Intro. [Recording date: October 21, 2020.]
Russ Roberts: Today is October 21st, 2020. I want to remind listeners, you can get your EconTalk merchandise at russroberts.info, where I archive all my work. So, feel free to look around if you go there.
My guest today is Steven Levitt. He is the William B. Ogden Distinguished Service Professor of Economics, the winner of the John Bates Clark Medal in 2004--a prize for the best economist under the age of 40. And, with Stephen Dubner, he is the author of the book Freakonomics, and the creators of all things Freakonomic. Steve, welcome to EconTalk.
Steven Levitt: Good to be here, Russ. Thanks.
Russ Roberts: Let's start with the Freakonomics phenomenon. Why do you think your book caught fire?
Steven Levitt: Mostly luck, honestly. I think we were in the right time--the right place at the right time. In some sense, I think what made it different from many other economics books is that Dubner is a real journalist, and he can write like almost nobody else can. And, I think the particular nature of the kind of studies that I've done academically, tend to lend themselves to storytelling. And, so, I think we wrote an entertaining, informational, educational book.
But, really, you can't really attribute it to anything other than luck that certain things happened. Like, I happened to go on the Daily Show with Jon Stewart, and he made me seem like a hero. And, so, a lot of young people started picking up books. So, it was a lot of happenstance. It's good. I mean, no complaints on my side, that's for sure.
Russ Roberts: Well, I have a complaint because for about five years when I'd tell somebody I was an economist, they'd say, 'Have you read Freakonomics? What do you think of it?' Unfortunately for you, that question has become less frequent. But, it was frequent enough. You did do extremely well. And I think you really--I didn't realize this; I don't know if it's true. I'd like your reaction. I think you were very early on, you and Dubner, in the popularizing book that takes a bunch of social science studies and reveals them for the listener, the reader. I think you were Malcolm Gladwell before Gladwell.
Steven Levitt: No, Gladwell was before us because when we first thought about writing the book, Steven Dubner said, 'Hey, read this book by Malcolm Gladwell.' And, I read Gladwell's book; and it was surprising to me, because I hadn't thought about that as a book. I'd thought about writing books before, but they'd never been so popularizing or so journalistic. And so, indeed, Gladwell was there before us. And, indeed, to thank Gladwell for what he did to help us. I mean, his blurb on the front of our book, I'm sure had a huge impact on our success, as well.
Russ Roberts: Yeah, that might be hard to test. I've always wondered whether blurbs--blurbs are fun. I don't know whether they work or not. Obviously, publishers think they do.
What was the reaction from your colleagues in the profession? You know, I have a similar route. I'm not as successful as you are, but I've popularized a lot of economics. And, in the early days--and your book was in the early days, somewhat, of that--it was considered somewhat untoward to, quote, "waste your time speaking to a popular audience." And, Chicago was a particularly--having been a student there, it's a particularly snobby place with a high regard for the academic life. Did you take flack for the book?
Steven Levitt: Not as much as you might think, actually. I think my colleagues already held me in such low regard that I couldn't really push myself any further. I mean, because I've always been--I'm kind of joking about that. My colleagues, I think they like me okay. But, I'm different. They treat me as different, like I'm held to a different standard. And, they had come to expect just about anything from me, so I think they weren't so surprised.
I mean, it wasn't--you know, ultimately, it was interesting. So, the book got popular, and it made so much sense to teach a course, like a Freakonomics course, to the undergrads. It would have had a huge enrollment. And, the Chair at the time, came into my office and said, 'Hey, just so you know: You are not going to teach a Freakonomics undergrad course.' And, I said, 'Why not?' And, he said, 'Well, for starters, I'm not going to have you profit from selling your book to the students.' And, I said to him, 'I mean, just being honest, I make a dollar a copy from the paperback, and we've already sold 6 million copies. So, if you want me to donate the $100--if the thing that's keeping us from giving our students what they want is the $100 I'm going to earn in royalties, I would be happy to donate to the Department.'
But, I think it was part of a broader view that this was kind of fun, but a Chicago view that, like, economics is serious, and this wasn't serious enough.
Look, I think there are many reactions to the book. One very common reaction is, 'Look, I'm a better economist than Levitt, so if I write a book, I'm going to sell, like, 10 million copies.' So, I think there are a lot of people who have written books that wouldn't have, otherwise. A lot of people got into pretty big advances on books, as well.
Russ Roberts: That's probably true.
Steven Levitt: And I think a lot of--another set of people have said, 'Look, I don't really like Freakonomics, but the fact is, a lot of people, a lot of kids read the book. And, it led some of them to be economics majors. And, the supply of economics faculty is pretty limited in the short run, and the demand for our product went up. So, maybe Levitt's not so bad, after all.' You know, so--
Russ Roberts: You said your colleagues see you as different. How are you different?
Steven Levitt: Well, the way in which I am different--I don't know if that's how my colleagues see me--is I'm somehow not really an economist in the usual sense of the word. Obviously, I've studied economics. I know basic economics, but I'm really always been more driven by data. And, by almost--I don't know, sociological--it's the wrong word. Not sociological in the sense of the discipline of sociology, but sociological in the sense of very interested in society and culture, in a way that many economists haven't been really.
And I know Gary Becker was your advisor. So, very much in the spirit of Becker, although the tools I've used have been very different. And, so, I've just never been that interested in economic systems, as much as I have been in using economic tools to study questions that are further afield than what--you know, I'm really at the edges. Almost everything I've done, you could look at and question whether it's economics or not.
Russ Roberts: Yeah. That's a fascinating way to think about it. I want to go back to your conversation with the Chair about the undergraduate class. Two things come to mind. One is, Robert Frank has taught that class for a long time [at Cornell University--Econlib Ed.]. He doesn't teach it the way you do, but his idea of the economic naturalist, the idea that economics is about going into the world and finding puzzles, and thinking about how understanding incentives or markets might help us get a better grasp of what's really going on, is a beautiful idea. It's also the same--the essence, when I went to Chicago, when I showed up in 1976--that was a huge part of the Core Exam, was tricky puzzles, like why are women's dry cleaning costs higher than men's? And, to see whether you could craft a narrative around it.
What's different about what you've done is--as you just confessed--you're not so interested in crafting the economic narrative, I would say, outside of incentives matter. Which obviously, is a crucial part of economics--not the whole thing. But, that you wanted to bring data to bear on these questions in a way that many economists hadn't before. Is that a fair summary?
Steven Levitt: Yeah. I think what--absolutely. I think I've always been driven by puzzles, and with the caveat that--look, I'm in an economics department, so I've always asked myself, 'Are these puzzles that relate to economics?' And, so, I've tried to really constrain myself to puzzles that relate to economics. But, you're right. Incentives have obviously been a huge part of what I've thought about. And, externalities, I think, have been present in a lot of what I've thought about.
It's interesting because a lot of people call me a Behavioral Economist, but I'm not really. I mean, I've done very little that fits into Behavioral Economics, with a capital 'B.' Going back to Becker--Becker and I used to joke that he was a behavioral economist, with a lowercase 'B.' Like, he was just interested in behavior. And, I think that's the same kind of thing with me. I'm interested in behavior, but rarely have I actually used many of the tools that Behavioral Economists have exploited.
Russ Roberts: Well, we're all behavioral economists now, but with a lower case 'b' and 'e.'
In fact, in a recent conversation you had with Dubner on your podcast--and we'll talk about your podcast in a little bit--but you suggested that the impact of Behavioral Economics, at least in the capital 'B' sense--meaning nudging and taking advantage of maybe what people see as irrationality, has not been very effective: that the magnitudes are small. You want to talk about that?
Steven Levitt: Yeah. I just think empirically. So, a lot of the basis for Behavioral Economics has come out of laboratory experiments. And, in laboratory experiments, you often can generate really big impacts on behavior and what people do.
In the real world, when we've gone out and tried to do nudges of various kinds, with the clear exception of defaults--which are enormously powerful, that if you just, like, sign people up for retirement savings, that's an incredibly big impact--
Russ Roberts: Opt-out versus opt-in--
Steven Levitt: Yeah, exactly. All that's really big. But most of the stuff that people have tried to exploit--and others might disagree, but my empirical experience with loss aversion and with trying to use subtle framing effects--many haven't yielded very much in terms of empirical results. I mean, I think there's a lot of evidence that you can use, you know, social shaming and stuff like that, in letters about paying your taxes, or about energy usage, by a couple percent. But it's no miracle.
