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Freakonomics - Concepts and Application
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Freakonomics - Concepts and Application

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A presentation on the concepts and learning from the book \'Freakonomics\' - a few examples from daily life.

A presentation on the concepts and learning from the book \'Freakonomics\' - a few examples from daily life.

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  • Full Name Full Name Comment goes here.
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  • A really nice summary presentation of the book. Mind send me your slide? raytjan@yahoo.com. Thank you so much.
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  • Nice presentation! I like it....could you please share it with me, please if you don't mind foward it to gamali.mongi@gmail.com. Thanks
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  • Hi Everybody... please do not ask for sharing the slides with you. Even though everyone can read and recreate the whole presentation, Dubner and Leavitt want you to make some efforts!!!
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  • nice summary!!! could u please share the slides with me .
    spankaj.elec.27@gmail.com
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Freakonomics - Concepts and Application Freakonomics - Concepts and Application Presentation Transcript

  •  
  •  
    • Steven D. Levitt
    • Professor of Economics at the University of Chicago
    • John Bates Clark Medal - the most influential economist in America under the age of 40
    • Time magazine's "100 People Who Shape Our World."
    • B.A. from Harvard University in 1989, Ph.D. from M.I.T. in 1994, has taught at Chicago since 1997.
  • Questions!
    • What do schoolteachers and Sumo wrestlers have in common?
    • How is the Ku Klux Klan like a group of real-estate agents?
    • Why do drug-dealers still live their moms?
  • Concepts in ‘Freakonomics’
    • Incentives are the cornerstone of economic life
    • The conventional wisdom is often wrong
    • Dramatic effects often have distant, even subtle, causes
    • Experts use their informational advantage to serve their own agenda
    • Knowing what to measure and how to measure it makes life simpler
  • What we shall discuss:
    • Incentives
    • ‘ Snob’ effect
    • Information Asymmetry
    • Correlation v/s Causation
    • Conventional Wisdom
    • ‘ Winner take all’ labour market
  • Incentives
  • Types of Incentives
    • “ a means of urging people to do more of a good thing and less of a bad thing”
    • Conventional wisdom turns to be “wrong”
    • “ Economists love
    • incentives”
    • 1.1 Economic
    • 1.2 Social
    • 1.3 Moral
  • Economic Incentive
    • are those which people respond to in a market place
    • Discounts
    • Bonuses
    • Fines – Libraries, Traffic
  • Social Incentive
    • “ Urge people to do things in a way that is accepted by all”
    • Consequences of Social Networks in Workplace
      • Presence of friends affects productivity
      • Workers conform to a norm
      • Overall effect on firm performance?
    • Parallel can be drawn upon on CGPA
  • Moral Incentive
    • “ Appealing to the sense of a person’s right vs wrong”
    • Advertising
    • Donations
    • CSR
  • Why People Cheat
    • “ Something worth having is something worth cheating for”
    • Examples of cheating
      • Class Teachers
      • Sumo Wrestlers
    • Not Always True
      • Bagel Example
  • Conflicting Incentives
    • What do you expect to happen when a fine is imposed on parents who do not pick up their children from the day care centre on time?
  •  
  • Snob Effect
  • Snob Effect
    • “ Desire to own exclusive or unique goods”
    • Demand increased with price
    • Art, Designer Clothes, Sports Cars, Stamps, Coins
    • Mac users
      • Tooth-whitening products
      • Starbucks
      • Organic food
      • Hybrid cars
  • Information Asymmetry
  • Information Asymmetry
    • One party has more info than the other
      • Sellers > Buyers
      • Buyers > Sellers
  • Market for Lemons
    • Relates quality and uncertainty
      • Bad cars drive out good
      • Impossible for buyer to distinguish
    • Economic cost of dishonesty
  • Other examples..
    • Insurance market for the elderly
    • Credit market in rural India
