Tuesday, December 21, 2010

Freakonomics and Super-Freakonomics


I came across the book titled  Freakonomics in 2005. A good friend of mine, Bryan recommended the book to me. He told me that the book was about applying economics theories and principles in real life situations. He also said that the content was quite entertaining. I was puzzled by the comment. How can economics be entertaining? I have been studying economic for years since high school. I could never relate economics with entertainment. To be honest, I did not think that economics could be applied in real life as well. They were just theories which only worked out in the ideal world. However, after I have read Freakonomics and its sequels Super-Freakonomics, later published  in 2010, I have to admit that I was wrong.
The authors Steven D. Levitt and Stephen J. Dubner used microeconomics concepts and principles to explore some controversial events and social phenomenon we witness in real life . Such as, why do drug dealers still live with their moms? What makes a perfect parent?  How is a street prostitute like a department-store Santa? Why should suicide bombers buy life insurance? The depths of these case studies were almostacademic standards, and surprisingly, they were all very realistic and interesting.
As the authors stated, the proposition  of writing Frackonomics and Super-Freakonomics was to start a conversation with the general public, not to come up a theory to predict the future and solve problems as many people would expect from economists. However, four key themes were delivered through these unusual case studies. 1) People were always response to incentives.  2) The definition of incentives was dictated by the given environment. 3) Objective statistical analysis could clarify situations and identify possible solutions. 4) Unintended consequences were inherited in every decision.

These four themes have numbers of key implications for business practices:
1) Human behaviors are heavily influenced by situations.  As the authors stated “People aren’t good or bad. People are people, and they respond to incentives. They can nearly always be manipulated for good or ill.” In businesses, management could bring out the desire behaviors and discourage unproductive behaviors by manipulating their environment, such as their organizational cultures and norms.
 2) Management also should make sure that right incentives are presented in every step of the way, in order to change their employees’ behaviors. As Super-Freaknomics stated, “if only you find the right levers. So are human beings capable of generous, selfless, even heroic behavior? Absolutely. Are they also capable of heartless acts of apathy? Absolutely.” 
3) Meaningful incentives should be deeply imbedded in their organizational cultures.
4) Objective analysis  should always consider human factors. Connecting both subjective and objective logics are secret of successes.    
5) Business planning is essential, but getting feedback and monitoring responses from the environment (internal and external) are even more critical.
6) Organizations should always be prepared to correct their actions at  any given time, because the reactions from the environment are often unpredictable.  As the authors have said, “The law of unintended consequences is among the most potent laws in existence. “
If you are boredof  traditional business books, and looking for something relaxing and fun to read, Freakonomics and Super-Freakonomics will  definitely not disappoint you. As my friend Bryan said, “the books  are indeed quite entertaining.”

1 comment:

  1. :)) sounds interesting.. gonna' get myself a copy