From: Terry W. Colvin (fortean1@mindspring.com)
Date: Sun Aug 03 2003 - 23:05:31 MDT
FWD [forteana] NYTimes.com Article: The Probability That a Real-Estate Agent Is
Cheating You (and Other Riddles of Modern Life)
The Probability That a Real-Estate Agent Is Cheating You (and Other Riddles of
Modern Life)
August 3, 2003 By STEPHEN J. DUBNER
The most brilliant young economist in America -- the one so deemed, at least, by
a jury of his elders -- brakes to a stop at a traffic light on Chicago's south
side. It is a sunny day in mid-June. He drives an aging green Chevy Cavalier
with a dusty dashboard and a window that doesn't quite shut, producing a dull
roar at highway speeds.
But the car is quiet for now, as are the noontime streets: gas stations,
boundless concrete, brick buildings with plywood windows.
An elderly homeless man approaches. It says he is homeless right on his sign,
which also asks for money. He wears a torn jacket, too heavy for the warm day,
and a grimy red baseball cap.
The economist doesn't lock his doors or inch the car forward. Nor does he go
scrounging for spare change. He just watches, as if through one-way glass. After
a while, the homeless man moves along.
''He had nice headphones,'' says the economist, still watching in the rearview
mirror. ''Well, nicer than the ones I have. Otherwise, it doesn't look like he
has many assets.''
Steven Levitt tends to see things differently than the average person.
Differently, too, than the average economist. This is either a wonderful trait
or a troubling one, depending on how you feel about economists. The average
economist is known to wax oracularly about any and all monetary issues. But if
you were to ask Levitt his opinion of some standard economic matter, he would
probably swipe the hair from his eyes and plead ignorance. ''I gave up a long
time ago pretending that I knew stuff I didn't know,'' he says. ''I mean, I just
-- I just don't know very much about the field of economics. I'm not good at
math, I don't know a lot of econometrics, and I also don't know how to do
theory. If you ask me about whether the stock market's going to go up or down,
if you ask me whether the economy's going to grow or shrink, if you ask me
whether deflation's good or bad, if you ask me about taxes -- I mean, it would
be total fakery if I said I knew anything about any of those things.''
In Levitt's view, economics is a science with excellent tools for gaining
answers but a serious shortage of interesting questions. His particular gift is
the ability to ask such questions. For instance: If drug dealers make so much
money, why do they still live with their mothers? Which is more dangerous, a gun
or a swimming pool? What really caused crime rates to plunge during the past
decade? Do real-estate agents have their clients' best interests at heart? Why
do black parents give their children names that may hurt their career prospects?
Do schoolteachers cheat to meet high-stakes testing standards? Is sumo wrestling
corrupt?
And how does a homeless man afford $50 headphones?
Many people -- including a fair number of his peers -- might not recognize
Levitt's work as economics at all. But he has merely distilled the so-called
dismal science down to its most primal aim: explaining how people get what they
want, or need. Unlike most academics, he is unafraid of using personal
observations and curiosities (though he does fear calculus). He is an
intuitionist. He sifts through a pile of data to find a story that no one else
had found. He devises a way to measure an effect that veteran economists had
declared unmeasurable. His abiding interests -- though he says he has never
trafficked in them himself -- are cheating, corruption and crime.
His interest in the homeless man's headphones, meanwhile, didn't last long.
''Maybe,'' he said later, ''it was just testimony to the fact I'm too
disorganized to buy a set of headphones that I myself covet.''
Levitt is the first to say that some of his topics border on the trivial. But he
has proved to be such an ingenious researcher and clear-eyed thinker that
instead of being consigned to the fringe of his field, the opposite has
happened: he has shown other economists just how well their tools can make sense
of the real world.
''Levitt is considered a demigod, one of the most creative people in economics
and maybe in all social science,'' says Colin Camerer, an economist at the
California Institute of Technology. ''He represents something that everyone
thinks they will be when they go to grad school in econ, but usually they have
the creative spark bored out of them by endless math -- namely, a kind of
intellectual detective trying to figure stuff out.''