      • Local moneylender v/s Banks
  • Counteracting Info. Asymm.
    • Guarantees
      • Risk borne by seller than buyer
    • Brand-name good
    • Licensing
      • ISI mark
      • The IIT degree, in our case
      • Nobel Prizes!
  • Correlation & Causation
  • Olympic Medals and GDP!
            • =
  • Factors
    • Population
    • GDP
    • Influence of Soviet Union
      • Political importance of sports
    • Host or not?
      • “ Home-advantage”
    • Medals in the previous editions
  •  
    • Total Medals
    • Actual
    • USA
    • China
    • Russia
    • Britain
    • Australia
    • Germany
    • France
    • South Korea
    • Italy
    • Ukraine
    • Total Medals
    • Predicted
    • China
    • USA
    • Russia
    • Germany
    • Australia
    • Japan
    • France
    • Italy
    • Britain
    • South Korea
    • Top 30 countries will win 82 % medals
    • Top 30 countries account for 84 % GDP
    • A University of South Australia analysis found that one gold medal typically costs a country $37 million in training funds
  • Conventional Wisdom
  • Conventional Wisdom
    • Explanations that are generally accepted as true
    • Conventional Wisdom is not necessarily true
  • Creation of Conventional Wisdom
    • Often, conventional wisdom is generated by experts and journalists
    • Advertising is a great tool for creating conventional wisdom
  • Conventional Wisdom
    • A typical drug dealer’s resources?
  • In Reality
    • Most of the people involved in illicit drug trade earn less than the minimum wage and have legitimate jobs to supplement their earnings
    • It is also a highly dangerous job
    • A drug dealing gang is very similar to a capitalist enterprise like McDonald’s
  • Why do it then?
    • To succeed in an extremely competitive field
    • Every street dealer aspires to one day reach the top of the pyramid
    • This constitutes a “Winner-take-all” market
  • Winner-take-all Market
  • Winner-take-all Market
    • Large amount of competition for a few highly coveted positions
    • The positions usually have a lot of money, fame and respect associated with them
  • Winner-take-all Market
    • Everyone usually starts off at the same level
    • The large competition leads to measly pay at the lower levels
    • The pyramid has a tiny apex and a very large base
  • The tragedy of the commons
    • If there is only one player in a winner-take-all market, adding a second player might significantly improve the market output
    • But if there are already a large number, adding more players will only marginally increase the market output and these players will contribute less to the economy than if they were in some other field
  • Winner-take-all Market
    • Once a firm in such a market gets a considerable lead it is very difficult for other firms to catch-up
    • Case-in-point – Google:
      • The search engine market has zero switching cost
      • Google had a better product than others and this gave them a huge market lead
      • Even if it has a marginally better product now users will not switch their preferred search engine
      • Even if the competitors have an identical product now, they still have to overcome the “brand perception gap”
      • Economic and social forces form a positive feedback loop for the leader
  • Education
    • Number of students applying to a University depends on the ranking of the University
    • The better students go to the higher ranked universities
    • A positive feedback loop is formed
  • Impact of New Technology
    • Personal Computer
      • Computers were limited to large organisations
      • IBM was the leader in making computers for large corporations
      • Apple came out with a Personal Computer which revolutionised the market and gave it the market lead
  • Impact of New Technology
    • Nylon Stockings
      • Stockings were made of silk
      • In 1939 DuPont introduced nylon stockings
      • Sold 64 million pairs by 1941
  • References
    • Freakonomics by Steven Levitt and Stephen Dubner
    • Higher Education: The Ultimate Winner-Take-All Market? by Robert H. Frank
    • The Market for “Lemons” by George A Akerlof, 1970
    • Modelling Olympic Performance by PWC, June 2008
    • DailyTech
    • ingrimayne.com
    • www.skrenta.com
    • economistsview.typepad.com
    • www.edmunds.com
    • www.marketoracle.co.uk
  • M N Varun ED05B010 Karthik M ED05B012 Vikas Shenoy ED05B026