Book Review: Freakonomics

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freako.jpgI grew weary of my real estate textbook, so I picked up Freakonomics at the obligatory overpriced airport bookstore. You may have heard of this book as the one that suggests that the legalization of abortion is the main cause of recent decreases in violent crime. In short, this books tries to apply the math of economics to issues like crime, cheating, and parenting. It’s is co-written by an Economics Ph.D., and a New York Times writer. The NYT writer imparts a very strong “dumbed-down” flavor to the book, and as such the book reads like a newspaper article with a lot of sensationalization.

Still, the book was a fast read and mostly entertaining. It boils down economics to it’s basic idea: what do people do to get what they want? But it goes beyond supply and demand. For example, the book talks about real estate agents. It’s commonly known that the commission on a house is 6%. So on a $300,000 house that’d be $18,000. Sounds like a lot of money right? You’d think it would be a good incentive for your agent to sell your house for as much as possible. But wait.

There’s also the buyers agent. So that leaves 3% for your Realtor. But half of that goes the the agency. So your broker really only see 1.5% of the selling price. What if your house sold for $310,000 instead of $300,000. You’d get $9,400 more, but your broker would only get $150 more. Let’s just say she’s not going to want to spend another Saturday doing another Open House for you for a measly 150 bucks. They just want to sell it and move on.

But what if the real estate agent is selling his own house? Is another couple weeks on the market and some more Open Houses worth $10,000? You bet it is. Real estate agents selling their own houses keep their houses on the market for an average of 10 more days, and it sells for 3% more (or $9,000 on a $300k house). Food for thought.

Overall, this book is more entertainment than anything, and does not really contain any useful personal finance-type of information. It does kill 10 hours on a plane really well though.

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  1. I agree that it had no direct PF relevance, but I found it eye opening on the topic of “incentive” which can be indirectly (abstractly?) related. I thoroughly enjoyed it too. Fun read.

  2. Just finished listening to the unabridged audio book (only semi-productive thing I can find to do during my commute) and overall it was only so-so. Only a handful of the topics were interesting (most popular baby names? zzz…) and the author spent way too much time telling us how great Levitt is.

  3. I thought it was a great, short read. Understanding the difference between causation and correlation is a lesson most people need to learn, and this book gives many realistic examples. I particularly liked the part about what makes a good parent.

  4. This one is next on my bookshelf. Looks like two days easy reading.

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