Levitt is a populist in a field that is undergoing a bout of popularization.
Undergraduates are swarming the economics departments of elite universities.
Economics is seen as the ideal blend of intellectual prestige (it does offer a
Nobel, after all) and practical training for a high-flying finance career
(unless, like Levitt, you choose to stay in academia). At the same time,
economics is ever more visible in the real world, thanks to the continuing
fetishization of the stock market and the continuing fixation with Alan
Greenspan.
The greatest change, however, is within the scholarly ranks. Microeconomists are
gaining on the macro crowd, empiricists gaining on the theorists. Behavioral
economists have called into doubt the very notion of ''homo economicus,'' the
supposedly rational decision-maker in each of us. Young economists of every
stripe are more inclined to work on real-world subjects and dip into bordering
disciplines -- psychology, criminology, sociology, even neurology -- with the
intent of rescuing their science from its slavish dependence upon mathematical
models.
Levitt fits everywhere and nowhere. He is a noetic butterfly that no one has
pinned down -- he was once offered a job on the Clinton economic team, and the
Bush campaign approached him about being a crime adviser -- but who is widely
appreciated.
''Steve isn't really a behavioral economist, but they'd be happy to have him,''
says Austan Goolsbee, who teaches economics at the University of Chicago's
Graduate School of Business. ''He's not really an old price-theory guy, but
these Chicago guys are happy to claim him. He's not really a Cambridge guy'' --
although Levitt went to Harvard and then M.I.T. -- ''but they'd love him to come
back.''
He has critics, to be sure. Daniel Hamermesh, a prominent labor economist at the
University of Texas, has taught Levitt's paper ''The Impact of Legalized
Abortion on Crime'' to his undergraduates. ''I've gone over this paper in draft,
in its printed version, at great length, and for the life of me I can't see
anything wrong with it,'' Hamermesh says. ''On the other hand, I don't believe a
word of it. And his stuff on sumo wrestlers -- well, this is not exactly
fundamental, unless you're Japanese and weigh 500 pounds.''
But at 36, Levitt is a full professor in the University of Chicago's economics
department, the most legendary program in the country. (He received tenure after
only two years.) He is an editor of The Journal of Political Economy, a leading
journal in the field. And the American Economic Association recently awarded him
its John Bates Clark Medal, given biennially to the country's best economist
under 40.
He is a prolific and diverse writer. But his paper linking a rise in abortion to
a drop in crime has made more noise than the rest combined. Levitt and his
co-author, John Donohue of Stanford Law School, argued that as much as 50
percent of the huge drop in crime since the early 1990's can be traced to Roe v.
Wade. Their thinking goes like this: the women most likely to seek an abortion
-- poor, single, black or teenage mothers -- were the very women whose children,
if born, have been shown most likely to become criminals. But since those
children weren't born, crime began to decrease during the years they would have
entered their criminal prime. In conversation, Levitt reduces the theory to a
tidy syllogism: ''Unwantedness leads to high crime; abortion leads to less
unwantedness; abortion leads to less crime.''
Levitt had already published widely about crime and punishment. One paper he
wrote as a graduate student is still regularly cited. His question was
disarmingly simple: Do more police translate into less crime? The answer would
seem obvious -- yes -- but had never been proved: since the number of police
officers tends to rise along with the number of crimes, the effectiveness of the
police was tricky to measure.
Levitt needed a mechanism that would unlink the crime rate from police hiring.
He found it within politics. He noticed that mayors and governors running for
re-election often hire more police officers. By measuring those police increases
against crime rates, he was able to determine that additional officers do indeed
bring down violent crime.
That paper was later disputed -- another graduate student found a serious
mathematical mistake in it -- but Levitt's ingenuity was obvious. He began to be
acknowledged as a master of the simple, clever solution. He was the guy who, in
the slapstick scene, sees all the engineers futzing with a broken machine -- and
then realizes that no one has thought to plug it in.
