My good friend and colleague John List has very ambitious summer plans.
We’ve both believed for a long time that the combination of creative economic thinking and randomized experiments has the potential to revolutionize business and the non-profit sector. John and I have worked to foment that revolution through both academic partnerships with firms as well as a project of John’s called the Science of Philanthropy Initiative (SPI), whose mission is “evidence-based research on charitable giving.”
We once wrote about reasons to not vote, at least from an economist’s perspective. Since a single vote almost never alters an outcome, what’s in it for the voter?
If a given citizen doesn’t stand a chance of having her vote affect the outcome, why does she bother? In Switzerland, as in the U.S., “there exists a fairly strong social norm that a good citizen should go to the polls,” [Patricia] Funk writes. “As long as poll-voting was the only option, there was an incentive (or pressure) to go to the polls only to be seen handing in the vote. The motivation could be hope for social esteem, benefits from being perceived as a cooperator or just the avoidance of informal sanctions. Since in small communities, people know each other better and gossip about who fulfills civic duties and who doesn’t, the benefits of norm adherence were particularly high in this type of community.”
The past 60 years in the U.S. has seen dramatic policy changes to the public-education system. The ‘50s, ‘60s, and ‘70s saw desegregation and affirmative action, and since the ‘80s there have been efforts to increase school funding, the introduction of voucher systems, and the creation of countless charter schools. In between we’ve seen efforts to reduce class sizes, introduce technology into classrooms, improve teacher credentialing, and a massive attempt to leave No Child Left Behind.
What do we have to show for all this? That’s hard to say. Even though many programs have a high price tag, they were never implemented with an eye towards assessment. The data we do have shows that not much has changed over the past 30 years. The figure attached shows how the racial achievement gap in test scores has persisted for white and black Americans since the late 1970s.
If you don’t like the breakdown by race, then consider that the high school dropout rate among high-income families in 1972 was 2% and in 2008 it was still at 2%. For low-income families, though? In 1972 it was 14% and in 2008 it was still at 9%. This sort of trend (or lack thereof) is manifested in dozens of measures of academic achievement, all of which suggest that the past 60 years of educational reform has very little to show for itself.
Money is important. For a long time, economists thought that it was the only thing that mattered. And, in fact, if you want people to do what you want, money can be incredibly useful. Out to entice the best workers? Pay more. Want to sell a product? Discount it, a lot. Want to discourage a bad behavior? Impose a monetary fine.
It seemed a little silly to us though (as well as to other behavioral economists doing work back in the 1990s) to think that money was the only thing that mattered. So we set out to learn exactly when and how monetary incentives work. Along the way, we discovered some environments where incentives don’t work at all.
The passage of the Americans with Disabilities Act was a landmark civil rights bill. It afforded the disabled protections against discrimination that were similar to earlier landmark civil rights bills. In particular, the bill targeted two types of discrimination. One type was the discrimination against the disabled motivated by hatred or disgust. For example, one provision targeted employers that denied employment opportunities to those that truly qualified. Other parts of the bill focused on ensuring a level playing field for the disabled, like one requirement for businesses to make readily achievable retrofits to their businesses to afford the disabled access.
When economists think about the causes of discrimination, they tend to lump them into these two categories. The first is called animus discrimination, which is the type of discrimination we tend to associate with the treatment of African-Americans in the early 20th century. The second is called statistical discrimination, which is discrimination motivated by statistical trends associated with groups. For example, women tend to pay less for auto insurance because they are safer drivers.
When it comes to the year 1991, history books will undoubtedly focus on the first Gulf War and the dissolution of the Soviet Union, but at least domestically, the biggest change was one you probably never heard about: 1991 was the first year that women overtook men in college attainment, a trend that has only gained steam since. Today 37.2% of women between the ages of 25 to 29 have a four-year college degree or higher versus just 29.8% for men.
Yet for all the academic achievement by women, men still earn a higher wage for equivalent jobs and continue to dominate the highest ranks of society. Senior management positions? Only one in five are held by women. Fortune 500 CEOs? Just 4% and fewer than 17% of the seats in Congress are held by women.
Scholars have long theorized about the reasons why women haven’t made faster progress in breaking through the glass ceiling. Personally, we think that much of it boils down to this: men and women have different preferences for competitiveness, and at least part of the wage gaps we see are a result of men and women responding differently to incentives.
