into adverse environments were never born at all.

This surprising connection illustrates the core principle that incentives are the cornerstone of modern life. Every person, from a teacher to a real estate agent, responds to the specific rewards and penalties they face. Often, these incentives are hidden from public view, creating a gap between how we think the world works and how it actually functions.

Experts often use their superior knowledge to serve their own interests rather than those of their clients. A real estate agent, for example, makes very little extra money by holding out for a higher price on your home. Consequently, they are incentivized to convince you to accept a lower offer quickly so they can move on to the next deal. When these same agents sell their own homes, they wait longer and get much better prices.

We see a similar misunderstanding in the world of politics regarding campaign spending. While the candidate who spends the most money usually wins, the money itself is rarely the primary cause of the victory. Instead, appealing candidates naturally attract both votes and financial donations. In reality, Americans spend as much on chewing gum each year as they do on all major political campaigns combined.

Understanding these patterns requires stripping away the layers of conventional wisdom that cloud our judgment. Economics is not just a study of the stock market or financial trends; it is a powerful set of tools for measuring human behavior. By looking at the data without moral posturing, we can discover the unexpected links that define our daily lives.

This approach follows in the footsteps of Adam Smith, who was a philosopher before he was an economist. He was deeply interested in the friction between individual desire and societal norms. By asking the right questions, such as what schoolteachers and sumo wrestlers have in common, we can uncover the true motivations behind everyday actions.