Book Review

In the book Freakonomics, two economists come together to explain the way our society’s decisions are linked together with economics. They explain how real life situations such as violence or criminal acts might have had a clear solution to them, but that in reality there was a completely different solution. They make you think deeper into the decisions society makes to solve problems we deal with in our everyday lives. They explain how morals are involved in economics; how every decision that is made in our daily lives is based on incentives. These incentives always lead up to economics. They make you think deeply as to how true and genuine the decisions are that everyone in life makes.

In Chapter 1 they explain the similarities that sumo wrestlers and school teachers have in the decisions they make every day. Cheating was one of the decisions they focused on. They asked throughout the book which one of the two was more likely to cheat? They explained that every one of their decisions was based on incentives. The incentive that teachers have for their students to do well in class is that they have a chance of promotion or recognition. This can be a result of teachers having a higher chance in cheating. Sumo Wrestlers on the other hand has different incentives. Although by doing well they can receive recognition's, their option of cheating can be a bit more complicated. They are tested in their physical capabilities, cheating would only cause them to fail when tested. In the end both of their incentives is money.

In Chapter two compare the incentives that Stetson Kennedy and Real Estates have. They first explain how Stetson Kennedy infiltrated the Klu Klux Klan.  After he gathered all the information he needed he later went and distributed the information to famous journalist’s and radio stations. This did cause awareness around the country and it did fix the problem, but that’s not what the book was looking into. They later explained how his incentives weren't only to fix the problem, but also to put himself out there. This caused him a lot of recognition which also meant he was recompensed economically well.  Real Estates also have the same economic incentives when they do their work. They explain that when one is attempting to sell a house, they are looking for the best deal out there. For example if a house is being sold for $400,000 and one knows that it is possible to get an extra $15,000 out of the buyer with a little extra work and advertisements, one would want that. The book explains how a real estate putting those extra hours of work for the $15,000 isnt worth their time and money. The real estate only receives about $500 after all is said and done. In reality they are looking out for their best interest not yours. Their incentive is once again money also.

In Chapter 3 they make the reader think more deeply about an issue that was going on in the 70’s -80’s. Violence of all kinds was a problem at this time in the United States. They explain that the government as worried for the safety of citizens because of how the criminal rates were rising instead of getting better. There were several changes that were made; first the economy began to get better at the time. Also because of the economy progressing they began to add more policeman in the areas needed. The violence and criminal rates went down almost 50% over some years. People and the news quickly jumped to conclusions saying that the economy helped the situation and that so did the reinforcement of security. What they didn't know was that back in 1973 legalization of abortion was being taken into play; we didn't see the results till the 90’s. They correlated this with the violence problem. They realized that it wasn't the new policies and security that helped the violence go down, It was the fact that unwanted babies were being aborted. This meant that children that before were being born into unwanted, struggling families were now not being born.

The book goes deeply into analyzing how different situations and solutions have economic incentives. How the study of economics is all based on incentives. Most of the evidence that they present in the book is historical and available for everyone to research. For example the Stetson Kennedy infiltrated the Klux Klu Klan and used the information to spread awareness is very true. They use history, but they go deeper into analyzing their motives. In the end of each of their examples it all comes down to the economic motive that they all have.

This book helped me learn why it is that I am pursuing accounting as a profession. I learned that everyone in life has to make a decision based on their economic state. We choose where we want to go eat based on how much we want to spend. We choose where we shop based on what we can afford. This book relived my passion for accounting. It made me realize that I want to help people organize those decisions. Accounting goes beyond just analyzing and organizing numbers. It’s also about budgeting and directing people’s expenses in their daily lives. This book definitely made me think deeper as to how involved economics is in everyone’s lives. I recommend this book to anyone that is interested in learning how economics and incentives are involved in daily decision making.