Arguing that the police help deter crime didn't make Levitt any enemies. Arguing
that abortion deterred crime was another matter.
In the abortion paper, published in 2001, he and Donohue warned that their
findings should not be seen ''as either an endorsement of abortion or a call for
intervention by the state in the fertility decisions of women.'' They suggested
that crime might just as easily be curbed by ''providing better environments for
those children at greatest risk for future crime.''
Still, the very topic managed to offend nearly everyone. Conservatives were
enraged that abortion could be construed as a crime-fighting tool. Liberals were
aghast that poor and black women were singled out. Economists grumbled that
Levitt's methodology was not sound. A syllogism, after all, can be a magic
trick: All cats die; Socrates died; therefore Socrates was a cat.
''I think he's enormously clever in so many areas, focusing very much on the
issue of reverse causality,'' says Ted Joyce, an economist at Baruch College who
has written a critical response to the abortion paper. ''But in this case I
think he ignored it, or didn't tend to it well enough.''
As the news media gorged on the abortion-crime story, Levitt came under direct
assault. He was called an ideologue (by conservatives and liberals alike), a
eugenicist, a racist and downright evil.
In reality, he seems to be very much none of those. He has little taste for
politics and less for moralizing. He is genial, low-key and unflappable,
confident but not cocky. He is a respected teacher and colleague; he is a
sought-after collaborator who, because of the breadth of his curiosities, often
works with scholars outside his field -- another rarity for an economist.
''I hesitate to use these words, but Steve is a con man, in the best sense,''
says Sudhir Venkatesh, a sociologist at Columbia University. ''He's the
Shakespearean jester. He'll make you believe his ideas were yours.'' Venkatesh
was Levitt's co-author on ''An Economic Analysis of a Drug-Selling Gang's
Finances,'' which found that the average street dealer lives with his mother
because the take-home pay is, frankly, terrible. The paper analyzed one crack
gang's financial activities as if it were any corporation. (It was Venkatesh who
procured the data, from a former gang member.) Such a thing had never been
tried. ''This lack of focus,'' Levitt deadpanned in one version of the paper,
''is perhaps partly attributable to the fact that few economists have been
involved in the study of gangs.''
Levitt speaks with a boyish lisp. His appearance is High Nerd: a plaid
button-down shirt, nondescript khakis and a braided belt, sensible shoes. His
pocket calendar is branded with the National Bureau of Economic Research logo.
''I wish he would get more than three haircuts a year,'' his wife, Jeannette,
says, ''and that he wasn't still wearing the same glasses he got 15 years ago,
which weren't even in fashion then.'' He was a good golfer in high school but
has so physically atrophied that he calls himself ''the weakest human being
alive'' and asks Jeannette to open jars around the house.
There is nothing in his appearance or manner, in other words, that suggests a
flamethrower. He will tell you that all he does is sit at his desk, day and
night, wrestling with some strange mountain of data. He will tell you that he
would do it free (his salary is reportedly more than $200,000), and you tend to
believe him. He may be an accidental provocateur, but he is a provocateur
nonetheless.
He takes particular delight in catching wrongdoers. In one paper, he devised a
set of algorithms that could identify teachers in the Chicago public-school
system who were cheating. ''Cheating classrooms will systematically differ from
other classrooms along a number of dimensions,'' he and his co-author, Brian
Jacob of the Kennedy School of Government, wrote in ''Catching Cheating
Teachers.'' ''For instance, students in cheating classrooms are likely to
experience unusually large test-score gains in the year of the cheating,
followed by unusually small gains or even declines in the following year when
the boost attributable to cheating disappears.''
Levitt used test-score data from the Chicago schools that had long been
available to other researchers. There were a number of ways, he realized, that a
teacher could cheat. If she were particularly brazen (and stupid), she might
give students the correct answers. Or, after the test, she might actually erase
students' wrong answers and fill in correct ones. A sophisticated cheater would
be careful to avoid conspicuous blocks of identical answers. But Levitt was more
sophisticated. ''The first step in analyzing suspicious strings is to estimate
the probability each child would give a particular answer on each question,'' he
wrote. ''This estimation is done using a multinomial logit framework with past
test scores, demographics and socioeconomic characteristics as explanatory
variables.''
