Thread by @ReformedTrader

1/ SuperFreakonomics (Levitt and Dubner)

"People respond to incentives, although not necessarily in ways that are predictable or manifest. Therefore, one of the most powerful laws in the universe is the law of unintended consequences."

amazon.com/SuperFreakonom…

2/ "Compared with the total number of people killed in alcohol-related traffic accidents each year—about 13,000—the number of drunk pedestrians is relatively small. But when you’re choosing whether to walk or drive, the overall number isn’t what counts.

3/ "Per mile traveled, a drunk walker is eight times more likely to get killed than a drunk driver.

"Even after factoring in the deaths of innocents, walking drunk leads to five times as many deaths per mile as driving drunk." (p. 3)

4/ "The government has tried to help Indian women by banning dowries and sex-selective abortions, but the laws are largely ignored.

"Monetary interventions include a project that pays rural women not to abort female babies, a vast micro-credit industry, and charitable programs.

5/ "Unfortunately, most have proven complicated, costly, and, at best, nominally successful.

"Lately, thanks falling prices for equipment and distribution, much of India has been wired for cable and satellite TV. It gave many villagers their first good look at the outside world.

6/ "Based on whether (and when) each village got cable TV, Oster and Jensen were able to tease out its effect.

"Women who recently got cable TV were less willing to tolerate wife-beating, less likely to admit to a son preference, and more likely to exercise personal autonomy.

7/ "TV seemed empower women in a way that government interventions had not.

"Revealed preferences provide stronger evidence of real change: Families with TV had lower birth rates and were more likely to keep their daughters in school. (Enrollment for boys didn't change.)" (p. 8)

8/ "At the turn of the twentieth century, horse-drawn wagons clogged the streets.

"When a horse broke down, it was often put to death on the spot. Many stable owners held life-insurance policies that, to guard against fraud, stipulated the animal be euthanized by a third party.

9/ "This meant waiting for the police, a veterinarian, or the ASPCA to arrive. Even death didn’t end the gridlock. Street cleaners often waited for the corpses to putrefy so they could more easily be sawed into pieces and carted off.

10/ "The noise from iron wagon wheels and horseshoes was so disturbing—it purportedly caused widespread nervous disorders—that some cities banned horse traffic on the streets around hospitals and other sensitive areas

11/ "Neither a horse nor a wagon is as easy to control as they appear in the movies, especially on slick, crowded city streets. In 1900, horse accidents claimed the lives of 1 of every 17,000 New Yorkers. In 2007, 1 of every 30,000 New Yorkers died from auto accidents.

12/ "The average horse produced 24 pounds of manure a day. With 200,000 horses, that’s nearly 5 million pounds of horse manure.

"Decades earlier, when horses were less plentiful in cities, there was a smooth-functioning market for manure, with farmers buying it for their fields.

13/ "But as the urban equine population exploded, there was a massive glut. In vacant lots, horse manure was piled as high as sixty feet. It lined city streets like banks of snow. When rains came, a soupy stream of horse manure flooded crosswalks and seeped into basements.

14/ "The world had seemingly reached the point where its largest cities could not survive without the horse but couldn’t survive with it, either.

"Then the problem vanished. It was not by government fiat. City dwellers did not rise up in some mass movement of altruism.

15/ "The problem was solved by technological innovation.

"The electric streetcar and the automobile were cleaner and far more efficient. The car, cheaper to own and operate than a horse-drawn vehicle, was proclaimed “an environmental savior.”

16/ "When the solution to a given problem isn't obvious, it is easy to assume that no solution exists. But history has shown again and again that such assumptions are wrong. This is not to say the world is perfect. Nor that all progress is always good.

17/ "Even widespread societal gains inevitably produce losses for some people. That’s why the economist Joseph Schumpeter referred to capitalism as “creative destruction.” But humankind has a great capacity for finding technological solutions to seemingly intractable problems.

