a new big name in econ
Source Jim Devine
Date 03/08/04/17:53

August 3, 2003/New York TIMES magazine
The Probability That a Real-Estate Agent Is Cheating You (and Other
Riddles of Modern Life)

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

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

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.


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

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

''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 is it a consequence? For an economist, even for Levitt,
this is new turf -- ''quantifying culture,'' he calls it. As a task, he
finds it thorny, messy, perhaps impossible and deeply tantalizing.

Driving home to Oak Park that evening, his Cavalier glumly thrumming
along the Eisenhower Expressway, he dutifully addresses his future.
Leaving academia for a hedge fund or a government job does not interest
him (though he might, on the side, start a company to catch cheating
teachers). He is said to be at the top of every economics department's
poaching list. But the tree he and Jeannette planted when Andrew died is
getting too big to move. You get the feeling he may stay at Chicago

There are important problems, he says, that he feels ready to address.

For instance? ''Tax evasion. Money-laundering. I'd like to put together
a set of tools that lets us catch terrorists. I mean, that's the goal. I
don't necessarily know yet how I'd go about it. But given the right
data, I have little doubt that I could figure out the answer.''

It might seem absurd for an economist to dream of catching terrorists.
Just as it must have seemed absurd if you were a Chicago schoolteacher,
called into an office and told that, ahem, the algorithms designed by
that skinny man with thick glasses had determined that you are a
cheater. And that you are being fired. Steven Levitt may not fully
believe in himself, but he does believe in this: teachers and criminals
and real-estate agents may lie, and politicians, and even C.I.A.
analysts. But numbers don't.

Stephen J. Dubner is the author, most recently, of ''Confessions of a
Hero-Worshiper.'' He is writing a book about the psychology of money.

[View the list]

InternetBoard v1.0
Copyright (c) 1998, Joongpil Cho