So by measuring any number of factors -- the difficulty of a particular
question, the frequency with which students got hard questions right and easy
ones wrong, the degree to which certain answers were highly correlated in one
classroom -- Levitt identified which teachers he thought were cheating. (Perhaps
just as valuable, he was also able to identify the good teachers.) The Chicago
school system, rather than disputing Levitt's findings, invited him into the
schools for retesting. As a result, the cheaters were fired.
Then there is his coming ''Understanding Why Crime Fell in the 1990's: Four
Factors That Explain the Decline and Seven That Do Not.'' The entire drop in
crime, Levitt says, was due to more police officers, more prisoners, the waning
crack epidemic and Roe v. Wade.
One factor that probably didn't make a difference, he argues, was the innovative
policing strategy trumpeted in New York by Rudolph Giuliani and William Bratton.
''I think,'' Levitt says, ''I'm pretty much alone in saying that.''
He comes from a Minneapolis family of high, if unusual, achievers. His father, a
medical researcher, is considered a leading authority on intestinal gas. (He
bills himself as ''The Man Who Gave Status to Flatus and Class to Gas.'') One of
Levitt's great uncles, Robert May, wrote ''Rudolph the Red-Nosed Reindeer'' --
the book, that is; another great uncle, Johnny Marks, later wrote the song.
At Harvard, Levitt wrote his senior thesis on thoroughbred breeding and
graduated summa cum laude. (He is still obsessed with horse racing. He says he
believes it is corrupt and has designed a betting system -- the details of which
he will not share -- to take advantage of the corruption.) He worked for two
years as a management consultant before enrolling at M.I.T. for a doctorate in
economics. The M.I.T. program was famous for its mathematical intensity. Levitt
had taken exactly one math course as an undergraduate and had forgotten even
that. During his first graduate class, he asked the student next to him about a
formula on the board: Is there any difference between the derivative sign that's
straight up-and-down and the curly one? ''You are in so much trouble,'' he was
told.
''People wrote him off,'' recalls Austan Goolsbee, the Chicago economist who was
then a classmate. ''They'd say, 'That guy has no future.'''
Levitt set his own course. Other grad students stayed up all night working on
problem sets, trying to make good grades. He stayed up researching and writing.
''My view was that the way you succeed in this profession is you write great
papers,'' he says. ''So I just started.''
Sometimes he would begin with a question. Sometimes it was a set of data that
caught his eye. He spent one entire summer typing into his computer the results
of years' worth of Congressional elections. (Today, with so much information so
easily available on the Internet, Levitt complains that he can't get his
students to input data at all.) All he had was a vague curiosity about why
incumbents were so often re-elected.
Then he happened upon a political-science book whose authors claimed that money
wins elections, period. ''They were trying to explain election outcomes as a
function of campaign expenditures,'' he recalls, ''completely ignoring the fact
that contributors will only give money to challengers when they have a realistic
chance of winning, and incumbents only spend a lot when they have a chance of
losing. They convinced themselves this was the causal story even though it's so
obvious in retrospect that it's a spurious effect.''
Obvious, at least, to Levitt. Within five minutes, he had a vision of the paper
he would write. ''It came to me,'' he says, ''in full bloom.''
The problem was that his data couldn't tell him who was a good candidate and who
wasn't. It was therefore impossible to tease out the effect of the money. As
with the police/crime rate puzzle, he had to trick the data.
Because he himself had typed in the data, he had noticed something: often, the
same two candidates faced each other multiple times. By analyzing the data from
only those elections, Levitt was able to find a true result. His conclusion:
campaign money has about one-tenth the impact as was commonly accepted.
