What do School Teachers and Sumo Wrestlers Have In Common?

Freakonomics: A Review

                                    

One of the best books that I have read about understanding economics, capitalism, and people’s incentives is Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. Freakonomics uses unusual and memorable examples to illustrate economic principles.

One principle that I believe that the book illustrates particularly well is that how people respond to incentives. One of the interesting questions posed in the book is, “What do school teachers and sumo wrestlers have in common?” The answer is: they both have incentives to cheat.
 

Teachers, because of “no-child left behind” laws, have an incentive that their students do well (often times their job is riding on it). As a result the author, Steven Levitt, proves, through statistics, how teachers changed their students test answers in order to get higher pass rates. There is another similar story of cheating with Sumo wrestlers.

What I find interesting amid this ongoing debate of traditional capitalism vs. a free digital economy is to look at people’s incentives. In a traditional capitalistic approach, people have incentives to get gain and to be naturally self-interested (e.g. the idea of charging for online content). However, as pointed out in class, Adam’s Smith’s ideas of the invisible hand and purely self-interested people don’t account for such phenomenon as Wikipedia.

By looking at providers of free online content, you can see that their incentives (e.g., incentives of contributing to a greater good) are different from other traditional capitalist incentives. I believe that as we are able to better identify and understand what people’s incentives are, we will better understand and perhaps even predict what people’s actions will be.

Anywho, check out Freakonomics! It’s an easy and very enjoyable read, I recommend it.