18/ "Human ingenuity—when given proper incentives—is bound to be larger. Even more encouraging, technological fixes are often far simpler, and therefore cheaper, than the doomsayers could have imagined." (p. 17)

19/ "While there are exceptions to every rule, it’s also good to know the rule. In a complex world where people can be atypical in an infinite number of ways, there is great value in discovering the baseline. And knowing what happens on average is a good place to start.

20/ "By so doing, we insulate ourselves from the tendency to build our thinking—our daily decisions, our laws, our governance—on exceptions and anomalies rather than on reality." (p. 19)

21/ "Instead of thinking about poor Jessie Arbogast and the tragedy he and his family faced, think of this: in a world with more than 6 billion people, only 4 died in 2001 from shark attacks. More people are probably run over each year by TV news vans.

22/ "Elephants, meanwhile, kill at least 200 people every year. We petrified of them; most of their victims live in places far from the world’s media centers.

"Most of us want to fix the world in some fashion. But to change the world, you first have to understand it." (p. 23)

23/ "Most economists are presented as oracles who can tell you where the stock market or inflation or interest rates are heading. But such predictions are generally worthless. Economists have a hard enough time explaining the past, much less predicting the future.

24/ "They are still arguing over whether FDR’s policy moves quelled the Depression or exacerbated it!

"It is part of the human condition to believe in our predictive abilities—and then forget how bad our predictions turn out to be." (p. 22)

More on this:

https://twitter.com/ReformedTrader/status/1368022899131478018

25/ "Many of our findings may not be all that useful, or even conclusive. But that’s all right. We are trying to start a conversation, not have the last word.

"You may find a few things in the following pages to quarrel with. In fact, we’d be disappointed if you didn’t." (p. 25)

26/ "In today’s dollars, the 1910s shopgirl had an annual salary of $6,500. The same woman who took up prostitution earned the modern equivalent of $25,000/year. But this was at the very low end: some took home the modern equivalent of $76,000 annually.

27/ "Butterflies at the most luxurious house were given a healthful diet, excellent medical care, a well-rounded education, and the best wage going: $430,000/year in today's dollars.

"Wages are determined in large part by supply and demand (often more powerful than legislation).

28/ "As well-meaning as laws may be, they may fail to account for the way real people respond to real-world incentives. When prostitution was criminalized in the United States, most of the policing energy was directed at the prostitutes rather than their customers.

29/ "As with other illicit markets—drug dealing or black-market guns—most governments prefer to punish suppliers rather than consumers. But when you lock up a supplier, a scarcity is created that inevitably drives the price higher, enticing more suppliers to enter the market.

30/ "The U.S. “war on drugs” has been relatively ineffective precisely because it focuses on sellers and not buyers. Though drug buyers outnumber drug sellers, more than 90% of all prison time for drug convictions is served by dealers.

31/ "Besides the constant threat of arrest, there was the deep social stigma of prostitution. A woman who worked as a prostitute would never be able to find a suitable husband. A prostitute’s wages had to be high to entice enough women to satisfy the strong demand.

32/ "The biggest money was taken home by the women at the top of the prostitution pyramid. By the time the Everleigh Club was shut down, managers Ada and Minna Everleigh had accumulated, in today’s currency, about $22 million." (p. 36)

33/ "Compared with even the low-rent prostitutes from a hundred years ago, women like LaSheena work for next to nothing.

"Premarital sex emerged as a viable substitute for prostitution. As the demand for paid sex decreased, so too did the wage of those who provide it." (p. 43)

34/ "Homes sold on FSBOMadison.com typically fetch about the same price as those sold by Realtors. That doesn’t make the Realtors look very good. Using a Realtor to sell a $400,000 house means paying a commission of about $20,000 vs. just $150 to FSBOMadison.com.

35/ "Flat-fee real-estate agents, who typically charge about $500, also get about the same price as full-fee Realtors.