And I think Behavioral Economics is really interesting. I think there's no getting around the fact that it is fascinating, and it intrigues many people; and it is enticing. So, when I talk to companies, almost every company I talk to approaches me and they say, 'We would love to use the tricks and insights of Behavioral Economics to revolutionize what we do.' And, I'm [inaudible 00:11:50], 'Look, I'll try to help you with that.'
But, honestly, I think oftentimes that the tricks and the miracles of regular economics are a better place to start, because there's often a lot more power in just getting the incentives right, and getting prices right. It's incredibly powerful in many cases.
Russ Roberts: What I love about your approach is that you understand that incentives aren't just monetary incentives. I think a lot of people use our mantra of 'incentives matter' in a straw-man version, and say, 'Well, this price change, people didn't change,' or whatever. Forgetting the fact that, of course, prices and monetary incentives take place in a social setting where norms, guilt, shame, reputation matter. And, it's only bad economists who think it's all money.
Steven Levitt: You said that, not me. But, I agree.
Look, it's almost reductio ad absurdum when you say 'incentives.' The way I use the word 'incentives,' I use it to cover everything. But, I think it's not reductio ad absurdum, because it's actually right. It's actually true that there are social incentives. And, then there's also kind of moral incentives. And, so given that kind of, those three things--financial, moral, and social incentives--essentially cover more or less the universe of things that lead people who are paying attention, to do the things they do.
And so, look, I think that--what I loved about Nudge in particular, and I may be getting off track. But what I thought was interesting about Nudge is that, until I talked to Thaler about what he was doing, even before I wrote the book, I had always thought of our toolkit as economists, essentially--you know, you could try to do incentives; or you could pass a law and use, like, prohibitions, or various ways. But, Thaler's insight, I thought was a really good one. Which is: a lot of times, it's just easier to trick people into doing what you want them to do than to actually either, like, educate them, use information, or to change incentives.
And that's actually a really important insight. Because--especially when the time that you and I were being educated in economics, a lot of the stuff was full information, complete information. We assumed that people were paying attention and they were doing a good job at things. Not that they were necessarily perfect, but that they were at least thinking about stuff.
And, I think Thaler's insight is that people are busy and they're not even thinking about stuff: So, just trick them. Do it when they're not looking, and you can get relatively big impacts.
Which, you know, I think--you have to--ethically, you've got to worry a little bit about that, because is it really the right thing to do?
But, I think in terms of actually getting stuff done, I now have that kind of at the top of my toolkit. If I want to get something done, I think, 'How can I trick people? How can I just get something done by changing it without anybody noticing?'
And I think--you know, there aren't that many things where I think I'm smarter than, where I think I know better than everybody else, and where I actually want to impose my will on people. But, in those cases, look, I think the nudge approach is really, really genius.
Russ Roberts: The only thing that I think I know better than other people is that I don't know much more than anybody else.
But, I don't agree with that, that tricking part. And, I'll let you defend it in a second.
I think--it's interesting: I was trained that you can't trick anybody. People are rational--this is the full-information, extreme version that you gave. That's always been my starting point, as an economic naturalist. Doesn't mean it's my ending point, but I always start with: I'd rather have a theory that people aren't stupid--I'd rather avoid the theory that people are stupid, or they make this mistake systematically, or they make it over and over again, it's not in their self-interest.
And, so, I've changed. I do know that people do get tricked now and then. But I think it's hard to trick people. And, I think what markets do is make it harder to trick people. The incentives that emerge out of markets are going to protect people from exploitation. It's true, they can still pay a stupid price if they ignore the market opportunities. But, I'm much less--I'm not as pure as I used to be, but I haven't gotten nearly as far as you suggest. And you just told me, though, that doesn't work very well. So, wait, wait, wait: so, defend your idea we can trick people.
Steven Levitt: Sure. Okay, so first--
Russ Roberts: Maybe give us an example--
Steven Levitt: I'm not actually saying, taking advantage of people that are stupid.
Okay, so I agree. I'm in basic agreement with what you said, that for sure, markets are an enforcement mechanism that keeps exploitation under--within limits. Okay. So, in particular, I'm not really thinking about market settings as I talk about this.
The second thing is that I'm not thinking about people making mistakes and being stupid. I'm actually thinking more about inattention--
Russ Roberts: Interesting--
Steven Levitt: I think Thaler's real insight is that inattention is really important, because it doesn't actually make sense for people like you and me to fumble around, around the edges of exactly what's in our food, or is one shaving cream doing some particular thing different?
So, I think there's a lot of things where we just kind of assume that--I think you and I both assume that markets are going to take care of stuff. And, so, we don't worry about a lot of it.
But, I was more thinking about cases where we're not really in markets, but instead we're relying somehow on--going back to the classic case, which is for retirement. So, we take a job. We don't know anything in particular about retirement savings, but there's someone in HR [Human Resources] and that person's a real expert. Right? They've spent their life going to seminars and studying retirement. And, so, when they tell me that I should do this, I'm like, 'Huh? Okay.' And, then honestly, I never look at it again. And, so, it's not really that I'm necessarily--you know, it's not that I'm thinking about it, not that I'm stupid. It's just that I've ceded control because life is complicated.
And, I think we do it a lot with the medical profession, too, often to our detriment. Where, if you just listen to doctors, you end up doing crazy things.
And so, I'll give you an example. Well, I was thinking, I mean, I've got so many examples of the medical profession, I probably shouldn't even go there, because they're the kind of things you'll have to censor out afterwards.
But, that's what I really mean: just that the world is complicated and that when there's opportunity cost, people aren't paying much attention. And, so, around the edges.
But, look, on fundamental things, I agree with you completely, that markets are really the best insurance we have, protection against exploitation. Which is kind of the opposite of what--how many people think of markets.
Russ Roberts: Yeah. I just read an article by Canadian journalist David Cayley about the pandemic. I'm just going to digress on this and we'll come back in second, to our main theme. But, it's talking about the pandemic. And the way I would summarize--I hope you and I'll talk about that, the pandemic in particular, in a little bit. But, he talks about how, the way I would phrase it: We've been trusting scientists, but not science. That, there's so much uncertainty around the pandemic. And, the voice of science--scientists--are very loud. And people go, 'Well, they're scientists, so I guess they're talking science.'
But, of course, in many cases, there's a lot of uncertainty around what they're saying. And, in fact, sometimes they're just simply wrong. The other question would then be, 'And, which scientists?' There's scientists on both sides, saying some really bizarre, opposite things.
And, I think it taps into a deeper, cultural question you're raising there, which is: For most of our lives, that you and I have been alive, we trusted experts. We just said, 'Well, that person in HR, that's their field. I don't need to look into this. I'll just trust them.'
And, we're living in a time now, where--we've had Yuval Levin on the program talking about this, and Martin Gurri: Expertise is dying. It's been betrayed to some extent by the practitioners. It's also been overwhelmed by the information tsunami that we're surrounded by, as Gurri calls it.
And, so, everything is kind of up for grabs now. It's interesting to think about how policy, and nudging, and incentives are going to work in a world where people are really skeptical about what--people they used to trust, what they actually know.
Steven Levitt: Yeah. No, I agree. Let's go back to medicine, for a second. If you are diagnosed with some relatively rare thing, you can know more about that malady than your general practitioner-doctor, in about a day. A day of really hard study about something, and you know a lot about it. Which is the beauty. I mean, it's the wonder and the amazing value of the Internet, is how available information has become and how it can be used to help individuals who are seeking information.
So, I actually, so, while I agree with you that it is sad that in many cases, expertise has been politicized or distorted. I'm not sure that wouldn't have been true in the past. I mean, I can go back. I'll give you another example.
So, after our second book, SuperFreakonomics, came out, and we wrote about climate change. And, what was interesting, going back to the idea of scientists: so there's something called, I think it's called the Union of Concerned Scientists or something like that. Which is a group--and, as far as I could tell, there were no scientists involved in the critique of what we were saying about climate change. It was purely a propaganda exercise to try to discredit us. But because they were called the Union of Concerned Scientists, they were treated with the dignity of science. And, everyone seemed to ignore the fact that the articles we were citing--I mean, we weren't doing our own research. We were citing articles that had been in Nature and Science, and these were by top scientists in the area.
But, I will say, that was a case where, by used strategically--in exactly the thing I think that you're speaking against--like, the strategic use of the reputation of science to destroy things that the people who are arguing want destroyed, regardless of truth, regardless of right and wrong, was used incredibly effectively. I mean, I've never lost a debate the way I lost the debate to the environmentalists.
