When I think economics, I think of the wonderful book by Steven Levitt and Stephen Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. It is about economics, in a fashion: economics in its most basic state, where it boils down to incentives, and how people respond to incentives. The people who study this kind of economics are microeconomists. In their debut book, and its sequels, they address several instances where this comes into play. One of the most brilliant examples was where they devised an algorithm to weed out terrorists with the national bank of England, based on the fact that suicide bombers would probably not have life insurance, and also not make deposits in their accounts. When they published this information, people went crazy. They thought Levitt and Dubner were idiots to release this information to potential terrorists, who could now cheat the algorithm by buying life insurance. But this was their intention the whole time. They had designed the program to pick up if people who met the top two criteria suddenly went and bought life insurance, and thus exposed themselves as terrorists. A classic play of incentives. Can you think of anywhere else incentives might be used? (An incentive is something that encourages someone to do something i.e. The prison sentence for murder encourages people to not murder.)
Logan, this was an excellent post! My favorite "Freakonomics" story was how the real Superman (or was it the Lone Ranger...I read it long ago), via a radio show, took down the KKK. Everyone should read these books!
ReplyDeleteIt was Superman.
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