Book Review

Book Review: Super Freakonomics

Book Review: Super Freakonomics

Just as in Freakonomics, the underlying premise of Super Freakonomics is that people respond to incentives. In order to control behavior, we must understand and manipulate the related incentives, no matter how distant and unrelated they may seem. Also like the first in the series, this book is more of a series of disjointed stories than a cohesive progression of thought.

Introducing television did a huge service to Indian women. India has traditionally had a significant preference for male children over females. There are 35 million fewer females than males in the population, and most of the missing women were killed or malnourished to death. The problem was exacerbated by the introduction of ultrasounds. Before this phenomenon took place, 54% of women believed wife beating was justified under certain circumstances. But from 2001-06, millions of Indians got TV for the first time, and women who recently got TV are significantly less likely to tolerate wife beating, male child preference, and dependence on husbands. Enrollment for women in schools increased as well, because television effectively empowered women.

We blame automobiles for many of our problems in the world today—pollution, accidental deaths, and traffic problems. But the advent of cars actually solved other major problems of the time. Horses in New York City caused gridlock, and they constantly died in the streets before being abandoned by their owners. The municipality would wait for them to putrefy in the street before they were chopped into pieces and removed.  A New Yorker was twice as likely to die from a horse in 1990 than one is to die from a car today. 60 foot piles of manure would pollute more than exhaust does today, and streams of the stuff would seep into basements. It’s interesting that America found a savior in the auto at the time, and now searches for a savior to the auto before pollution causes irreparable damage to the environment.

Women have had it rougher than men throughout history. Women have had a shorter life expectancy. A million women have been killed for witchcraft. Women who went to Harvard earned less than half of the male counterparts. Women are more likely to leave the workforce to raise a family. Overweight women and those with bad teeth suffer wage discrimination more than men with the same problems. The solution is apparently to play high school sports. Women who play high school sports are more likely to go onto college and specialize in jobs that earn more money. Research has shown that women tend to work fewer hours and take more vacations than men, especially those with children. Men have a weakness for money, just as women have a weakness for children. Men perform better on exams incentivized with financial rewards, while women perform the same.

The gender income discrepancy led to an unintended consequence in the 1910s: the market for prostitution exploded. At one point, 1 out of 50 American women in their 20s were prostitutes. Top earning prostitutes brought in as much as $430,000 a year, and often the higher earners didn’t need to see as many clients as their lesser-paid counterparts. However, wages have fallen dramatically over the past 100 years, mainly because men can now find women interested in casual sex much more easily, a phenomenon fondly nicknamed “friends with benefits.” Today, only 5% of men lose their virginity to a prostitute, and 70% of men have sex before marriage, compared to 33% just 20 years ago. Most prostitutes experienced rough conditions. They typically earn $27 per hour, working 10 tricks in 13 hours per week. 83% of them are addicted to drugs. A typical prostitute experiences a dozen instances of violence, typically when the man can’t get erect. Women also have a much greater risk of arrest than men; only 1/1200 tricks result in a man’s arrest. Condoms are used less than 25% of the time, but less than 3% of men who hire female prostitutes have HIV. 35% of men who hire male prostitutes have HIV. When a prostitute gets locked up, a scarcity emerges, which enticed more to join the market. Police understood this and eventually left pimps and prostitutes alone in exchange for keeping it in private and away from kids. A Chicago street prostitute is more likely to have sex with a cop than to be arrested by one, and only 1/4500 tricks leads to prison time.

The economics of black market supply and demand are also true of drug trafficking. The US war on drugs is ineffective because it focuses on sellers rather than buyers. 90% of prison time is occupied by drug dealers. The government should go after those who demand the drugs instead; without demand, the supply will dry up on its own. This aligns with my belief that the proper use of taxes is usually a better remedy than outright bans on products and services.

There are a number of shorter stories sprinkled throughout the book, culminating in very simple conclusions. For example, a drunk person who decides to walk home is 5-8 times more likely to die in an accident than one who drives home, on a per-mile basis. 2001 was the “summer of the shark” because it invoked a massive amount of media coverage around shark attacks. However, only 68 people were attacked that year worldwide, and only 4 died.

Overall, I felt that the book was very disjointed, and the stories weaved in and out of one another. The authors dedicated a lot of time to prostitution, which they also did in Freakonomics. There are some interesting stories intertwined throughout, but it would have been more interesting if there were a greater number of lessons sprinkled throughout, rather than constantly referring back to basic laws of Keynesian economics which I learned back in Introductory Macroeconomics at UC Santa Cruz.

Book review: What Would Google Do?

Book review: What Would Google Do?