And honestly, partly I regret--we wrote it really poorly. The way we wrote about it kind of triggered people to be very against it. I think of all the things I've ever argued, I've never been more right about anything than what we said about climate change: which is that it was going to keep on going and all of the cries that everyone should just 'do the right thing,' were not going to work. I mean, as economists, we all know that just asking people to do the right thing, when the benefits accrue to other people, it never really works. And, that, if we're going to have a solution, it's probably going to be a technological solution.
And, actually what's interesting is that the entire--the whole world has moved in that direction in the last 10 years. I mean, I think we've come to agree more and more that's true, even environmentalists.
But, for a long time, people have been using science as a weapon to control[?] things they don't like, even when it has little to do with science.
Russ Roberts: Yeah. It's a cudgel. It reminds me of when I was once interviewed by a reporter on some issue related to international trade, and in the middle of the interview, the reporter had a moment of unease and said, 'Wait a minute. You are an expert, aren't you?' And I thought, 'How do I answer that question?' I thought, 'Do I claim I'm an--?' And then I said, 'Well, I've written a book on international trade.' 'Oh, okay.' She was totally reassured--because that made me an expert, even though it was mainly a popularizing book of the ideas of comparative advantage. And it was not what I would call research. But she was reassured because she could then put Roberts, the author of--she's okay.
Thinking about--you mentioned medicine and our ability to have knowledge. It's such a tragic example to me of where the incentives and feedback loops that would normally protect consumers from egregious over-diagnosis and over-testing other things. The benefits typically accrue to the doctor. Sometimes to the patient, but sometimes not so much, with side effects and negative outcomes, sometimes with those tests. And yet, I think emotionally, we have a trust of that person as a quote "scientist"--a doctor. That--it's being eroded through the Internet and other bad behavior. But, those incentives there really, I think, play into it a lot.
Steven Levitt: Yeah. I mean, one of the things we've written about is about chemotherapy and how much chemotherapy is relatively ineffective, has enormous side effects--
Russ Roberts: Tragic. Incredibly expensive.
Steven Levitt: and the crazy incentive system whereby doctors get part of the revenue that is generated from the sale of those. I mean, it's really, it's a crazy system. I think if people knew more about it, I don't think they'd be very open to that system.
Russ Roberts: The way I see it--which is so depressing--it's a way that, often, the doctor is reaching into the taxpayer pocket.
The taxpayer is not in the room, right? The Medicare payment, unnegotiated price set by the pharmaceutical company for an extra two months of life, instead of using the existing treatment, which is a fraction of the cost is, is--it's a bad system. It's going to be hard to fix, but it's a bad system. On EconTalk and on your podcast we're trying to spread a little education.
You're spreading a little more than I am because the size of your audience, but we're all trying to do our part. And it's hard because the--and plus, the invested interests are extremely tough.
Going back to our old thread: Did you teach that undergraduate class after that incredibly generous offer to share the royalties from a hundred copies with the Department?
Steven Levitt: No, I've never taught a course on Freakonomics. With John List we did eventually teach a course of economics for non economics majors, at the University of Chicago. And, I think the view is that everyone should have one economics course. We've never been part of the core economics. We've chosen not to be part of the Core first-year classes.
And, I'm probably not even supposed to say this, but I'll say it anyway; I'll let it out. So, they changed the incentives at the University so that, to the Department, there was a benefit from having more students take our courses. We started getting paid on the margin.
So, when that happened, John and I said, 'Well, why don't we teach a course that will be really popular among non-economists?' And so, we did that. I think the first year we had something like 500 students signed up for it. Which turned out to be worth a lot to the Department, and a really fun course to teach because John's a good friend of mine. And we just tried to--we both believe in the ideas of economics of being really powerful. And, I think our own profession has a little bit gotten lost in technicality and in--in folks and things that are hard, and liking things that are hard.
But, the basic idea--I mean, you--no one more than you has been, kind of been, focused on the basic ideas of economics and how to bring, whether it's competitive advantage or incentives or, you know, how effective prices can be at solving problems.
So, we--it was really fun. So, we have been teaching this course now for four or five years. And in that course we do give--I give away PDF versions of Freakonomics for free. And John gives away free versions of his book, as well. But, it's not really a Freakonomics course in the sense that where it's really--and sometimes more economics and Freakonomics, because it's really trying to teach what we think are the 10 or 12 core ideas of economics but without any math, simply taught as like these are powerful ideas, and you should have them in your toolkit as you approach life.
Russ Roberts: Yeah. I'm relieved that it's more than 100. When you said you were going to give the 100, I thought maybe there'd be 1,000 students. So, 500 is not too bad.
Steven Levitt: I'll tell you about the 100 or so. The reason I said 100 students is that for the most part, when we were doing in-person learning, the limit on class size was determined by classrooms. And the biggest classrooms that are easily available to the Econ department in Chicago are about 80 to 100 seats in them. And so, so it's always been really frustrating to me that there are many students who want take my course. I teach a course on economics of crime, which is quite popular, and I have to limit it every year. And so, one year I pushed harder, and there's actually one or two huge rooms, and I got access to one of those huge rooms, and I had, you know, 300 students in the class.
And the same chairman who didn't want me to teach Freakonomics, the next year came around, and I saw that I had been reassigned to an 80-person classroom. And, I went to him, and I said, 'Hey, this doesn't really make sense. We've got 300 students who want to take the class.' And, he said, 'Well, the problem is all the other faculty members got really upset because there were hardly any students in their classes, and they complained so much that I'm going to lower you back down to 80 again.'--
Russ Roberts: Socialist--
Steven Levitt: And, I said, 'This is the University of Chicago Department of Economics, and our solution is to not let people have what they want? Shouldn't the teachers try to teach something that students want to go to?'
I mean, like, it was--I've had about maybe three or four of those defining moments where everything I believe about Chicago economics is turned on its head in the actual practice of life by Chicago economists--who are great in their papers at acting like Chicago economists, but awful in real life. Can I give you another example while we are on this?
Russ Roberts: Sure.
Steven Levitt: We were thinking about of really--
Russ Roberts: You have tenure, right?
Steven Levitt: I have tenure. Yup.
And, we have a really fantastic guy who was coming up, who is young, but was coming up, getting outside-tenure offers, potentially. So, we had a senior faculty meeting. And so, we decided to vote him--unanimously, with almost no discussion--to give him an untenured associate position. And, the problem was that it was clear that other places were going to make him tenured offers, and it was also clear to me that if other places made him tenured offers first and we only responded, it would hurt our bargaining position in convincing him to stay relative to preempting those offers.
So, I said, 'Hey, let me just ask you.' Like, if he didn't do any other work in three years, 'Do you not think that this body of work he's already done would be good enough for tenure?' And, like, basically everyone agreed.
And, I said, 'So, just trying to do backward induction, in three years we're going to vote him tenure even if he does nothing in between. Does that not mean we shouldn't vote him tenure now?'
And perhaps the world's greatest, rational, economics macro-economist said, 'He's not ready for tenure.' And, that was the end of the discussion. He's not ready for tenure. Even though backward induction told you that he would, with 100% probability, would be ready for tenure in three years.
I'm not even sure what that means. But it was one of those moments I'll never forget: Where I think, 'How is it?--'
It actually makes me understand why economists may be hold so little sway in policy and in the way the world works, when even in the University of Chicago Department of Economics, we make decisions that are completely at odds with any--I mean, I'll give you another example. I've sat in meetings where 10 faculty members who, combined have an outside wage option of, you know, I don't know, $15,000 an hour--have sat for an hour arguing about how to allocate $250 worth of stuff. And, at the end, I finally said, 'Look--'
Russ Roberts: Flip a coin--!
Steven Levitt: This is my answer to everything. 'I'll just write you a check for $250, and one side can have it, the other side can have it. This makes no sense. Why are we sitting here doing this?'
So, but, you know, what's the old phrase? That people who do, do; and people who can't do, advise? Or whatever it is.
So, anyway, that's kind of what I feel like with some of the people in Chicago. They're really good. They're incredible economists, but common sense has not always been at the top of the list of Chicago economics.
Russ Roberts: Yeah. Although, market forces don't always impinge on those small decisions. But that faculty member who you didn't vote for, it wasn't a free lunch.
Steven Levitt: Absolutely.
Russ Roberts: I'm sure that you paid a price for that. And it reminds me of the famous line, which I've never fully understood, but it seems relevant here: Why are academic fights so vicious because the stakes are so small? There's a lot there. We'll just leave that alone for listeners to--it's kind of a Zen thing. We'll leave that alone.
