Tag Archives: economics

Introduction to Freakonomics

“This book, then, has been written from a very specific worldview, based on a few fundamental ideas:

Incentives are the cornerstone of modern life...

The conventional wisdom is often wrong…

Dramatic effects often have distant, even subtle, causes…

“‘Experts’–from criminologists to real-estate agents–use their information advantage to serve their own agenda…

Knowing what to measure and how to measure it makes a complicated world much less so….” (p. 13-14)

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Why New Cars Lose Much Value When Driven Off Lot

“The day that a car is driven off the lot is the worst day in its life, for it instantly loses as much as a quarter of its value. This might seem absurd, but we know it to be true. A new car that was bought for $20,000 cannot be resold for more than perhaps $15,000. Why? Because the only person who might logically want to resell a brand-new car is someone who found the car to be a lemon. So even if the car isn’t a lemon, a potential buyer assumes that it is. He assumes that the seller has some information about the car that he, the buyer, does not have–and the sell is punished for this assumed information.”(p. 67)

The Long Tail Complements the 80/20 Rule

“The 80/20 Rule is chronically misunderstood, for three reasons. First, it’s almost never exactly 80/20…

“The 80 and the 20 are percentages of different things and thus don’t need to equal 100…

“People use it to describe different phenomena. The classic definition is about products and revenues, but the Rule can just as equally be applied to products and profits.

“…I’ve described the Long Tail as the death of the 80/20 Rule, even though it’s actually nothing of the sort. The real 80/20 Rule is just the acknowledgement that a Pareto distribution is at work, and some things will sell a lot better than others, which is as true in Long Tail markets as it is in traditional markets.

“What the Long Tail offers, however, is the encouragement to not be dominated by the Rule.” (p. 131)