It’s a late-September afternoon in 2009 and the students of Fenger High School on Chicago’s South Side are crossing a vacant concrete lot. Some live in the Altgeld Greens housing project. Others live in a part of Chicago’s rough Roseland neighborhood (also called “The Ville”). Some of the students from these areas have developed fierce antipathies toward each other, though the groups are more like cliques than gangs.
As the teenagers cross the lot, a fight breaks out. Someone pulls out a cell phone and starts recording a video of 15 to 20 kids fighting. Around a minute into the video, someone discovers a couple of two-by-fours lying in the empty lot. Eugene Riley, sporting a red motorcycle jacket, takes one of the big pieces of wood from a pal and swings it like a baseball bat into the back of 16-year-old honor student Derrion Albert’s head.
On a chilly Saturday afternoon in December, 2005, Jeanne, a bright, energetic junior at East Carolina University (ECU), trotted up the walk of a suburban home in Pitt County, N.C. Jeanne wore a shirt emblazoned with the name “ECU Natural Hazards Mitigation Research Center.” She also wore a badge with her photograph, name, and solicitation permit number on it. She knocked, and a middle-aged man opened the door.
“Yes?” he said, eyeing her.
“Hi,” she said, smiling brightly. “My name is Jeanne. I’m an ECU student visiting Pitt County households today on behalf of the newly formed ECU Natural Hazards Mitigation Research Center. Would you like to make a contribution today?” It’s probably safe to say that the last thing the middle-aged man had on his mind was the possibility of Jeanne being a double agent. Yes, she was really trying to raise money for the center. But she was also part of a bigger experiment involving dozens of college students knocking on the doors of 5,000 households in Pitt County.
What can a Ball and Bucket Teach Us About Why Women Earn Less than Men? By Uri Gneezy and John List
The sign on the road leading to the city of Shilong in the Khasi hills of northeast India had a puzzling message: “Equitable distribution of self-acquired property rights.” Later we’d find out that the sign was part of a nascent men’s movement, as the men in the Khasi society were not allowed to own property. We’d traveled across the world in search of such a parallel universe—one where men felt like “breeding bulls and babysitters”—because evidence in the U.S. was starting to point to a massive gap in preferences towards competition between the genders and we wanted to understand the reason why.
Our plan was to take a simple game to a matrilineal society (the Khasi) and patrilineal society (the Masai in Tanzania) and give participants just one choice: Earn a small certain payment for their performance in the game or earn a much bigger payment for their performance, but only if they also bested a randomly chosen competitor. The game we settled on? Tossing tennis balls into a bucket 3 meters away. The experiment was conducted with Kenneth Leonard as a coauthor.
A while back we held a contest for the new popular economics book written by Uri Gneezy and John List. The authors and their publishers picked some of their favorite title suggestions and then we ran a beauty contest to determine which title was most popular among blog readers. The deal was that the person who proposed the winning title would get $1,000. Another $1,000 was to be split between randomly selected beauty contest participants.
Before I tell you which title won, let me tell you about the naming of Freakonomics. We had such an impossibly hard time coming up with a good name until my sister Linda came up with “Freakonomics.” To make a long story short, the publishers hated that name for a long time, but finally gave in. The rest is history. Of course we were all just guessing — it would have been nice to have data, the way Uri and John did.
So what do the data say? The winner of the beauty contest, with 33 percent of the votes, was The Carrot that Moved A Mountain: How the Right Incentives Shape the Economics of Everyday Life. Congratulations to Ivy Tantuco who proposed that title and collected the $1,000 prize.(Congratulations also to Jenna Dargie and Melinda Reiss, who were the randomly chosen beauty contest winners and pocketed $500 each.)
A couple weeks ago, Uri Gneezy and John List asked our blog readers to come up with titles for their new book. And our readers did not disappoint! There were over 400 suggestions, many of them brilliant.
The authors and their editors have now narrowed it down to five choices, and they once again are asking for your help in deciding on the final title. There is no better way to solicit that input than — you guessed it — a field experiment. To get you interested, they are putting up another $1,000 in prizes to participants.
First, you will be asked to choose which of the five titles you think will be the most popular among all the respondents. They don’t want to know your favorite title, they want to know the title you think other people will like best.
My close friend, colleague, and frequent co-author John List has written a popular (non-academic) book with another economist, Uri Gneezy. John and Uri are pioneers in the area of “field experiments” which bring the power of randomized experiments into real-world settings. In my opinion, field experiments are the future of empirical economics. We’ve written at length in our books and on our blog about the amazing work these two have been doing. I’ve had the chance to read John and Uri’s book, and I loved it.
