Freakonomics

The book's premise is that economics is at root the study of incentives, that conventional wisdom is often wrong, and that clever use of data can expose behavior people try to hide. It is deliberately a collection of investigations rather than an argument, built from Levitt's academic papers on subjects from match-fixing in sumo to the link between legalized abortion and the 1990s crime drop.

Levitt, a University of Chicago economist, won the 2003 John Bates Clark Medal for promising economists under 40, and Dubner is a journalist who profiled him for the New York Times Magazine. The book sold more than four million copies by 2009 and spawned SuperFreakonomics, a film and a long-running podcast.

The caveats are serious. Critics such as Arnold Kling called it amateur sociology, and Ariel Rubinstein questioned its statistics. Christopher Foote and Christopher Goetz found a programming error in the abortion-crime study; Donohue and Levitt conceded the error but said the link held. A Minneapolis Fed reviewer praised the data work and the clear handling of causation but noted that the chapters don't add up to a theme, a point the authors concede.

It suits readers early in a finance career who want a fast, memorable introduction to thinking in incentives.

1. Incentives explain behavior. Economic, social and moral incentives explain why people cheat, from teachers under test pressure to wrestlers on the edge of promotion.
2. Agents serve themselves. An agent who keeps a small slice of the commission has little reason to hold out for a higher price on your house, so always ask how your broker, banker or adviser is paid.
3. Information advantages erode. Experts lose their pricing power once data become public, as when online comparison drove down term life insurance prices.
4. Tournaments pay the few. The gang's pay structure, with many low earners chasing a few top jobs, mirrors other winner-take-all careers.
5. Check the regression. The abortion-crime result was challenged after a coding error was found; a clever finding needs robustness checks before you trade on it.

The book is six investigations, each framed as a question, with the authors' admission up front that there is no unifying theme.

1. Cheating. Chicago schoolteachers who altered answer sheets on high-stakes tests, detected through suspicious strings of identical answers; sumo wrestlers who throw bouts when a rival needs the win; and an honor-system bagel business that measures how often office workers pay.
2. Information. How experts use what they know against clients, from the Ku Klux Klan's secrecy to real estate agents who keep their own homes on the market longer and sell them for more.
3. Drug dealing. A Chicago crack gang's financial records, gathered by sociologist Sudhir Venkatesh, show a business in which foot soldiers earn little while a few at the top do well.
4. Crime. The argument that legalized abortion after Roe v. Wade contributed to the 1990s crime drop, alongside more police and more prisons, contrasted with Romania under Ceausescu.
5. Parenting and names. Which family characteristics correlate with children's test scores and which parenting habits don't, followed by what children's names reveal about parents' education and income.