When economics becomes freaky

Until 2005, the words ‘economics’ and ‘fun’ were unlikely to be found in the same sentence. Economics was seen as a dry, technical, mathematical discipline: the preserve of driven businessmen, greedy bankers and staid Treasury officials. Fun was its opposite: spontaneous enjoyment available to regular people.

The publication of Freakonomics in 2005 changed all that. Steven Levitt, a professor of economics at the University of Chicago, and Stephen Dubner, a New York Times journalist, somehow gave economics popular appeal. So far the book has sold over four million copies worldwide. Last year, a sequel, Superfreakonomics, was published and there is also a Freakonomics blog linked to the New York Times website.

Wherever there’s an unexpected publishing hit, you can be sure that a bandwagon will soon follow. In 2007 alone we had Steven Landsburg’s More Sex is Safer Sex, Tyler Cowen’s Discover Your Inner Economist and Diane Coyle’s The Soulful Science. Nor is the fun confined to the paperback stands. Earlier this month there was even an international academic symposium on ‘economics made fun in the face of economic crisis’ at Erasmus University in Rotterdam.

Under such circumstances it is hardly surprising that Freakonomics has been turned into a documentary. From today it is available to download from iTunes while it is out on DVD on 3 January.

The film follows the structure of the book with chapters loosely linked by the broad approach of the authors. There is little sense of narrative beyond that. However, one innovation is that different chapters are made by different directors including Morgan Spurlock (Super Size Me), Alex Gibney (Taxi to the Dark Side) and Seth Gordon (The King of Kong).

Freakonomics the movie is worth watching for two reasons. As with any cultural phenomenon, whether it is The X-Factor or Strictly Come Dancing (aka Dancing with the Stars outside the UK), it is interesting to ask why it catches the popular imagination. This is particularly true when the subject matter is – or at least was – widely seen as incredibly dull.

Understanding the approach to economics taken in the film also helps reveal some deeper truths. It shows the limitations of contemporary economics and can even help viewers understand fashionable policy initiatives such as the attempt to ‘nudge’ people to behave in a particular way.

The first thing that viewers of the Freakonomics movie are likely to notice it that has little time for the traditional subject matter of the discipline. There is no room for discussion of business, supply-and-demand curves, and certainly no mathematics. Instead it covers such subjects as parenting, naming babies, cheating at exams, corruption among Sumo wrestlers and crime. If anything, such topics would normally be classified as sociology rather than economics.

From the authors’ perspective, what makes their book economics is their approach to these subjects. Their concerns are unashamedly practical. They want to use economic tools to help improve human behaviour in all these areas.

Levitt and Dubner’s mantra, and indeed that of contemporary market economics generally, is that ‘humans respond to incentives’. Such incentives are often financial but they can also be moral and social. In each case the authors ask themselves what incentives would work best to improve outcomes:

• Is bribing toddlers with M&Ms a good way to potty train them?
• Should pupils be paid to perform better at school? If so, at what age and exactly how?
• Does choosing a particular name for a baby improve its life chances? For example, through the choice of name alone, is a Brendan likely to do better than a Deshawn?

Both the attractions and limitations of this form of economics should already have started to become clear. The subject matter of Freakonomics relates to everyday interests and concerns. It is about practical questions that confront individuals and parents as well as policymakers.

In many ways it is better seen as a form of self-help than economics in the traditional sense. It is an attempt to find better, supposedly more scientific, ways to improve the behaviour of errant individuals. It says little, if anything, about traditional key economic questions such as how to organise production, how to raise productivity or how to create a more prosperous society.

Although the Freakonomics approach is not entirely mainstream it is not marginal either. Gary Becker, also a professor of economics at the University of Chicago, won the Nobel Prize for economics in 1992 for work on similar questions to those raised in the film. Although his work was not aimed at the general public, his concerns were comparable to those of Levitt and Dubner’s.

Even mainstream economics, although more concerned with business than Freakonomics, suffers from many of the same weaknesses. Its focus is largely on individual consumer behaviour, its approach is ahistorical and it has little to say about the process of production.

In relation to policy, or perhaps more accurately social control, it should be clear that Freakonomics has much in common with behavioural economics as exemplified by works such as Nudge. Both books are preoccupied with modifying individual behaviour. Indeed it is no coincidence that Cass Sunstein and Richard Thaler, the authors of Nudge, are also both professors at the University of Chicago.

The difference is that Levitt assumes that humans are generally rational or, as he puts it, they act as homo economicus, whereas Nudge starts from the premise that people are often irrational. Indeed back in February 2008 Levitt criticised behavioural economics for its attachment to irrationality: ‘This rational paradigm has served economics well, providing a coherent framework for modeling human behavior.’

But by the time Levitt had started reading Nudge, in April 2008, he had changed his mind on the work’s value. On the Freakonomics blog he wrote that: ‘Despite my initial misgivings, I’m halfway through it, and this is a book I love’ (original emphasis). He went on to say that: ‘There are many ways to trick people, but one of the easiest is simply by giving thought to the way choices are arrayed to them, or what they call “choice architecture”.’

Freakonomics the film, like the book, is entertaining and sometimes thought-provoking. Although it is more self-help than traditional economics it shares many of the weaknesses of more serious works in the discipline.

Its focus on individual behaviour also lends itself to a preoccupation with manipulating individual choices. That is where Freakonomics becomes truly freaky.

Daniel Ben-Ami is a journalist and author based in London. Visit his website here. His new book, Ferraris For All: In Defence of Economic Progress, is published by Policy Press. (Buy this book from Amazon(UK).)

Freakonomics is out on DVD on 3 January 2011.