The thing they can’t figure out, however, is what to call the book! If only my sister Linda – the greatest namer of things the world has ever known — were still around, she would figure out a great title for sure. In her absence, they’ve asked if I could mobilize the collective genius of you, the Freakonomics blog readers.
Okay, so here is the deal. Below, I’ve provided some information on the book and links to some materials that might prove useful to you in coming up with a name. You have two days to generate great titles for the book, which you can submit as comments on this blog post.
I’ve long been puzzled by the almost complete disconnect between real-world businesses and academic economics. After I graduated from college, I went to work as a management consultant. Almost nothing I learned as an economics major proved helpful to me in that job. Then, when I went back to get a Ph.D., I thought what I had learned in consulting would help me in economics. I was wrong about that as well!
Ever since, I’ve felt that both business and economics would benefit from a greater connection. Why don’t businesses set prices the way economics textbooks say they should? Why are randomized experiments so rare in business? Why do economists write down models of how businesses behave without spending time watching how decisions are actually made at businesses? The list goes on and on.
A few weeks ago, we got an e-mail from a reader Vishal Dosanjh, who lives in St. Louis:
My daughter asked me this morning why the fancy neighborhoods are the best places to go trick-or-treating. It puzzled me for a moment and then realized it was an economic question. I gave her an answer about disposable income and societal expectations. Anyway I thought it might be up your alley, and I wonder if it’s even true. Do wealthy neighborhoods/people actually give out better candy? She’s 8 by the way.
We set out to answer Vishal’s question in our latest Freakonomics Radio on Marketplace podcast.
In certain markets, the observed discrimination is not bigotry or animus-based, but consistent with the notion of profit-maximization, or Pigou’s (1920) “third-degree price discrimination”: in their pursuit of the most profitable transactions, marketers use observable characteristics to make statistical inference about reservation values of market agents. In others, the discrimination is more in line with Becker’s (1957) taste based theory of discrimination, or animus.
Interestingly, the nature of discrimination is less driven by particulars of the market or institutions, rather the nature of the disparate behavior is driven by whether the object of discrimination is a choice of the individual or is uncontrollable.
The intuition of the reader is slightly off. Although not directly a 50-50 charity drive, we have explored the efficacy of lotteries both theoretically and empirically. As John Morgan (from Berkeley) has elegantly shown, under standard assumptions (no risk-loving or lottery-loving behavior is necessary), lotteries outperform the simple ask (what we call a VCM). Lotteries obtain higher levels of public-goods provision than a voluntary contributions mechanism (VCM) because the lottery rules introduce additional private benefits from contributing.
More well-deserved attention for University of Chicago economist John List, whose research is the star of Chapter 3 of SuperFreakonomics and also featured in the last segment of the Freakonomics movie. Oliver Staleycrafts a long piece that both describes some of List’s recent research endeavors and gives the reader a feel for his personality.
Like all economists, apparently, he has a story about potty training his kids:
List believes so strongly in incentives that he offers his own children lottery tickets to do extra math homework, he says. He promised a daughter a trip to Disney World in exchange for her becoming potty trained. The day he made the offer, she used the toilet and was trained, he says.
In our latest Freakonomics Radio on Marketplace podcast, we look at the economics of charity — specifically, what works (and what doesn’t) when trying to incentivize people to give. (Download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript.)
In Australia, Dick Smith’s electronics empire has afforded him enough success to be able to donate about 20 percent of his annual income to charity. But, he says, this kind of generosity is no longer the norm:
Here’s an article in today’s Financial Times about a class on business experimentation that John List and I taught at the Booth School of Business. It does a nice job of laying out our philosophy regarding data and experiments. Thankfully, the reporter did not mention that most of the students hated the class.
We recently posted a contest, asking readers to choose the one question they’d ask if picking a partner to play the Prisoner’s Dilemma. I did not expect this contest to generate more than 350 replies. Picking the single best out of 350 seemed impossible, so I thought we should winnow it down to the Top 5 and ask you to . . .
That’s the clever title of the latest paper from Dean Karlan (one of the founders of StickK.com, who was featured in this New York Times Magazine article yesterday along with my colleague John List) and co-authors Xavier Giné and Jonathan Zinman. The researchers had surveyors approach people on the streets of the Philippines and offer them the opportunity to open . . .