investing

Stephen J. Dubner, 'Freakonomics' author discounts conventional wisdom

stephen j dubner Most people wouldn't have much faith in a book on economics titled "Freakonomics."

But you might reconsider when you learn the co-author is a highly acclaimed economist at the University of Chicago and a recipient of the John Bates Clark Medal, which is awarded every two years to the best American economist under the age of 40.

The fact that the book hit No. 2 on the New York Times best-seller list doesn't hurt either.

"Freakonomics," co-written by Steven D. Levitt, the aforementioned economist, and veteran journalist Stephen J. Dubner, features theories that many consider explosive.

Levitt has long been known as an unconventional economist who is more considered with how life works than with more conventional numbers or theories. The basic premise of the book is that just about everything is measurable.

He and Dubner illustrate, for example, not only how real estate agents don't always work for the benefit of their clients, but how it is sometimes to their own benefit not to. The pair tells the tale of a crack gang that operated like a McDonald's franchise in their book. And tells why a child living in a home that has both a gun and a swimming pool is 100 times more likely to be killed by the pool than by the gun.

Not surprisingly, the authors' main goal is to show how life's conventional wisdom is so often wrong. They achieve their goal with stunning, fascinating and thought-provoking success. Their plans are to continue their efforts in future books, on their blog at freakonomics.com and in a monthly column for the New York Times Magazine, which premiered June 5.

"Freakonomics" co-author Dubner spoke with Bankrate about some of the real-world applications of Levitt's theories, and how so much of what we know is just plain wrong.

Bankrate: You talk about how it usually doesn't pay for real estate agents to take the time to get the best price when selling a client's home. How might the section on real estate agents apply to other finance professionals -- such as stockbrokers or financial advisers -- and how can people use Freakonomics-type thinking to ensure that their own money is being handled correctly?

Stephen J. Dubner: There's a ton of economics literature showing that most stockbrokers, mutual fund managers, etc., are just terrible. The most valuable asset -- as anyone in the business knows -- is information that is real, dependable and preferably early. Then there is the element of incentives: Again, anyone in the business already spends a lot of time figuring out the incentives, hidden and transparent, that everyone else is working with. But most consumers seem to prefer trusting the "experts," which is often a pretty bad move.

Bankrate: Has working with Steven Levitt over the years and writing this book changed the way you think about and handle your own finances?

advertisement
replacecontent-tcm:8-2616

Stephen J. Dubner: I have to say, I was already pretty skeptical coming into this project. That mostly comes from my wife, who grew up in New York, the daughter of a businessman, and is usually able to sniff out in about four seconds the crossed and hidden incentives at play, whether in a department store or a real-estate deal. But yes, working with Levitt has made me about 100-percent smarter, which means that I'm nearly a third as smart as him.

For example, I did handle a couple real estate deals rather differently than I might have. Thanks to Levitt, I understood that when I was selling a property, the agent couldn't give a hoot about an extra $10,000, since his share was only $150. He was happy to price it low in order to move it fast, and I wasn't having any of that. In fact, the way I picked my agent was very much informed by my understanding of agents' incentives. And then when we were buying a property, I knew that the seller's agent didn't have much incentive to squeeze me for all she could.

          Connect with us
Product Rate Change Last week
1 Year CD 0.89%  0.01 0.88%
2 Year CD 1.01%  0.02 1.03%
5 Year CD 1.59%  0.07 1.66%
 
View Rates in your area Search
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

CDs and Investment

How can I pay myself first?

Dear Dr. Don, You often advise readers to "pay yourself first." It sounds like a fine idea. But I'm wondering how that actually should work. I'd like to know how much or what percentage of my income should be set aside... Read more

advertisement

Blog

Sheyna Steiner

Investing: Sometimes less is more

A sixth grade class played along in an investing throw down among college-level clubs and easily beat all their returns.  ... Read more

Partner Center
advertisement

Connect with us