Defending the Freakonomic Approach in Economics

Steven Levitt points to an article in The New Republic on how freakonomics is ruining the discipline of economics. In this sense, “freakonomics” is not the book, but an approach used by economists to examine topics that may seem a bit atypical to non-economists. Alex Tabarrok reveals a bit more of the article so we can see what the critique is.

A typical conversation around the snack machine at the National Bureau of Economic Research, where many Harvard students had cubicles, went something like: Hey, did you hear that so-and-so found this crazy example of excess tax refunds in western Manitoba in the early ’60s? At which point the other would reply, Uh, no, wow, that’s, uh, great, and then scamper back to his desk to brainstorm for some similar quirk of public policy. At an age when most people brood that life is too random and arbitrary, these people’s biggest complaint was that it wasn’t random and arbitrary enough.

In retrospect, I have come to see this as the moment I realized economics had a cleverness problem. How was it that these students, who had arrived at the country’s premier economics department intending to solve the world’s most intractable problems–poverty, inequality, unemployment–had ended up facing off in what sometimes felt like an academic parlor game?

Well, if you want to talk about frivolous applications of the economic method, I think sabermomics might be near the top of the list. After all, while I suspect most Americans think baseball is more interesting than the big topics, no one (OK, maybe only a few people) would declare baseball more important. However, I’m not planning on shutting down my operation any time soon.

Economists most certainly should study important questions. I’ve done plenty of research on topics that have nothing to do with sports—all with more relevant real-world applications—yet that shouldn’t stop me from studying puzzles that intrigue me as an economist. An unanswered puzzle means there is something about the world that we can’t properly explain. The answer might yield only the acquisition of knowledge about this subject, or it might have indirect applications that can help us solve more important problems.

For example, 50 years ago, the late Simon Rottenberg published a paper “The Baseball Players’ Labor Market” in The Journal of Political Economy. Coincidently, this journal is now edited by Steven Levitt, and it is a mainstream top-tier journal.

Rottenberg was most interested in how baseball’s reserve system, which bound players to teams, affected the allocation of talent across the league. Rottenberg determined that no matter who owns the right to employ a player in baseball, the player will still play for the team that values the player the most. A free agent will sign with that team, or that same team will purchase (possibly via barter) that player from the club who owns the player’s rights. This result, now known in the “invariance principle,” mirrors the results of a much more famous paper published by Ronald Coase four year later. That paper, “The Problem of Social Cost” developed the Coase Theorem, and is rumored to be the most heavily cited paper in social science, and it subsequently won Coase the Nobel Prize.

This is a lesson in serendipity. While Rottenberg doesn’t get the credit he deserves for his finding—although he didn’t stress its other applications and Coase still deserves his Nobel Prize—it demonstrates the importance of seeking answers to questions that may seem to be trivial and with little obvious direct application. This knowledge from academic pursuits spills over. Some spillovers may be theoretical, others may be involve new empirical techniques, or they may develop a new way to think about an old problem. Failure to answer seemingly trivial questions may actually slow our progress in answering big questions. That the puzzle exists is sufficient motivation to study it.

While there is no doubt that the opportunity cost of freakonomic analysis is the direct study of important questions, but it is not as if no one is aware of this. Believe me, if I thought I had the cure to world-wide poverty, I’d change the focus of my research. Any social scientist would do so. But, in the meantime, I hope economists are not discouraged by freakonomics backlash. It makes the economics discipline more fun and more productive.

2 Responses “Defending the Freakonomic Approach in Economics”

  1. Cliff Harpe says:

    JC,

    I would assert alternatively, that you and many like you delving into detailed studies of “common folk’s stuff” have the ability to produce outstanding broader results.

    Our society is plagued by a failure to follow through on disciplined thinking. What percentage of people really believe there are lucky lottery numbers? What percentage of people believe people get rich because of luck rather than because of eduction and discipline?

    Challenging conventional wisdom on a “fun” subject will get people to read the article. Then, when they become aware that some baseball players have high batting averages by luck, but that skill usually predicts OBP and SLG, they have a model to apply to their life situation.

    Keep up your work. You open the halls of academia to many and give great insight. Your writing is accessable to most. The one thing I would suggest is footnoting a “statistics for dummies” explanation of the statistics in the explanations which sometimes go over my head and probably do for many other people (actually, your statistical explanations are better than most sabermetric writers, but that is still tough reading).

  2. JC, if it weren’t for books like yours then people like me wouldn’t be motivated to learn more in at attempt to apply economics to something that is of interest.

    This doesn’t mean most people have the capability of solving these issues, but more interest in applying the methods isn’t a bad thing. We can’t all save the world, but in an indirect way we’re likely helping.