"There are some important caveats:

"In exchange for the 5% commission, someone else does all the work for you. For some home sellers, that’s worth the price.

36/ "It’s hard to say if the Madison results would hold in other cities.

"The study took place during a strong housing market, probably making it easier to sell a home yourself.

"The people who choose to sell without a Realtor may have a better business head to start with.

37/ "Finally, even though the FSBO homes sold for the same average price as those sold by Realtors, they took twenty days longer to sell. But most people would probably consider it worth $20,000 to live in their old home for an extra twenty days." (p. 55)

38/ "Pimps had a good relationship with the police, particularly with one officer named Charles. When he was new, Charles harassed the pimps. But this backfired. “When you arrest the pimps, there’s be fighting to replace them, and the violence is worse than the prostitution.”

39/ "Pimps agreed to stay away from the park when kids were playing and to keep prostitution hidden. In return, police would leave pimps and prostitutes alone. Over the course of Venkatesh’s study, there was only one official arrest of a prostitute in an area controlled by pimps.

40/ "This is a graphic example of the principal-agent problem.

"The police chief would like to curtail street prostitution. The cop on the street, meanwhile, may also want to curtail prostitution in theory, but he doesn’t have a very strong incentive to actually make arrests.

41/ "This shows up loud and clear in Venkatesh’s study. Of all the tricks turned by the prostitutes he tracked, 3% were freebies given to police officers. The data don’t lie: a Chicago street prostitute is more likely to have sex with a cop than to be arrested by one." (p. 58)

42/ "Bertrand, Goldin, and Katz analyzed career outcomes of more than 2,000 male and female UChicago MBAs.

"While gender discrimination may be a minor contributor to the male-female wage differential, it is desire—or the lack thereof—that accounts for most of the gap.

43/ "Women have slightly lower GPAs and take fewer finance courses. (There is a strong correlation between a finance background and earnings.)

"Over the first fifteen years of their careers, women work fewer hours than men, 52/ week vs. 58, totaling six months’ less experience.

44/ "Women take more career interruptions. After ten years, 10% of male MBAs went for ≥six months without working vs. 40% of female MBAs.

"The average female MBA with no children works only 3% fewer hours than the average male MBA. But female MBAs with children work 24% less.

45/ “The pecuniary penalties from shorter hours and any job discontinuity among MBAs are enormous. It appears that many MBA mothers, especially those with well-off spouses, decided to slow down within a few years following their first birth.”

46/ "This is a strange twist. Many of the best and brightest women get an MBA so they can earn high wages, but they end up marrying the best and brightest men, who also earn high wages—which affords these women the luxury of not having to work so much.

47/ "Does this mean the women’s investment in an MBA was poorly spent? Maybe not. Perhaps they never would have met such husbands if not for business school.

"Alternatively, it may be a sign that a higher wage simply isn’t as meaningful an incentive for women as it is for men.

48/ "Consider a recent experiment in which young men and women took an SAT-style math test.

"In one version, everyone was paid $5 for showing up and $15 more for completing the test. In the second, participants were paid the $5 show-up fee and another $2 for each correct answer.

49/ "In the flat-rate version, the men performed only slightly better, getting 1 more correct answer out of 20 than the women.

"In the cash-incentive version, the women’s performance barely changed, whereas the average man scored an extra 2 correct questions out of the 20.

50/ "Economists do the best they can by assembling data and using complex statistical techniques to tease out the reasons why women earn less than men. The fundamental difficulty, however, is that men and women differ in so many ways." (p. 65)

51/ "The people who become excellent at a given thing aren’t necessarily the same ones who seem “gifted” at a young age.

On the 'do what you love' philosophy: "If you don’t love what you’re doing, you are unlikely to work hard enough to get very good at it." (p. 85)

52/ "Terrorism is effective because it indirectly imposes costs on everyone. The most substantial is the grossly misplaced fear of a future attack. The probability an American will die in a given year from terrorism is 1 in 5 million; he's 575 times more likely to commit suicide.