An unknown graduate student, he sent his paper to The Journal of Political
Economy -- one professor told him he was crazy for even trying -- where it was
published. He completed his Ph.D. in three years, but because of his priorities,
he says, he was ''invisible'' to the faculty, ''a real zero.'' Then he stumbled
upon what he now calls the turning point in his career.
He had an interview for the Society of Fellows, the venerable intellectual
Harvard clubhouse that pays young scholars to do their own work, for three
years, with no commitments. Levitt felt he didn't stand a chance. For starters,
he didn't consider himself an intellectual. He would be interviewed over dinner
by the senior fellows, a collection of world-renowned philosophers, scientists
and historians. He worried he wouldn't have enough conversation for even the
first course.
Instead, he was on fire. Whatever subject came up -- the brain, ants, philosophy
-- he just happened to remember something pithy he'd read. His wit crackled as
it had never crackled before. When he told them about the two summers he spent
betting the horses back in Minnesota, they ate it up!
Finally -- disquietingly -- one of them said: ''I'm having a hard time seeing
the unifying theme of your work. Could you explain it?''
Levitt was stymied. He had no idea what his unifying theme was, or if he even
had one.
Amartya Sen, the future Nobel-winning economist, jumped in and neatly summarized
what he saw as Levitt's theme.
Yes, Levitt said eagerly, that's my theme.
Another fellow then offered another theme.
You're right, Levitt said, that's my theme.
And so it went, like dogs tugging at a bone, until the philosopher Robert Nozick
interrupted. If Levitt could have been said to have an intellectual hero, it
would be Nozick.
''How old are you, Steve?'' he asked.
''Twenty-six.''
Nozick turned to the other fellows: ''He's 26 years old. Why does he need to
have a unifying theme? Maybe he's going to be one of those people who's so
talented he doesn't need one. He'll take a question and he'll just answer it,
and it'll be fine.''
The University of Chicago's economics department had a famous unifying theme --
the Gospel of Free Markets, with a conservative twist -- and would therefore not
have seemed the most likely fit for Levitt. As he sees it, Chicago is about
theory, deep thinking and big ideas, while he is about empiricism, clever
thinking and ''cute but ultimately insubstantial ideas.''
But Chicago also had Gary Becker. To Levitt, Becker is the most influential
economist of the past 50 years. Long before it was fashionable, Becker brought
microeconomic theory to offbeat topics, the family and crime in particular. For
years, Becker was demonized -- a single phrase like ''the price of children''
would set off untold alarms. ''I took a lot of heat over my career from people
who thought my work was silly or irrelevant or not economics,'' Becker says. But
Chicago supported him; he persevered, winning the Nobel Prize in 1992; and he
became Steven Levitt's role model.
Becker told Levitt that Chicago would be a great environment for him. ''Not
everybody agrees with all your results,'' he said, ''but we agree what you're
doing is very interesting work, and we'll support you in that.''
Levitt soon found that the support at Chicago went beyond the scholarly. The
year after he was hired, his wife gave birth to their first child, Andrew. One
day, just after Andrew turned a year old, he came down with a slight fever. The
doctor diagnosed an ear infection. When he started vomiting the next morning,
his parents took him to the hospital. A few days later he was dead of
pneumococcal meningitis.
Amid the shock and grief, Levitt had an undergraduate class that needed
teaching. It was Gary Becker -- a Nobel laureate nearing his 70th birthday --
who sat in for him. Another colleague, D. Gale Johnson, sent a condolence card
that Levitt still quotes from memory.
Levitt and Johnson, an agricultural economist in his 80's, began speaking
regularly. Levitt learned that Johnson's daughter was one of the first Americans
to adopt a daughter from China. Soon the Levitts adopted a daughter of their
own, whom they named Amanda. In addition to Amanda, they have since had a
daughter, now almost 3, and a son. But Andrew's death has played on, in various
ways. They have become close friends with the family of the little girl to whom
they donated Andrew's liver. (They also donated his heart, but that baby died.)
And not surprisingly for a scholar who pursues real-life subjects, the death
also informed Levitt's work.