Before we leave Freakonomics--I want to talk about your new ventures next. But, before we leave Freakonomics, I want to take an example from the book that's always bothered me, Steve, and I have to confess, and I'm going to give you a real life piece to it that I think will intrigue you. At least I had never heard it before.
So, this is the argument you make in the book that when a real estate agent is selling a house that she herself owns, it's her--her name's on the title. Versus a house where she's representing a client and is going to get a commission. When she selling her own house, if she charges an extra $25,000 for the house, she gets the whole $25,000. If she sells the client's house for an extra $25,000, she only gets the commission of that, which is quite small.
So, your argument is that there's a tension, a misalignment of incentives where the agent wants to set a lower price for the house than the owner when she's representing a client because it'll move more quickly. And when she sells her own house, she's going to be willing to wait a little bit longer, because she gets the whole $25,000. Is that a good summary of the argument?
Steven Levitt: Mm-hmm. Yup. That's good.
Russ Roberts: And, you find that the data seems to suggest that, although, of course, it's really hard to test it. You do the best you can to make some assumptions and so on.
I've never liked it because, in my view, going back to what we talked about before, people are relatively rational. I think most people are aware that--their agent may not share their incentives. When agents compete, they're trying to get clients, and therefore they tend to not be able to exploit customers in that way. That's my response.
That's neither here nor there. We could go into the weeds of the actual study. I'm not interested in that.
But, I want to tell you about my sister said, who is a real estate agent, because I was so fascinated by it. First, she said, 'Well, if you set too high a price for the house, it's just not going to sell. It doesn't matter how long you wait.' She said, 'It's not that you wait longer because you get a higher price if you wait longer.' I said, 'Well, but isn't there the chance that the perfect persona will come along, who falls in love with the house and will pay that premium and you just wait for it?'
She said, 'Yeah, but that's a terrible idea.' I said, 'Well, what do you think of this finding?' And, she gave me a twist on it I've never heard before. She said: Oh, well, when I sell my own house, I'm a seller, and I overestimate the value of my house because I think it's worth more than it really is. But, when I'm selling it for a client, they, too, think it's worth more; but I can tell them, 'No, you're crazy.' Whereas, when I'm selling my own house, I don't have anybody to reel me in. To calm me down. So, I thought that was an amazing, behavioral-economics twist on the standard one. Have you ever heard that argument before?
Steven Levitt: I've never heard anyone say that.
Russ Roberts: That is so awesome.
Steven Levitt: It does make sense. Of course, if you go back to the Chicago version of it--well then obviously your sister, sister-in-law, she should--
Russ Roberts: Pick the right price.
Steven Levitt: She'd hire an agent then if an agent's worth it to them. I mean, obviously if she has enough sense to know that she's falling prey to it, again, I think it's complicated.
Russ Roberts: Yeah, that's true, too. Yeah. But, she can't help herself. Because her emotional reaction, she knows it's--and plus to admit to herself that she needs her own agent, I mean, that would be jarring.
Russ Roberts: Anyway, let's shift gears. I want to talk about--before I do, a number of people on Twitter, I asked them what I should ask you. So, I want to ask this before we leave Freakonomics. There are a lot of interesting and dramatic and provocative and hidden phenomena that you illuminate in Freakonomics. A number of years have passed. Are there any of them that you want to say you've changed your mind on? you don't think they're true anymore? Just for the so-called record? Or do you think they've stood the test of time, or do you want to be agnostic about it?
Steven Levitt: You know, I think, most of the things that were research-based that I have more evidence on, I think have stood the test of time: Whether it's campaign spending or legalized abortion or other things. I think the new evidence--I'd love to talk about the new evidence on legalized abortion. But, that's not the answer to this question. I tell you, the two things that are just plain wrong in the book--and it's really interesting is--there are two things that are not based on data or analysis.
So, the one was what we did on the KKK [Ku Klux Klan], and it turns out that the gentleman who had supposedly done these amazing things to infiltrate the KKK, Stetson Kennedy; and we had based that on some historical record and talking with him and whatnot.
But, after we wrote the book, somebody came to us, a historian of Florida, who said, 'Hey, a lot of these things Stetson Kennedy said aren't true.' And we actually took it really seriously. We went and investigated, and we talked to him. And, he's threatened to sue us if we--we were going to write it. So, we ended up writing a piece in the New York Times saying, 'Look, we had relied on a bunch of sources. It turned out that it was true that somebody did infiltrate the Klan, but I think it was someone else. And Stetson Kennedy stole that person's identity ex-post and started telling it like his own story.'
That, and the other thing is that we had a leading sociologist who swore up and down to me that he personally had met OrangeJello and LemonJello, the two African-American children whose names were spelled OrangeJello and LemonJello. And, look, I would never have put an urban myth that knowingly into this thing. But, literally, this guy has studied, like, the Black Power movement, and he was completely and totally credible. I have spent a lot of time and effort--I've offered large prizes of financial rewards to anyone who can produce LemonJello and OrangeJello. I am completely convinced that it's just an urban legend.
So, what's funny is that the things that I regret now that are wrong are the things that were well-researched journalism, as opposed to actual academic research. But, I can't think of anything of my own research that is in there that I would say, 'No, no. Actually that's just plain wrong.'
Russ Roberts: Well, like my sister, Steve, you might have trouble evaluating your own objective sense of that. There are people who have criticized different parts of your research. Obviously, they could be wrong, too. But, more generally, psychology is going through the so-called 'replication crisis.' We've had Brian Nosek on the program a couple of times talking about it. I've followed it fairly closely because I'm fascinated by it, and it fits my priors--shamefully, but that's being honest.
I am uncomfortable with the ease with which many economists tout the credibility of statistical analysis for policy purposes--ironic, given that you said earlier, that economists haven't been very successful. I think we are certainly the most powerful social scientists. We may not implement policy the way we think we ought to be able to.
But, are you uneasy about any of that? Do you think that some of the findings that--not yours, but in general in econometrics will stand up? Part of my issue is: How would you know? Unlike, a psychology experiment where you in theory can replicate it, a lot of our analysis are, of course, natural experiments or not experiments at all, just attempts to control for factors via econometric technique. Do you worry about that at all?
Steven Levitt: Let's do to the most narrow version of it. Could you actually, if you started from scratch, take most academic economic papers and actually get to the numbers that they get? And, I think the answer is, no. I mean, we deal with replication in a much narrower sense. So now, when you publish in a journal, they ask you to put your dataset. And, replication means, is there code that you have created that if somebody presses a button, it will actually give the numbers and fill in the tables? Okay?
Russ Roberts: Correct. That's really narrow.
Steven Levitt: So, that's very narrow.
o, then you go back further. There's a thousand choices that happen over the course of, and thousands of lines of code that can go wrong. So, I think, my hunch is that most, if not all papers, have enormous numbers of mistakes in them. So, the question is to what extent are those mistakes mistakes that lead you to very different answer versus just mistakes that maybe--I mean, I've made mistakes.
One of the big mistakes I made in a paper--it was actually a mistake in a paper nobody cared about, and somebody pointed out later. But, I had not fully understood that there had been a change in the way the accounting was done on some time series--
Russ Roberts: Happens all the time--
Steven Levitt: which led my answers to only be about half as big as they should have been. Because usually, most of the time when you make mistakes, they end up pushing you towards zero rather than away from zero.
So, look, on every level I think replication is unlikely to happen on most things. So, that's always been my view is that a good basis for research is to allow a reader to see as much of the raw data as possible. This is assuming you did a good job on the raw data, okay? And, just to start by saying, 'Here's what's in the raw data.' And, 'Let me show you every step I make along the way. And, by the time we're done my own personality will be heavily injected into whatever I've done, and my beliefs and how I like to do things. But, I'm going to start by showing you the raw data, and we'll show you how it changes at every step.'
And, I think that's one defense against this kind of problem. I mean, I'm also not very socially minded; I'm not very public goods minded in general. But if I were, I think I would've started a journal of replications and economics, where you publish them when they work. I mean, the problem with replications in economics is if you replicate something and it works, no one's interested in seeing it.
Russ Roberts: Nobody cares. It's incentives.
Steven Levitt: Yeah. And, I'll tell you the craziest thing about it, and this is what disturbs me more about economics and replication than anything else. So, John List and I--I won't name the author. I mean, I probably should because he hadn't suffered nearly as much as he should for his mistakes. But, in two separate occasions, there were papers published in top journals that John List and I essentially thought must be fabricated because the results were so outrageous. And they were both experimental papers.
