Steven Levitt on Motivating Students, Athletes, and Wall Street

Published on November 01, 2010

A special screening of the film Freakonomics: The Movie at a downtown Chicago theater on November 1 drew a sold-out crowd of Chicago Booth students and alumni who questioned Steven Levitt about his groundbreaking research on incentives. The event was organized by the Office of Alumni Affairs and Development.

The documentary, which was based on the international bestseller of the same name by Levitt and Stephen Dubner, depicted several studies on “hidden truths” and a trial experiment in which Levitt tried using incentives to boost the grades of unmotivated students in a low-income suburban Chicago school district.

One audience member asked Levitt if the tools of economics helped him understand how to improve schools and parenting. “What I learned so far is that financial incentives for students don’t work nearly as well as economists thought they would,” said Levitt, William B. Ogden Distinguished Service Professor of Economics at the College and director of the Becker Center on Price Theory at Chicago Booth.

“I have come to believe that parents are far more important than schools. We need to be much more aggressive with parenting. It’s especially important at this time because there will be nothing good happening to anyone who isn’t educated. If you want to succeed in America, you need to be educated, because people all over the world are willing to do low-wage work. Lack of an education is an economic death sentence.”

Asked for his ideas on how to motivate students to become more engaged in education, Levitt said, “We can encourage parents to be in the classroom more and subsidize them in various ways so they’re able to do that. That’s what we’re doing now in a preschool study. We’re giving money to parents as an incentive if they meet goals.”

Karl Buschmann, ’85, asked Levitt how his theories apply to the issue of doping in professional cycling. Levitt said his research clearly proves that bright, ambitious people, no matter what their field, will always find ways of cheating. “I say forget about it—just let people dope. Athletes take all sorts of risks: equestrians can break their necks, football players damage their knees. Why not let people kill themselves in the pursuit of winning? It’s kind of what we look for in sportsmen.”

Similarly, complex rules are useless on Wall Street because “brilliant financial minds will find a way to work around them,” according to Levitt. “Complicated rules are not going to work,” he said. “Simple rules are better than complicated ones.”

Levitt also told students he has learned through both experience and research that social incentives are much more powerful than financial ones.

“If you recognize people and make them feel special, ultimately that’s what people care about. I spent some time at Google, and there they’ve tricked employees into thinking there’s nothing more important that Google, that Google is special. Applying this to schools, if you can trick people into believing that getting straight A’s is the most important thing in the world, the students would do that.”

Asked whether he feels his research will persuade policymakers to try new approaches in education, Levitt admitted he was “pessimistic about politicians. I’ve never seen a politician change his or her mind as a result of research that’s been done. Politics is really at odds with truth seeking. I have friends who went to Washington and thought they’d have a lot of power to change things, but they became more or less rubberstampers. The fundamentals of the political process are about vote-getting. It’s not about doing the right thing. I thought President Obama could overcome this, but in the end, the politics is overwhelming.”

— Mary Paleologos