53/ "The less obvious costs include loss of time and liberty. Think about the last time you went through an airport security line and were forced to remove your shoes, shuffle through the metal detector in stocking feet, and then hobble about while gathering up your belongings.

54/ "Terrorism can succeed even by failing. We perform this shoe routine thanks to a British national who, even though he couldn’t ignite his shoe bomb, exacted a huge price.

"Let’s say it takes an average of one minute to remove and replace your shoes in the security line.

55/ "In the U.S. alone, this procedure happens 560 million times per year. This translates more than 1,065 years—a total of nearly 14 person-lives. So even though Richard Reid failed to kill a single person, he levied a tax that is the time equivalent of 14 lives per year.

56/ "In the three months following 9/11, there were one thousand extra traffic deaths in the U.S. People stopped flying and drove instead. Per mile, driving is much more dangerous. Interestingly, most of them occurred on local roads in the Northeast, close to the attacks.

57/ "These fatalities were more likely than usual to involve drunken and reckless driving. Psychological studies of terrorism’s aftereffects suggest a spike in alcohol abuse and post-traumatic stress that translated into, among other things, extra driving deaths.

58/ "Such trickle-down effects are nearly endless. Thousands of foreign-born university students and professors were kept out of the U.S. due to new visa restrictions. At least 140 U.S. corporations exploited the ensuing stock-market decline by illegally backdating stock options.

59/ "In New York City and at the national level, money and manpower that otherwise would have been spent chasing other crime (including financial crime) were diverted to chasing terrorists—perhaps contributing to, or at least exacerbating, the recent financial meltdown.

60/ "Not all of 9/11's aftereffects were harmful. Thanks to decreased airline traffic, influenza—which travels well on planes—was slower to spread and less dangerous. In Washington, D.C., crime fell whenever the terror-alert level went up (thanks to extra police in the city).

61/ "And an increase in border security was a boon to some California farmers—who, as Mexican and Canadian imports declined, grew and sold so much marijuana that it became one of the state’s most valuable crops." (p. 93)

62/ "Measuring doctor skill is tricky. There's selection bias: patients aren’t randomly assigned to doctors. Cardiologists' clientele may differ on many dimensions. The better doctors’ patients may even have higher death rates: sicker patients may seek out the best cardiologists.

63/ "It be misleading to measure doctor skill solely using patient outcomes (doctor “report cards”). A doctor who knows he is being graded on patient outcomes may “cream-skim,” turning down the high-risk patients who most need treatment so as to not tarnish his score.

64/ "Indeed, studies have shown that hospital report cards have actually hurt patients.

"Measuring doctor skill is also tricky because the impact of a doctor’s decisions may not be detectable until long after the patient is treated." (p. 107)

65/ "The triage nurse matches patients with doctors, making the selection far from random.

"It might seem wasteful to ignore the specific doctor-patient match. But in scenarios where selection is a problem, we have to throw away what at first seems to be valuable information.

66/ "Most of what looks like doctor skill in the raw data is actually luck: some doctors getting more patients with less-threatening ailments.

67/ "Health outcomes are largely uncorrelated to spending. The best doctors don’t spend more money—for tests, hospital admittance, etc.—than lesser doctors. This is worth pondering in an era when higher health-care spending is widely thought to produce better outcomes.

68/ "An excellent doctor is disproportionately likely to have attended a top-ranked med school and served residency at a top hospital. Ten extra years on the job yields the same benefit as residency at a top hospital.

"Women are slightly better than men at keeping people alive.

69/ "It doesn’t seem to matter whether a doctor is highly rated by colleagues. We asked Feied and the other head physicians at WHC to name the best docs in the ER. The ones they chose turned out to be no better at lowering death rates but did spend less money per patient.