So, John and I went back, with coauthors, and we redid these experiments. And, not only did we find not replicate, but in one particular case, this paper had found that if chess masters were playing a--what's called the caterpillar game, which is, you could imagine is a backward induction game--that they played it perfectly. Like, 20 out of 20 stopped on the first move, whereas regular people never do that. But, look: It didn't make any sense because among other things my cousin is a world-class chess player. And, he says, 'Look. Cheating is rampant in chess. People cheat like crazy because the incentives are really screwed up, and we've learned that there's a lot of gains from cheating.'
So, we went and we replicated this paper in a different world-class, with grand masters. Not only did not a single one of them stop on the first node--without explaining the whole game, it won't make sense. But, for people who know the game, the crazy thing was, they actually went all the way to the last node, which is absurd. No one in their right mind, except really good colluders, can ever go to the last node. It was so bad.
This is a game where if you stop on the first node, it only costs the researcher a dollar. And, if you go to the last node, each time you play it costs $512. We literally were bankrupted within about two hours of this study. We had only brought, I think, like, $3,000, with us in cash. We ran out of money. We had to send our aids all over Philadelphia to ATM [Automatic Teller] machines to try to gather up enough money to pay off the people who were doing their subjects.
But, the point of this is, look, we wrote a rejoinder to their paper. And, we in very clear terms said, 'We believe not just that this was a fluke that we had gotten different results, but we suspected that there was malfeasance on the part of--'
Russ Roberts: Fraud. Fraud.
Steven Levitt: Or fraud. And, in the two cases we did this is, the same author--within a year, we ended up getting our replies published, but the editors made us take out anything about fraud or malfeasance. Unlike in psychology, where there have been huge prices paid by people who it's been suggested to have been fraudulent. Then this guy goes along just fine, tenured at a top university, no one holds it against him. There's never been a discussion? I would say in the 10 years since we did this, not a single person has written to me saying, 'Hey, I just read this article, and the only way to make sense about your comment is to think that this author did something fraudulent.' But like, no one's even talked about it, not even a discussion.
I think it really, in many ways for us in economics, the problem is that the space of problems that we deal with--like, the set of things that fall under the rubric of economics--is enormous and expansive relative to the number of economists. There's relatively few economists working on any particular problem. And so, if it were more like physics, where there were seven big problems, and every economist worked on one of those seven problems, then if somebody was fraudulent, one seventh of the profession would be watching and would be focused on it.
But, so, somebody finds out that somebody made a terrible data error on a paper: The 14 economists who care a little bit about that maybe lower that person in their opinion. Maybe they talk about it. But the discipline itself, it just goes right by.
Russ Roberts: Yeah. Well, that comes back to earlier discussion, of course, about incentives. And, we don't like to admit it, but not everyone in the academic world cares about truth. We might care about it along with other things. We care about our reputation, which is part of this, but not the whole thing. We care about our status. We care about our salary. We care about our publication or CV [curriculum vitae].
A former colleague of mine used to call it: slicing the salami was the mode of many academics--as opposed to, say, tackling one of the big seven questions.
That reminds me, I wanted to ask you this. Branko Milanovic, who is coming onto the program soon to discuss this, tweeted last week or this past week, that the Economic Nobel Prize--well, it's not exactly a Nobel Prize, given by the Bank of Sweden, but we call it the Nobel Prize--the Nobel Prize should go to people looking at big questions. Why did China succeed so much in the last decades? What's the source of poverty reduction there in India and elsewhere? These are not easy questions to answer, but they are the deepest, most important questions. And, fundamentally, he was critiquing not the research of the people who have gotten the Prize this year, say, for improving options that the FCC [Federal Communications Commission] might do. It's not unimportant, but these are not the seven big things we would make in a list of the questions we should be dealing with. What are your thoughts on that?
Steven Levitt: I think the challenge is that academics does not reward answering big questions halfway. Academics rewards answering little questions 100% of the way.
Russ Roberts: Yeah. Well said.
Steven Levitt: That is the role of academics. And so, especially I think in economics, there has been an under-investment in broad thinking, like: why has China succeeded? Because, there's no real academic return to doing that. That's something that old men and women can sit around doing because they're not trying to get published, but I don't think you can build a career on saying I'm going to tackle these hard problems.
And so, I think, to me, it's an unfair criticism of the Nobel committee to have them charged with rewarding economists. It's sensible. A Nobel Prize has a lot of sway, so it wouldn't be a crazy thing for the Nobel Prize Committee to say, 'Look, we think academics gets it wrong, and we have a different set of--we're about the big economic picture and we're going to reward people who maybe have had zero academic success.' The best thinking about why China has succeeded probably hasn't been done by academics. It has probably been done by all sorts of pundits outside of academics.
And the Nobel Prize Committee, if they wanted, could go and give a Nobel Prize to somebody like Thomas Friedman or someone like that--people who don't have economics degrees and who don't work in it, but who write about big, important questions.
But, to me, I think, what the Nobel Prize is, I hardly think you can fault the Committee for the set of prizes they've given in the last few years. I think, you know, given what they have to choose from, I think they're picked really pathbreaking, important research, both in what Milburn Wilson has done and what Esther and Abhijit and Michael Kremer did last year. To me, those were good prizes.
Russ Roberts: Yeah. Well, I think his point, and I don't think it was so much a critique of the Committee itself, but an urging of the Committee to do something different than it's doing now. What it does now is it rewards the best academic performance--to some extent, not totally. There's some wiggle room there. But I think his point is well taken.
I just want to add: I would not give it to Thomas Friedman, even if we broadened it. But your basic point, which is--and I'm going to phrase it the way you might not--I think our profession tries to be like physics. I think it ought to be more like history. History doesn't pretend to answer the question of what really caused the Civil War, but we learn something from studying the history of the Civil War. It's just not an answer.
So, maybe instead of the journal of replication that you start, maybe you should instead start the Journal of Half-Finished Ideas or half finished hypotheses--or, imperfect. Yeah, instead of the Journal of Irreproducible Results, the Journal of Maybe-True Results.
Steven Levitt: Yeah. Yeah. The history analogy is an interesting one because history tackles big problems, but history and economics could not be more different. The nature of a great piece of history is that it focuses very much on idiosyncrasies, on narrow institutions, on the particular identities of the people involved; and nothing could be more antithetical to economics, especially Chicago economics, than the idea that your tools should be used to describe exactly one moment in time.
So, I mean, going back to our joint mentor, Gary Becker, Gary basically believed that a good economic theory applied everywhere. In that kind of a world, it's harder to necessarily go and say: Why did China succeed? Because, why China succeeded probably has a lot of idiosyncrasy, a lot of history, a lot of particular laws that changed at the right time or a particular entrepreneur.
I think that doesn't fit well into how we describe economics right now. But look, I agree. I worry that economics is going the way of sociology and anthropology in the sense that we are losing focus on important questions and on fundamental truths of being able to provide guidance--that we're getting caught up in a lot of self-referential pursuits of complicated models.
Certainly that was a complaint that was very fairly lodged against macroeconomics after the Financial Crisis. But I think it's increasingly becoming true in microeconomics, as well. And, I think that in my own view, less and less of what academics are doing has a policy relevance that should and is going to influence how real decisions get made.
In part, I think it's because it's too easy. I'm a little bit younger than you, not much, but when I came into the profession 30 years ago, it was at the cusp of new data sets, new techniques like natural experiments; and it was a little bit hard to go and get data, a pile of data, and try to make some reasonable causal inferences from it. And so, there were academic rewards doing it because it was a scarce talent. It was hard.
Now that talent is not scarce. Now there's a cookie cutter recipe for taking a data, looking at a law change or some other natural experiment, and getting a result. So, there's no academic reward to it, so people move on to do things where there is an academic reward, like building a complicated structure, a model that has dynamic optimization in it.
And so, there's not a lot of effort that's devoted to doing simple things that are useful parameter estimation, because it won't get you a good job. I get it. It's incentives. I don't fault anyone for not doing it. When I write those papers myself, I can't get them published. So I write them sometimes just for the pure joy of knowing. But, for people who need to be published, all the incentives are pushing in a direction that I think is making economics less and less relevant.
