Steven D Levitt, co-author of Freakonomics, tells Phin Foster he can't understand why people think he's profound. But he's happy studying why sumo wrestlers cheat and analysing the company data falling on his lap.
Steven D Levitt is co-author of the 2005 international bestseller Freakonomics. Described as the Indiana Jones of economists, he is currently the Alvin H Baum Professor of Economics at the University of Chicago.
1. You've become a celebrity on the corporate circuit – has this surprised you?
Freakonomics really had nothing to do with business – the closest we got was describing the manner in which crack cocaine gangs operate like McDonald's franchises – but somebody along the way decided it did. This is great for us because business people love to buy books. Suddenly, you’re an expert and CEOs start requesting your help.
2. So you have CEOs constantly knocking on your door?
Since the book was published, I’ve had the opportunity to work closely with maybe ten different organisations, from single-person firms to huge multinationals.
3. Does this suggest a move away from academia?
I do it for free, only talking on projects that are of academic interest. I won’t do anything that looks like regular consulting. If there’s a problem they'll let me use data to study, it can benefit both me and the company in question.
4. Does the idea of straight consultancy not appeal?
I was a managing consultant before I became an academic and I wasn’t particularly good at it. I'd be no better now. A lot of times the hardest thing is figuring out how to implement the solution; most of the companies I've dealt with would concur that I'm not a very good change agent within an organisation.
5. Can you see changes that should be made?
The single easiest way that businesses could improve would be through randomised experiments. Decisions are frequently taken without any means of evaluating them. This is the ultimate feedback mechanism. Nothing could be easier and the beauty of it is that you can really learn about any changes made.
6. Are results not always open to interpretation?
It is very easy to have everyone agree ahead of time on what results will mean. It’s not like finance – bringing in a bunch of experts for an extremely complicated econometric analysis that nobody in sales will understand. Everyone can interpret the results.
7. Do you think that many of the current measuring tools are ineffectual?
Business is unbelievably complicated. There are so many contributors to the final outcome that it is really difficult to ascribe credit or blame to particular actions or individuals. As a consequence, even if you can measure outcomes, it's hard to know what inputs contributed to them. I’m very sympathetic to the difficulties of good measurement in business and that’s exactly why randomised experiments are so important; they break out of the current framework.
8. The green issue is currently very high on the corporate agenda; is it something you have looked into?
I have been collecting some temperature data and trying to look at it from a different perspective than the standard climate model. I don’t know if that will be useful or not but my time is cheap. Something will hopefully come of it.
9. Do economists have a role to play?
Certainly, both from a data angle and in thinking about how to implement change. It’s potentially quite costly to alter our behaviour in the way that might fundamentally reduce carbon emissions. Driving less, consuming less power, using greener energies: these are all expensive choices and economists specialise in making such trade-offs.
10. Are you confident we can find a solution?
I’m more optimistic than most. In the late 1800s, the biggest environmental crisis facing US cities was horse manure. It was ruining the quality of life. People were wondering whether the very future of cities were at risk. Then the car came along and the problem was solved overnight. The hope has to be that we figure out a technology that fixes the situation more easily. I would like to see a debate about how we could use more novel technology.
11. What sets you apart from your peers?
I’m prepared to ask ridiculous questions, questions that are interesting to regular people and aren't in the mainstream of economics. Most economists are not very inventive and are prepared to focus on dotting the i’s and crossing the t’s.
12. How do you select what data to study?
I start with a big question and, when it becomes painfully obvious that I can't answer it, I whittle it down until I find something I can. My work on sumo wrestling is an example. I was interested in government corruption and how one might empirically tell which government officials are cheating.
The data's not there and I haven't found a case that will make it work. The reason I can find cheaters in sumo wrestling is because the data is so much better. The hope is that through answering these silly little questions, one becomes equipped with a set of tools for answering the bigger question later down the line.
13. Which discovery in the book surprised you the most?
The link between abortion and crime. We went through the data and did the calculations and saw that perhaps a third of the incredible decline in crime during the 1990s was down to the legalisation of abortion 20 years earlier.
14. How kindly did people take to this analysis?
It was controversial among the right and left. Europeans, on the whole, were amused by the whole thing. It tied in all these things that were so American: crime, race, the abortion debate. When the study first came out in 1999, everybody hated it. When the media got their hands on it and warped our findings it drove everybody crazy.
15. Is other people politicising your ideas a problem?
When we tried to get our message out through the media, people would not believe that we didn’t have a political or ideological agenda. It was only after reading a few chapters of our book and seeing that we'd attack anything and everyone that they started to come around.
16. To what extent has success changed your lifestyle?
I had everything I wanted before and I still have everything now; I'm not a very materialistic person. The real difference has been the opportunity to meet interesting and influential people and the willingness of these people to share data with me.
If I had called someone out of the blue prior to Freakonomics and asked them to share a mountain of data, they'd just laugh. Now, about half the time they laugh and the other half they say, "Wow, I've read the book and I’d love to cooperate with you". It's been an incredible bargaining chip and a door into a world that's difficult to access.
17. What has success taught you?
I have noticed that once you become influential and powerful, people think the things you say are a lot more profound than they really are. I say the same stupid things I always said. The only difference is that others now take it seriously. It's very difficult for successful people to appreciate the role of luck. I try to fight the tendency to think that I've suddenly become profound.
18. Has it been difficult to keep your feet on the ground?
I worked as a management consultant, then I stopped thinking about business for a while, and then I found myself here. I even convinced myself for a while that I was a brilliant strategist. The best antidote is going out and trying to do it. I quickly realised that you don't just become better at something because somebody else decrees it.
19. What are you working on now?
I'm pushing more than 30 academic projects along at the moment. There will be a sequel to Freakonomics. The only problem is that I've got to do all of the research first, so it will probably be another three or four years before we are ready.
20. Is time an issue?
I certainly have less time, but that's a trade-off for better access. Now I can get a major company to allow me to run randomised experiments on critical aspects of how they do business. It's a different way of spending my time, but also a means of delivering a new set of insights that people will hopefully find interesting.
Steven D Levitt will be speaking at Leaders in London 2007. The event will take place from 27 to 29 November at Central Hall Westminster, London.