The Man Behind Freakonomics
Steven Levitt, John Bates Clark Medal Winner and Professor of Economics at the University, Speaks at the GSB
Alison Nickum, '06
Issue date: 5/12/05 Section: GSB News
Prof. Levitt later talked about some research done by Profs. Becker and Murphy, which focuses on crime. He discussed their findings about what effect the war on drugs has on the market for drugs. The war on drugs, he said, is really just a big tax on the suppliers. The important thing here (and the tie-in with price theory), is how demand responds to changes in prices. If it's inelastic, he said, (the fact that he then asked, "Does everyone remember what inelastic means?" just adds to his appeal), there is a lot more surplus there for drug dealers to be "killing each other" over. Furthermore, he added, Profs. Becker and Murphy found that there is a lot more money spent in the production of drugs now that we have the war on drugs. These insights might seem somewhat intuitive, but, as Prof. Levitt said, "It's really, really easy when someone else points it out to you, and really, really hard to figure it out for yourself." He then added, humorously, "Which you probably see from exams."
Prof. Levitt then went on to apply economics to another hot topic: truth in media reporting. As an example, he discussed research by Prof. Gentzkow and Jesse Shapiro about how different media outlets--the New York Times, CNN, and Al Jazeera, for example--might cover the same event in Iraq, but portray it differently. These differences, Prof. Levitt explained, could be explained by the idea that "We only want to hear what we already believe. But that's kind of strange. I mean, I only want my wife to tell me how great of a husband I am. But on the other hand, if I'm a terrible husband, I want her to tell me before she finds a better one." Building off of this example, then, Prof. Levitt continued the earlier discussion, describing how his colleagues' research helps answer the question, when will media report truthfully/untruthfully? The answer, he said, was based on a few main ideas: 1) the ability to confirm things after the fact (e.g., there not being any WMDs in Iraq, or "Dewey Beats Truman,"), 2) how expensive it is to obtain the truth, and 3) how much credit you get if you're the one that finds out the truth. The last point he explained in economic terms as property rights, illustrating that if there are not many property rights to be had from finding the truth, it will be harder to get people to invest the resources to find it. And truth is expensive to find, he said.
Prof. Levitt then went on to apply economics to another hot topic: truth in media reporting. As an example, he discussed research by Prof. Gentzkow and Jesse Shapiro about how different media outlets--the New York Times, CNN, and Al Jazeera, for example--might cover the same event in Iraq, but portray it differently. These differences, Prof. Levitt explained, could be explained by the idea that "We only want to hear what we already believe. But that's kind of strange. I mean, I only want my wife to tell me how great of a husband I am. But on the other hand, if I'm a terrible husband, I want her to tell me before she finds a better one." Building off of this example, then, Prof. Levitt continued the earlier discussion, describing how his colleagues' research helps answer the question, when will media report truthfully/untruthfully? The answer, he said, was based on a few main ideas: 1) the ability to confirm things after the fact (e.g., there not being any WMDs in Iraq, or "Dewey Beats Truman,"), 2) how expensive it is to obtain the truth, and 3) how much credit you get if you're the one that finds out the truth. The last point he explained in economic terms as property rights, illustrating that if there are not many property rights to be had from finding the truth, it will be harder to get people to invest the resources to find it. And truth is expensive to find, he said.