Russ Roberts: So, that's a good segue. I don't want to be too harsh a psychiatrist or therapist for you, but to some extent, there's a self-reflection there about the nature of your own work in terms of the scope of it. You did some unbelievably clever and provocative takes on small issues: Are sumo wrestlers cheaters? It's fascinating. It's fun to think about. It's not at the heart of the good society or the good life.
And yet, in recent years, you've had some change your heart. We're going to talk about your podcast in a minute called "People I (Mostly) Admire." But, as part of that, what I sense as a transition for you--you started a center at the University of Chicago, Radical Innovation for Social Change, R-I-S-C, RISC. And, you're trying to look at big pictures and find relatively simple solutions.
I want to talk about a couple of those, because they're so interesting. Let's start with monitoring criminals.
Steven Levitt: Sure. So, no; so I think you're right. My approach to academics was purely self-interested. I did stuff I thought was fun; and I really was incredibly lucky that the discipline accepted me and published my papers in top journals and I got accolades, but it's also true.
So, what happened over time is academics stopped being fun. It stopped being fun for me, in part because I think that the discipline kind of passed me by. It's a different discipline now and it values different things and what it values, I don't value.
But, the other thing that was disturbing a little bit to me was that of all the success that we had with Freakonomics and popularization and all the success I had within regular academic channels, I honestly think it's fair to say that I have not directly affected, in a positive way, any public policy anywhere.
I mean, the closest we came is Dubner and I did something on drunk walking. And, we just showed that drunk walking was, like, per mile, something like 10 times more dangerous than drunk driving. And that led a town in Alaska to debate whether they should pass a law, making it a misdemeanor to walk drunk in that town. Which failed. So, it didn't even get passed. But that was the closest I think I can ever say to coming to actually having a law put into place.
So, I just reflected on that. And, look: I'm not against just having fun and the consumption value of economics. And, obviously, I've taught a lot of students and maybe had some benefit there. But, as I've gotten older, for me now again, it's just more fun to think about how to affect the real world and could we not have some impact?
So, I started the center, RISC, and kind of the bottom line of RISC is: I looked at the incentives being faced by a lot of different folks around social issues--whether it's the government, whether it's academics, whether it's non-profits. And I think all of those three groups all had the wrong incentives. And also corporations have the wrong incentive, too--like, private, for-profit places. I don't want to go into exact details of why I think they have wrong incentives.
But just, say, non-profits. What's clear to me, having talked to many people in charge of and working in nonprofits, is that not only do they want to make the world a better place, they want to be liked along the way.
So, the big philanthropists are deeply concerned about their image and their perception. They are, more often than not, philanthropists because they want to be popular, and they want to be justified.
So, look, I thought, 'I don't care if people like me. So, how about we try to carve out a different space,' which is: we're going to try to find problems.
The problems that haven't been solved, the big social problems, haven't been solved either because they're too hard or because they're not that hard, but the answers are really unpopular--so nobody with any common sense would actually go out and try to do it.
So, I think the electronic monitoring one is a really good one. So, I've studied crime academically for 30 years. And, I know a lot about crime. I've thought about crime. And I am convinced that there's a very simple technological approach, which could have the biggest impact of any crime policy of the last 50 or 100 years, which is simply to use GPS [Global Positioning System] technology--and other technologies going forward, but the easy one is GPS--on people who are under the jurisdiction of the criminal justice system.
Super-simple idea. The idea is that if someone is being monitored in this way--so you know where they are at all times--we can cross-reference their locations with existing databases on, say, where shots are fired or where crimes have been committed.
And, it creates a tremendous deterrent effect to committing crimes. And, what we've seen empirically is that, if you put people on these bracelets that have GPS, they do virtually no crime. Okay?
Now so far, I'm sure everyone listening is like, 'Oh my God, Big Brother--you're an awful person.' Okay, so, but here's the thing--
Russ Roberts: All right, Steve. Steve, who's going to wear these? Make that clearer. Who's going to wear these? Me and you?
Steven Levitt: So, I'm personally not totally against that, but, like, but that's not the plan.
The plan would be, for instance, that people who are in prison right now would be offered a deal: 'If you want to be let out of prison two years early in return for wearing a bracelet, say, for four years, we'll let you out of prison two years early. If you commit crime, we're going to put those two years of your sentence that are deferred, we'll put it back on.' Okay. So, this would be completely voluntary, in that sense--that anyone would have the option of either doing their full sentence or being released early.
Another--a place where we're using it right now is actually on people on pretrial release. So, these are people in Cook County who would likely to be in the Cook County Jail awaiting trial, but they're remanded to house arrest and given these bracelets. So, in some sense, that group is a little different because it's not really--I mean, they have a choice. Everyone who is wearing this bracelet has a choice of being in Cook County Jail, if they would want to be.
Many of them might be out on bracelets without GPS technology, absent the technology. So, for them, there might be a third option that will no longer be available to them because this technology exists.
But to go back to the basic idea, it's really important, is that the reason we lock people up, by and large, is because we fear the crimes they will do if they're not locked up. Okay?
If you really knew that people weren't going to commit crimes, you could hold some of them in prison, you know, as some kind of retribution for the mistakes they've made or whatnot. But by and large, we would have a much smaller prison population if we didn't fear that the people who are in prison are recidivists and habitual offenders. Okay?
So, the whole thing becomes a virtual--I'm sorry--a virtuous circle in which, if you put technology on folks that make them not do crimes, then you don't have to lock so many people up.
And just simply back to the envelope calculations we've done suggest that, done really well, this could both reduce the amount of violent crime in society by 25% at the same time that we reduce the prison population by 25%--
Russ Roberts: And save a lot of money--
Steven Levitt: This is an idea that would save money--it's good for everybody. It really is good for everybody. It's good for government, saving money. It's good for society because crime has gone down. It's good for the people who are not locked up. I think it's--for most of the people who are committing a lot of crimes, crime does not pay. It's a bad set of choices. And the commitment device of knowing that if I commit a crime, I'm actually going to get locked up again actually works for the benefit even of the people who otherwise would be committing crimes.
But, look: I'm sure in this 1-2 minute version of it, I've done a terrible job of explaining it, which is actually useful for our purposes because almost everyone listening right now is probably saying, 'This is an awful idea.' Okay? You say whatever, but for a hundred different reasons, it's an awful idea. The simple fact is that if we can pull this off--and right now we're doing it in Cook County and we're having awesome results in Cook County--that people are going to eventually realize that, as poorly as I have explained it, this is a really powerful idea. And this is a good thing for society. And, it's not Big Brother in a bad way. It's using technology in a really effective way that's good for everybody.
Okay? But, no nonprofit would ever have touched this idea. And, it's--the only reason we're kind of making any headway is that the Cook County Sheriff, a guy named Tom Dart, is brilliant and thoughtful and willing to take chances that other people won't. And so, we've been able to get these bracelets on 1500 people, more than anywhere else in the country. And the results are really good.
And, how lucky did we happen to be that the timing was such that COVID--the number one hotspot for COVID in America was the Cook County jail? But we had these bracelets available, so that the Sheriff's office did an amazing job of doing so many things. But one of them was having the option to use these bracelets to get people out of jail. And it turned out, already, to pay an enormous social difference.
That's kind of the gist of what we're doing. We're trying to take hard problems and to take a kind of Chicago-y hard nose look, whatever it takes--thoughtful approach--to solving them and not worry about short-term repercussions and criticisms and really be thinking about in the long run, is this going to give us an important answer we need?
Russ Roberts: Well, when you describe it, I find it kind of creepy, too. However, it's a classic example, I think, of many policy suggestions, where people go, 'I don't like that.' And I always say, 'Well, compared to what?' You mean, because you've got to remember that the alternative isn't not having it. The alternative is the U.S. prison system--which is pretty horrific on many different dimensions, which we don't need to go into.
But, I think the general point about policy improvements--it's so hard for people to--you know, one of my favorite examples of this would be the drug war. You know, I think drugs should be legal--of all kinds, not just recreational drugs, but pharmaceutical drugs. I don't like the FDA [Federal Drug Administration]. I think it should be up to personal people's choices, and I think we should treat people like grownups. We shouldn't subsidize them either, by the way. That's another little side-note.
And we could allow third-party non-profits to pay for them when we think people can't afford them for pharmaceuticals. There are a lot of things to add to the story.
But, just take the basic claim when I say, 'Oh, we should end the drug war.' People say to me, 'But drug use--drug use is terrible.' Well, yeah; it's not great for some people; they make mistakes. But how about the last 40 years of people being killed in the street and the corruption of the police Department? Gosh, doesn't that count for something in the calculus? It should.