He and Jeannette joined a support group for grieving parents. Levitt was struck
by how many children had drowned in swimming pools. They were the kinds of
deaths that don't make the newspaper -- unlike, for instance, a child who dies
while playing with a gun.
Levitt was curious and went looking for numbers that would tell the story. He
wrote up the results as an op-ed article for The Chicago Sun-Times. It featured
the sort of plangent counterintuition for which he has become famous: ''If you
own a gun and have a swimming pool in the yard, the swimming pool is almost 100
times more likely to kill a child than the gun is.''
Trying to get his mind off death, Levitt took up a hobby: rehabbing and selling
old houses in Oak Park, where he lives. This experience has led to yet another
paper, about the real-estate market. It is his most Chicago-style paper yet, a
romp in price theory, a sign that the university's influence on him is perhaps
as strong as his influence on it. But Levitt being Levitt, it also deals with
corruption.
While negotiating to buy old houses, he found that the seller's agent often
encouraged him, albeit cagily, to underbid. This seemed odd: didn't the agent
represent the seller's best interest? Then he thought more about the agent's
role. Like many other ''experts'' (auto mechanics and stockbrokers come to
mind), a real-estate agent is thought to know his field far better than a lay
person. A homeowner is encouraged to trust the agent's information. So if the
agent brings in a low offer and says it might just be the best the homeowner can
expect, the homeowner tends to believe him. But the key, Levitt determined, lay
in the fact that agents ''receive only a small share of the incremental profit
when a house sells for a higher value.'' Like a stockbroker churning commissions
or a bookie grabbing his vig, an agent was simply looking to make a deal, any
deal. So he would push homeowners to sell too fast and too cheap.
Now if Levitt could only measure this effect. Once again, he found a clever
mechanism. Using data from more than
50,000 home sales in Cook County, Ill., he compared the figures for homes owned
by real-estate agents with those for homes for which they acted only as agents.
The agents' homes stayed on the market about 10 days longer and sold for 2
percent more.
Late on a summer afternoon, Levitt is in his office, deep inside one of the
university's Gothic behemoths. The ceiling is stained, the plaster around the
window crumbling. He is just back from sabbatical at Stanford, and his desk is a
holy mess: stacks of books and journals, a green sippy cup and a little orange
squeeze hippo.
This is his afternoon to meet with students. Levitt drinks a Mountain Dew and
talks softly. Some students come for research assignments, some for advice. One
has just written her undergraduate thesis: ''The Labor Market Consequence of
Graduating College in a Bad Economy.'' For a thesis, Levitt tells her, it's very
good. But now she wants to have it published.
''You write like a college student, and that's a problem,'' he says. ''The thing
is, you're telling a story. There's foreshadowing going on, all those tricks.
You want the reader going down a particular path so when they get the results,
they understand them and believe them. But you also want to be honest about your
weaknesses. People are much less harsh on weaknesses that are clear than
weaknesses that are hidden -- as they should be.''
Be honest about your weaknesses. Has there ever been a prize-winning scholar as
honest about his weaknesses as Steven Levitt? He doesn't understand economics,
he claims, or math. He's a little thinker in a world of big thinkers. He can't
even open a jar of spaghetti sauce at home, poor guy.
Friends say that Levitt's self-deprecation is as calculated as it is genuine.
Within academia, economists take pride in being the most cutthroat of a
cutthroat breed. Anyone who writes papers on ''Weakest Link'' (contestants
discriminate against Latino and elderly peers, Levitt concluded, but not blacks
or women) and sumo (to best manage their tournament rankings, wrestlers often
conspire to throw matches) had better not also be arrogant.
Or maybe it is not self-deprecation at all. Maybe it is self-flagellation. Maybe
what Steven Levitt really wants is to graduate from his ''silly'' and
''trivial'' and ''shallow'' topics.
He thinks he's onto something with a new paper about black names. He wanted to
know if someone with a distinctly black name suffers an economic penalty. His
answer -- contrary to other recent research -- is no. But now he has a bigger
question: Is black culture a cause of racial inequality or
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