From the Bookshelf This is a fortnightly review of bestsellers for business executives Unconventional approach reveals new truths by Robert Davies Economic theory and human behaviour can be reinterpreted as the study of incentives When searching for the truth, how often do we really make the effort to go beyond surface impressions and not just examine what is right before our eyes? Part of the problem is that many of us assume that certain things are accepted fact in today's world, when what we should be doing is trying to look deeper, ask the right questions and approach problems in a new and unconventional way. In Freakonomics, Steven D. Levitt and co-author Stephen J. Dubner do just that by setting out to show that economics is the study of incentives. The book puts forward certain fundamental theories to support their point of view. These are centred on the ideas that incentives govern modern life, conventional wisdom is often wrong, subtle causes can have dramatic effects, and experts "use their informational advantage to serve their own agenda" (p.13-14). In doing this, the authors have produced an intriguing and enlightening work, which aims to let us see what underlies some of life's complexities. For example, they explore the hidden reasons behind the motivation of real estate agents who fail to maximise potential profit for their clients. It is exemplified the basic premise is that groups or individuals deliberately make use of information to gain an advantage. To illustrate, the authors explain that the real estate agent generally receives 1.5 per cent of a sale as commission. So, if a home sells for $300,000, the agent personally receives $4,500. If the agent suggests holding out for an extra week and insisting on a price of $310,000, the agent will only get an extra $150. Consequently, the advice given to the seller is that $300,000 is a very good offer, even if there is a reasonable chance of getting higher within a few days. The economic incentive for the agent is to conclude the deal and not to do the extra work which would materially benefit the client. Incentives also play a major part in the so-called glamour industries, such as movies, sports, music or fashion. The possible rewards of making it to the top attract any number of hopefuls, but the odds of achieving success in any of these areas, according to the authors, are equally low. So why do people still try to do it? The answer is: "If the price is big enough, they will form a line down the block just hoping for a chance" (p.105). The basis of Levitt and Dubner's work is an honest interpretation of data, which is used to show us how the world really works. This creates a level of interest which keeps the curious reader turning the pages to discover where all the facts are leading. Content highlights: By understanding incentives we can decode the puzzles of everyday life. Groups or individuals, especially experts, deliberately withhold information to gain an advantage. They don't necessarily have other people's best interests at heart. In fact, they may work against them by abusing the power of information and favouring themselves. The incentive of future success causes people to tolerate current difficulties. Those working in lowly positions in glamour industries such as sports, movies or fashion will accept poor conditions and pay for the promise of brighter prospects. About the authors Steven D. Levitt is a full professor at the University of Chicago and well known for writing papers on unconventional topics. In one, he examined the case of schoolteachers who cheat the system by correcting their students' exam papers and helping them pass. Freakonomics has been a top five bestseller in the hard cover business category in The New York Times and Business Week. "Steven Levitt has the most interesting mind in America, and reading Freakonomics is like going for a leisurely walk with him on a sunny summer day, as he waves his fingers in the air and turns everything you once thought to be true inside out. Prepare to be dazzled." - Malcolm Gladwell, author of The Tipping Point and Blink. Co-writer Stephen J. Dubner is the author of a US national bestseller, Turbulent Souls. He was a writer and editor for the New York Times Magazine for five years, and has contributed to the New Yorker and The Washington Post. In 2003, he wrote an article: "Inside the Astonishingly Curious Mind of Steven D. Levitt". After meeting, the pair agreed to write Freakonomics together. Taken from Career Times 2 September 2005 Your comments are welcome at [email protected]