70/ "So the particular doctor you draw in the ER does matter—but, in the broader scheme of things, not nearly as much as other factors: ailment, gender (women are much less likely to die within a year of visiting the ER), or income (poor patients are much more likely to die).

71/ "The death rate dropped 18% to 50% when doctors stopped working due to doctor strikes.

"This might be partially explained by patients’ putting off elective surgery. But a similar phenomenon occurred when Washington doctors left town at the same time for a medical convention.

72/ "When there are too many physician-patient interactions, more people with nonfatal problems take medications and get procedures, many of which are not really helpful and a few of which are harmful, while people with really fatal illnesses are rarely cured and die anyway.”

73/ "So it may be that going to the hospital slightly increases your odds of surviving if you’ve got a serious problem but increases your odds of dying if you don’t. Such are the vagaries of life." (p. 115)

74/ "In the U.S., cancer drugs constitute the second-largest category of pharmaceutical sales, after heart drugs. The bulk goes to chemotherapy, which has proven effective on leukemia, lymphoma, Hodgkin’s disease, and testicular cancer, especially if they are detected early.

75/ "In most other cases, chemotherapy is remarkably ineffective. An exhaustive analysis of cancer treatment in the U.S. and Australia showed that the five-year survival rate for all patients was about 63% but that chemotherapy contributed contributed barely 2% to this result.

76/ "There is a long list for which chemotherapy has zero discernible effect, including multiple myeloma, soft-tissue sarcoma, melanoma of the skin, & cancers of the pancreas, uterus, prostate, bladder, and kidney.

"Consider lung cancer, by far the most prevalent fatal cancer.

77/ "A typical chemotherapy regime for non-small-cell lung cancer costs $40,000 but extend life by an average of just two months.

"Costs like these put a strain on the health-care system. Cancer patients make up 20% of Medicare cases but consume 40% of the Medicare drug budget.

78/ "Considering its expense, its frequent lack of efficacy, and its toxicity—nearly 30% of the lung-cancer patients on one protocol stopped treatment rather than live with its brutal side effects—why is chemotherapy so widely administered?

79/ "Oncologists are among the highest-paid doctors, and they typically derive more than half of their income from selling and administering chemotherapy drugs.

"Chemotherapy can also help oncologists inflate their survival-rate data.

80/ "It may not seem all that valuable to give a late-stage victim of lung cancer an extra two months to live, but perhaps the patient was only expected to live four months anyway. On paper, this will look impressive: the doctor extended the patient’s remaining life by 50%.

81/ “Doctors like me find it incredibly hard to tell people bad news and how ineffective our medicines sometimes are.”

"If this task is hard for doctors, surely it must also be for politicians and insurance executives who subsidize the widespread use of chemotherapy." (p. 120)

82/ "A review of a recent cancer-screening trial showed that 50% participants got at least 1 false positive after undergoing 14 tests.

"Universal screening would overwhelm the system with false positives. The sick would be crowded out." (p. 131)

83/ "There are 80,000 people in the U.S. on a waiting list for a new kidney but with only 16,000 transplants/year. The gap grows larger every year. 50,000 people on the list have died over the past 20 years, with 13,000 more falling off as they became too ill for the operation.

84/ "If altruism were the answer, this demand would have been met by donors. But it hasn’t been. This has led some to call for a well-regulated market in human organs, whereby a person who surrenders an organ would be compensated in cash, a college scholarship, or a tax break.

85/ "Iran established a market thirty years ago. Although it has some flaws, anyone needing a transplant does not go on a waiting list. The demand is fully met.

"People respond to incentives. They can nearly always be manipulated—for good or ill—with the right levers." (p. 178)

86/ "On just about any dimension—warfare, crime, income, education, transportation, worker safety, health—the twenty-first century is far more hospitable to the average human than any earlier time.

87/ "In industrialized nations, the current rate of maternal death during childbirth is 9 women per 100,000 births. Just one hundred years ago, the rate was more than fifty times higher." (p. 190)