In What Would Google Do?, Jeff Jarvis conveys his lessons learned from the greatest technology success stories of the past decade. He draws on best practices from Etsy, Craigslist, Amazon, and of course Google. I took notes of interesting, new concepts as I read but sadly didn’t end up with much. It may be great for corporate old-schoolers, who Jarvis seems to be talking to, but if you’ve been following blogs and news in this space this book will feel a little slow and obvious.

I managed to solidify a few key points that I’ll take with me as I engender my next big tech company in the next year. First, the best position is to create a platform on which others can build. I can expect to earn little or no profit for a while under this model, but hooking developers on my platform is a very powerful strategy. I need to extract the minimum value from the network of developers and related web services to take the network to its maximum potential size and value. This enables my developers and partners to charge more, which increases their dependency on my platform or network. Another positive side-effect is that competitors don’t want to jump into a space where the efficient leader’s margins are low.

Today’s web 2.0 method for growth is to forgo paying for marketing and instead create something so great that users distribute it. Later revenue can be found and extracted, but we’ve seen the revenue-maximizing strategy fail on AOL and Yahoo while Google stole their users to frame the world’s most powerful advertising machine.

These are the most powerful pieces of advice I discovered in WWGD:

How can you act as a platform?

What can others build on top of it?

How can you add value?

How little value can you extract?

How big can the network atop your platform grow?

How can the platform get better learning from users?

How can you create open standards so even competitors will use and contribute to the network, and you get a share of the value?

I’ll certainly be applying some of these principals to my next ambitious venture. As far as the rest of the book, I recommend reading a summary instead, unless you’re brand new to the Web 2.0 business world.

Book review: Freakonomics – A Rogue Economist Explores the Hidden Side of Everything

Book review: Freakonomics – A Rogue Economist Explores the Hidden Side of Everything

In my time studying Business Management Economics at UC Santa Cruz, I came to appreciate Economics as the underlying force driving many other Social Sciences, including Politics, Sociology, Community Studies, Anthropology, and History. In Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, authors Steven D. Levitt and Stephen J. Dubner assume this same premise to explore the hidden economic forces that connect seemingly unrelated phenomena in American society and history.

They do not argue that economics causes societal issues; rather they use economic models and experiments to explore complex issues, including racism, crime trends, abortion effects, medical malpractice, student and teacher cheating, and effects of parenting. They explore correlation and causality between distant patterns in society to convey an underlying human nature at work. In doing so they manage to prove that conventional wisdom is often wrong.

To me, the most interesting section of the book is what a bagel salesman’s data reveals about employee honesty in varying-sized companies and at different position ranks. Its findings “lie at the intersection of morality and economics,” and demonstrate consistent trends in theft, allowing the interpreter to actually predict theft within a company, given a few basic descriptions.

A bagel man named Feldman leaves bagels and cream cheese in office lounges and kitchens along with a wooden box and a sign requesting $1 per bagel on the honor system. By keeping perfect records (he’s formerly a financial analyst), he inadvertently invents a system to monitor rates of white collar crime.

At his own estranged office he receives a 95% payment rate because his colleagues knew him. But eventually he built his clientele up to 140 companies consuming 8400 bagels a week and the payment rate varied with distinct patters.

With enough data he learned to consider an “honest company” one that paid for 90% or more of its bagels consumed. 80-90% payment rate is annoying but tolerable, and if paid less than 80% Feldman posted a hectoring note. Even though as many as 20% of his clients steal bagels from him, his money box only got stolen 1/7,000 times.

The interesting part of his data is learning the factors shaping trends in honesty. Smaller offices tend to be more honest; a 50-employee company pays 3-5% more than a company with more than 300 employees, which can also be described as a reduction in theft as high as 60%. Unseasonably good weather reduces theft while cold weather has the opposite effect. The bad holidays include Christmas, Thanksgiving, Valentines Day and tax week, which each invoke up to a 15% increase in theft. Holidays that reduce the theft rate include Independence Day, Columbus Day and Labor Day.

Other interesting trends include the positive correlation between honesty and employees who like their boss and work. I was surprised to find an increase in theft as you move up the corporate ladder. Feldman speculates that executives cheated because of a sense of entitlement, or that perhaps cheating is what earned their place as an exec in the first place.

The conclusion of this excerpt, however, is quite positive and inspirational: The vast majority of Feldman’s customers do not steal even though no one is watching.

Freakonomics was a very fun and easy read, and not just because of my background in Econ. It’s entertaining all the way through and there are some very interesting insights into history and the nature of certain professions that you’d never know other than by reading this book. I recommend it.