So, you know, I think people often use Nirvana. Harold Demsetz talked about this, the Nirvana Fallacy. It's like, 'Oh, I have in mind a world where the people running the program are angels, not human beings. That's my policy solution.' And, that solution's not available, folks. So, you know, you can be pragmatic; you can stand on principle and say, 'As a First Amendment person, I don't like this, some aspect of this,' or 'I do think there's a surveillance worry here that it could spread and lead to technology that might be dangerous for tyranny.' Those are legitimate questions. But, if you're just going to talk about whether it works, don't just tell me everything that's bad about it and ignore the other things that are bad about the status quo. End of rant.
Steven Levitt: Absolutely. I mean--yeah. So, the criticism--So, a lot of the more left-leaning NGOs [Non-Governmental Organizations] that I've approached about this become apoplectic and they say, 'This is such an invasion of privacy.' And, to your point, I say, 'Compared to prison? Compared to prison, this is like freedom.'
Russ Roberts: It is literally a walk in the park.
Steven Levitt: Yeah, it is, yeah. And, but it doesn't hold; it's--it's exactly your point about this Nirvana.
But, one thing that I believe, without a lot of evidence, and there are two pieces of it. One thing I know for sure is that ideas are not enough to win the day.
So, if, as an academic, I go to a group and say, 'Hey, this would be a great idea to do,' I have been doing that for 30 years. And many of the ideas may have been terrible; but I think some of them have been okay; and none of them get adopted.
And so, really, what I hope that my RISC center can do is to take this intermediate stage that entrepreneurs do all the time, which is to go from an idea to a proof of concept. So, we can go--we'll do this in Cook County and we'll put this on 3,000 people eventually and we'll show that, actually, they don't commit very much crime at all and it helps them show up--we have ways to contact them, so we can see if they're not going to their trial appointment, their trial dates. And we can remind them and tell them to do it. We can do lots of things; and we show that it actually saved a bunch of money and that they were happy. I mean, and that's the kind of thing that we're hoping we can do. Because, it's not my goal to build a company or nonprofit that is producing, you know, a million ankle bracelets to try to deal with the prison [inaudible 00:00:31]. But, my hope is that by doing this, it'll become easy, turnkey: that the New York City or New York State will say, 'Hey, this worked in Cook County, it's easy to adopt.'
We've got open source software we've developed now that we can give to anyone who wants to use use this technology. So, that's what we're trying to do.
And, what's interesting is this is a great case where it is totally obvious. There's no big idea here. It's, like, completely clear. Like, if you really think about it, how is it--you know--how is it that our criminal justice system, which has jurisdiction over the lives of a million people out on the streets, doesn't know where they are when cell phone technology is out there? And, so, it's obvious to do. But, it's one of those things where it just, you know, it just hasn't happened. There's been, you know, 20 years for it to happen, and there's just no thrust even pushing there. So, that's the best of what we hope to do at my Center called RISC.
Russ Roberts: I love the startup mindset. I love the recognition that packaging matters, marketing matters. It's not irrelevant. You know, I think of so many academics who have told me about their great idea and I'm thinking, 'You can't even explain it to me, and I'm an economist. And, you think you're going to get some bureaucrat or senator to get behind it?' It's got to be simple.
And that's one of the reasons I think Milton Friedman was such an incredible policy entrepreneur. He was a great explainer--first of all, he was a great teacher.
But, more than that, he figured out policy interventions. The volunteer army would be an example; a voucher for schools. They were flawed; they were imperfect; we might prefer something else to them.
But the reason they got any traction at all was that he could explain it, and then you could explain it to your neighbor and say, 'What do you think?' And, I think so many of our colleagues who want to change the world neglect that little tiny piece.
Steven Levitt: Mm-hmm. I can't--maybe you have an understanding: you've talked to a lot more economists in an interviewing kind of way than I have--but what has shocked me is, all the economists I've talked to now are very articulate in talking about many things. The one exception is their own research. When they talk about their own research, it makes no sense. And, I know their research. So, I try to then rephrase it in a much more straightforward way. And, then they usually argue, 'No, no, that's not quite right, because it leaves out this one tiny element.' But, it's interesting to me. Have you found that as you've interviewed?
Russ Roberts: That's a fascinating question--
Steven Levitt: The thing that economists are worst at talking about is their own actual research.
Russ Roberts: I wouldn't say that that way, because I don't delve deeply into the research, the nuts and bolts. So, it's maybe not the right question for me.
But it reminds me of something, that I think there's a deep insight there, which is the following. If you read something in the paper about something you know about--you have a hobby; not economics, not research, but you have a hobby--and you read an article in the paper about it and you realize, 'Oh my gosh, this gets so many things wrong about how we believe, how we act in this hobby, or how we actually do the thing that we're talking about. Oh, it's awful.' It's the way I think of Bill Belichick when he reads articles about the Patriots: even in a sophisticated publication, he doesn't read them, obviously. And that's why he finds questions--he's the coach of the New England Patriots, for those at home who don't know him. He's not very tolerant of ignorant questions. And, I think probably all questions are pretty ignorant to him. He kind of has a such a deeper understanding.
So, the idea of him reading an article about what the Patriots ought to do this week is just--is ludicrous.
So, when you and I read an article in the newspaper about something we know, we always go, like, 'Wow, boy, they really got this [wrong?].' Not just, 'It's superficial.' There are mistakes in it.
And, then somebody occasionally has the realization that, 'Wait a minute, that might be true of everything they write.' Now what?
And, so what I'm thinking of, though, is when an academic talks about their own work, they're writing--it's like the way they would critique a newspaper summary of their Nobel Prize. It's like, 'Oh no, you're missing all the subtlety, the depth. Oh, you've got to add this caveat.'
It's why in general academics are not good communicators, because they believe in caveats. That's the essence of the, often what we do in so-called science. We have to say, 'But,' and, 'Remember this.'
So, if you leave that out in your summary of their work, they're going, 'No, no, no, that's not what I meant. Because it's so much richer and deeper than that.'
And, I think that phenomenon--they know too much about their own work. It's not that they're bad communicators necessarily, because I think, as you said, they could be good communicators about someone else's work. But, about their own work, it's kind of like saying, 'How would you rank your oldest child on a scale of 1 to 10?' 'Wait a minute, I can't do that. There's too much--let me write out a 60-page essay about what's special about my child. Because there's a lot of nuance there.'
And, I think that's what's going on there.
Steven Levitt: Yeah. That's a good thing.
Russ Roberts: Let's close and talk about your podcast. It's called "People I (Mostly) Admire." The word 'mostly' could be interpreted in two different ways there. So, how do you mean it? Do you mean it both ways?
Steven Levitt: I mean both of those, actually. Because, I am interviewing people I do mostly--mostly I'm interviewing people I admire, and there are people that I mostly admire that I'm interviewing. It's kind of different than what--so, you've done an amazing public service by bringing so many economists into the forefront, giving people an audience.
I think I'm locked. Am I locked? [aside about internet connection--Econlib Ed.]
Russ Roberts: No, you're good.
Steven Levitt: Okay, okay, sorry.
Russ Roberts: I'm just so stunned by your observation it looked like I was frozen. No, keep going. I'm trying to keep a straight face here. I appreciate the kind words. Go ahead.
Steven Levitt: Yeah. So, you've done a real public service by giving so many economists a chance to talk, and I'm actually trying to do something slightly different, which is: I'm [?] not really an economics podcast in the usual sense. I'm trying to talk to a very broad group of people--people who are innovative, who are rule breakers, who are trying to do the right thing, who maybe have quirks about them--and in my own weird way, reflecting my own weirdness of how I think about the world, to try to have fun, smart conversations.
But, I honestly put the word 'mostly' in because I wanted to be able to interview everyone, including the people who I think might be horrendous. I haven't interviewed anyone so far who is horrendous. But, partly we call it that because, look, the whole thing is a little bit tongue-in-cheek. My whole ethos is about having fun and whatnot. And, the idea--someone suggested, 'Why don't we call it People I Admire?' And, I'm like, 'Well, that's, like, really earnest, and that's not really the spirit of what Freakonomics is trying to do.'
But, it's fun. You have a lot of experience interviewing. I was surprised at how hard interviewing is compared to being interviewed. That, being interviewed--whatever, blah, blah, blah, whatever I say, it's stupid, whatever, no one will remember. But, there's something I find--I feel a real obligation as an interviewer. I feel a real weight as an interviewer. So, it's good to do new things as you get older.
