Super Freakanomics

by Steven Levitt & Stephen Dubner

1. People respond to Incentives.
2. Declared preferences are how people say they behave. Revealed preferences is how people actually behave.
3.Gary Becker - "the economic approach" - a systematic means of describing how people make decisions and how they change their minds.
4. Natural experiment is a set of conditions (in the natural world) that mimic the experiment you want to conduct (in a lab, eg) but for whatever reason, you cannot.
5. Rational decisions - a typical person makes rational decision in line with his own self-interest.
6.Altruism - what about giving money away?
Experiment: - the game Ultimatum - demonstrates seemingly kind behaviour in Ultimatum are inextricably tied in with potentially selfish motivations. the game Dictator - show that human being seem hardwired for altruism.
7. But, John List's experiments showed that when a person comes into some money honestly and believes another person has done the same, he neither gives away what he earned nor takes away what doesn't belong to her.
8.So how to explain the games that show altruism? Could be because lab experiment results are unbelievable because:
a. selection bias in terms of volunteers;
b.scrutiny - effect on the behaviour of the volunteers;
c. context - ie the incentives/social norms/ framing references/past experiences which results in a productive way to act;
d. forced cooperation.

Note too that US tax codes are the most generous in allowing deductions for contributions.

9. Impure altruism or warm-glow altruism.
10.Externality is what happens when someone takes an action but some one else without agreeing, pays some or all the costs of that action. It is an economic version of taxation without representation.
11. How to address a negative externality?
To make sure the doer faces the full costs of his action ie to "internalize" the externality.
12. Not all externalities are negative.