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4/25/2005
Freakonomics by Steven Levitt, reviewed by Jean Paul Schmetz

I am very familiar with Steven Levitt's work and this book is a nice summary of it. It is also a nice work about how the combination of counting and creative theories can lead to surprising conclusions. Here are a few of his theories, all derived from counting:

• How the decline of crime since the early 90's is mostly due to Roe v Wade
• Drug dealer gangs are organized like McDonalds and most members have to live with their mothers because they do not earn enough, while facing a higher daily risk than being on death row
• How he exposed cheating school teachers in the Chicago public school system using counting
• Evidence that Sumo wrestling in Japan is full of cheaters
• How the Ku Klux Klan are like a group of real-estate agents
• How what matters in educating kids is more who the parents are rather than what they do
• What online daters lie about

I would also recommend his work on gambling in the NFL and markets, not part of the book.

Adi Schnytzer adds:

Levitt's Sumo paper is a full-blown application of the linear probability model with panel data, while the abortion-crime rate paper also uses the latest panel data techniques. His crime and prison population paper deals with simultaneity.

Apropos econometrics and game theory, his paper Testing Mixed-Strategy Equilibria When Players Are Heterogeneous The Case of Penalty Kicks in Soccer is interesting. It tests econometrically the empirical relevance of the mixed strategy equilibrium in Nash in the case of penalty shooting in soccer.

A mixed strategy equilibrium is one in which the player is basically indifferent between a number of strategies and so chooses among them at random! Like tossing a dart at the list of stocks to determine which one to buy today. In the case of penalties in soccer, this involves the kicker choosing whether to kick to the right, to the centre or to the left while the goalie chooses whether to dive to the left or the right. Fascinating!