And, for me, the deep research--this psychological concept of flow where you've worked really hard at something and you become completely immersed in it--I don't have that very much in what I do. Interestingly, the preparation for my interviews is very much a flow state for me. I become extremely focused in a way that I haven't, and I study what people have done in the past in a way that I don't usually. And, it's somehow the intensity to it I found to be a really surprising--I hadn't expected it, but it's been--you know, flow is both good and bad. Flow is kind of enjoyable; in the other sense, flow is very intense and tiring. So, that's what we're doing. It's an experiment.
Russ Roberts: Well, I appreciate the kind words. I have given a platform to a lot of economists; but like you, I feel like I find our profession a lot less interesting than I did five years ago. So, I'm interviewing many fewer economists. You are my exception in many ways. You're as about traditional an economist as one could get, but you've also gone in a nontraditional direction and for a while.
So, I appreciate the compliment, and I also appreciate the recognition that it can be a hard job, and the prep is fascinating. Because what I try to do--I don't know if you try to do this, but I try to think about a narrative arc for the conversation. There's a tension between letting the conversation go where it might go and be spontaneous, which people like, enjoy--it's fun. But, I also have this sort of--not sort of--I have this educational agenda. I want your ideas to get out in the world, and I want to react to them and let listeners hear that conversation and learn from it.
And, so I have an arc before I get started of where it's going to go. It doesn't always go there, but at any moment I'm constantly trying to decide whether I should pull it back. And, listeners to this conversation could hear me say that, 'Oh, we'll get to that later.' Because, in the back of my mind I've got the whole thing mapped out--but not literally. I'm not literally going to just ask question after question because I need it to stay a certain--there's a certain flow in this back and forth if it goes well, which is really special. Right? And, there are moments when you feel it.
Russ Roberts: Well, I want to close with the question that you have asked a number of your guests, which is a question I increasingly think about, which is: What advice do you have for the good life, how to live well? And, that's a question that used to be at the center of university education. It used to be at the center of what we once called, without shame, Western civilization. Now you're not supposed to say that without shame, but I say it without shame. I think it's the central question of human existence. I think it's the central question that any person needs to confront, at least as they grow up. And, it may not happen until they're in their older years. And, it's hard to think of when you're younger. But I think that's the central question. And, I'm curious what you may have learned in asking that question, and what you yourself think is what you've learned in heading toward an answer to that question.
Steven Levitt: Yeah, let me back up that by one level, which is: I think there's something society--two things society could do in education that would make it easier for people to live good lives. And so--
Russ Roberts: Let's hear them.
Steven Levitt: I think one of those is, I think we make a real mistake in the educational system by not giving mental health topics a place in our curriculum.
So, things like--everything from how to deal with trauma, to what you might call mindfulness or something, to thinking about conflict resolution. I mean, there's just a bunch of stuff that, for whatever reason, we don't think of it as things that schools could do. Maybe because they can't do them well.
But, if I think about the practical things that students, that kids could be taught that would make their lives better, it seems to me that's right at the forefront. And, I think it's only historical accident that we don't teach those things in school. So, I think society owes it to our next generation to start doing that.
Now, completely on the flip side, I think it's the same with data. So, it seems completely seems opposed, but I think society owes it to our next generation of students to teach them how to think about data and use data, because data are so important.
So, I think our schools are failing on these two completely different dimensions, which is that, by the archaic curriculum we're teaching is not teaching kids how to function in the real world; and function in the real world--Number One, these mental health tools I think could be really powerful. And, Number Two, I think data is just so important, and it's crazy what we teach in math class when we could be teaching kids the rudiments of data, I think it's a real disaster.
Russ Roberts: Can I comment on that before you go to the next point?
Steven Levitt: Sure, sure.
Russ Roberts: Which is, I went on my first mindfulness meditation retreat when I was, I think, 60. Waited a little late. It was transformative in many ways. And, it is a challenge to teach that well. I think it's taught badly in many settings. So, I think that is part of the problem. But, teaching people to be self-aware about their own psychological quirks.
I wasn't prepared for the psychotherapeutic part of the retreat, which was embedded in the silence of that retreat. And, I think it's incredibly powerful. And, it's part of going back to Western civilization. 'The unexamined life is not worth living,' said Socrates. And he was onto something.
On the question of data, my wife is a high school math teacher, and when she has come home and told me how much statistics they've put into the curriculum and how much is being put into curricula elsewhere around the country, it's kind of frightening.
So, I'm very sympathetic. I think it's incredibly important that we teach young people about uncertainty and risk and how to think about data in that context. The work of Nassim Nicholas Taleb comes to mind as someone who I think has certainly helped me think about risk in a way that I was not able to do despite a Ph.D. in economics. And, I think those basics, some of those fundamental ideas are very powerful.
But, unfortunately, what actually happens--we say, 'We need to teach people about data.' It's like, 'Oh, great, well, let's teach them what the mean is and we'll show them how to run a regression using a statistics package.' And, it's like saying people should learn about how to deal with money. 'Oh, that's a good idea. Well, let's have a stock market contest.' It's like, 'No! Don't do that. That's the last thing you want to do.'
Anyway, so I just wanted to react to that. You can react to that back or you can move on to the good life if you'd like.
Steven Levitt: Yeah, look, I agree. It might not be easy to do data or, kind of, mindfulness, but to punt on it, or to do what we're doing now, it just seems like a mistake.
Russ Roberts: I like that.
Steven Levitt: Let's go back to being an individual. So, I mean, life is an arc. And, so, I have a few simple things that I believe to be true. And, one of them is I really believe, based partly on data, that people get stuck in the status quo of bias too much. That, people don't make changes they should, and that simple advice I give to everyone is that: If you really are stuck--if for, like, a month you've been, like, you wake up in the morning and you ask yourself, 'God, I really feel like I should end this relationship, or I should quit my job.' And, month at a time and you just can't pull the trigger, almost for sure the right answer is, you should pull the trigger.
And, I've done actually a randomized experiment where I had people flip coins over it. And, I think it's just--both the data and intuitive story makes sense, which is that a lot of the costs of change are up front and many of us are hyperbolic discounters or fear change.
But, so, I think one good rule for living a good life is that if you're really stuck, that, to have faith that making the big change is likely to be the right path, right course.
The other thing that as I've gotten older I've come to understand is that life is long, not short. I was always in a hurry, I think. And, I always feared that if I took a step off the path that it would be disastrous. But, I've looked at so many people who are wildly successful, and it's often the steps off the path, I think, that have been the key to their eventual success in the way they go. And, so I'm much more tolerant with myself and with others of not being in a hurry.
Like, you know, I got my Ph.D. in three years, which wasn't a good thing or a bad thing. I just did it. But, like, that was the goal was, I wanted to get stuff done. And, I think that that is a useful mistake that I think--but I think you were going to react to something about that.
Russ Roberts: No, go ahead. Keep going.
Steven Levitt: And, what else? I still think--so I've always believed that it's really important to have fun and to do what you like along the way. But, I also think that people need to be realistic about that: that most of the time doing the thing you love doesn't lead to anywhere particularly good. And, mostly where it leads to is not loving that thing any more by the time you've done it for a couple of years. And, that's the part about going slow, which I think is okay. So, I think it's okay to say, 'Look, I'd like nothing more to be a rock star,' and then to go and to try and be a rock star.
Of course you're not going to be successful because no one's successful, with a few exceptions.
That's where, if you listen to my other advice, which is, 'Look, when you're not sure if you should be a rock star any more, you've got to stop being a rock star.' Where you really hurt yourself is when you start being a rock star and then you never stop trying to be a rock star, even though the writing was on the wall a long time before that.
And, then the last thing I would say, which is something that I've always tried to do but much more so now than before, I think there's a lot of value in human decency, in being able--of just, like, trying to be nice to people and doing the right thing.
Not necessarily even because it's good for other people, but just because it's just easier to live your life if you kind of have a rule where you try and be nice to people, and you give people the benefit of the doubt and stuff. I've just found it easier.
Like, being a jerk is hard work. It takes a lot of time and effort. And, but, just trying to be thoughtful. And, still you say no; I say no to people a hundred times a day. But, I err on the side of, you know, offering a compliment when I can, or telling people when I think they've done something well. And, to me that's--or trying to help out somebody young when I don't have to. I personally get a lot of satisfaction from that.
Russ Roberts: My guest today has been Steven Levitt. Steve, thanks for being part of EconTalk.
Steven Levitt: My pleasure, thank you.