FREAKONOMICS
Name___________________________________
Date______________
In their book Freakonomics , Steven Levitt and Stephen Dubner show that
economics is, at its core is the study of incentives. It attempts to explain how people get
what they want, or need, especially when other people want or need the same thing. They
try to explore hidden side of everything. The inner workings of a crack gang. the truth
about real-estate agents, the telltale signs of a cheating schoolteacher.
What unites all these stories is a belief that the our world, despite a great deal of
complexity, is not unknowable, all it takes is a new way of looking at things.
Freakonomics establishes this unconventional premise: If morality represents how we
would like the world to work, then economics represents how it actually does work.
Directions: You will have two opportunities to learn about the study of incentives that
Leavitt and Dubner describe, one through film and the other through text. Watch the
selections from the film Freakonomics and address the following questions. Then, read
the selection from the handout and address the questions related to the reading.
Freakonomics: The DVD (Chapters 9-11; 1:03 – 1:27)
The goal for Leavitt was to see if students in the Chicago Heights school district
could improve educational achievement through monetary incentives. The
experiment was to see if this could be done quickly and cheaply.
1. While viewing the film, fill in the economic decision making model that reflects
the choices that Kevin and Urail face in deciding whether to work harder to
improve their grades. Remember to include the following.
Question: Should I work harder to improve my grades?
Alternative #1
Benefits
Benefits Foregone
Opportunity cost
Alternative #2
2. At the conclusion of the selection, “Can a 9th grader be bribed to receive better
grades?”, the economists ponder whether the experiment of offering a cash
incentive was worth it. Do you believe, it was worth it for a 5-7% increase in
educational achievement? Explain your answer.
Freakonomics Reading:
(Excerpted from Chapter 3: “Why do drug dealers still live with their mothers?”)
1. According to Levitt and Dubner, the organizational structure of the Black Gangster
Disciple Nation is extremely similar to that of McDonald’s. Explain how the
organizational structure of the drug trade in Chicago affects the incentives that the
workers at the lower levels face. (Hint:What does the organizational structure look like?
Why do most drug dealers live with their mothers? Why do they keep working as foot
soldiers?)
2. List the four factors which, according to Levitt and Dubner, determine the wages of
those in the drug trade in Chicago. In addition, explain the effect that at lease one factor
had on the wage paid to either a board of director or that of a foot soldier.
3. The reading selection describes the opportunity cost that both J.T. and his foot soldiers
give up to work in the drug trade in Chicago. Describe the opportunity costs that J.T. and
the foots soldiers have given up. Compare the marginal costs versus the marginal benefits
of working in the drug trade in Chicago. Remember, marginal cost/benefit may does not
always have to be described in monetary terms.