'Freakonomics' author talks prostitution and altruism

Steve Levitt, coauthor of the bestselling book "Freakonomics: A Rogue Economist Explores the Hidden Side of Everything," interspersed economics with anecdotes in a crowded lecture in McCosh 50 yesterday, discussing everything from the pricing of prostitutes to the altruism of the average person.

"I ask the ridiculous questions that no economist would ask," Levitt said. "They're not the questions you dream about writing about when you enter grad school."

Speaking to a capacity crowd of students, faculty and community members, Levitt kept the audience laughing as he related stories from his career, from the score of two he received on an AP calculus exam to the lecture he gave at Princeton before writing "Freakonomics" — when all of four people showed up.

In "Freakonomics," Levitt used the tools of economics to address offbeat topics, including similarities between schoolteachers and sumo wrestlers, or crack cocaine gangs and McDonald's franchises.

One of Levitt's current research topics surrounds the economics of prostitution. He recently gained access to a prostitute's client data after an investment banker who had heard Levitt speak convinced a prostitute to share the contents of her Palm Pilot.

Levitt was interested in how the prostitute determined the price she charged her clients — in this case, $300 per hour. "One of the big things with all companies is setting the right price," he said. "I was trying to figure out the shape of this prostitute's demand curve."

Since the prostitute felt indifferent whenever the phone rang, Levitt concluded that she was not charging a high enough price. She later raised her price to $400. As she told Levitt's economics class in a guest lecture she delivered on the economics of prostitution, "Well, I was with Professor Levitt, and he convinced me that my services were far more valuable and so I raised my price to $400."

Levitt also delved into the vexing question of human altruism, concluding that much of altruism is relative. In one experiment, his colleague John List, an economics professor at the University of Chicago, found that individuals who have a choice to donate up to $10 to a stranger will on average give up about $3.

But when the participants have the option of giving $10 or stealing $10, Levitt discovered that people were unlikely to donate any money at all. He concluded that people balance financial gain with their self-image, and that they feel less guilty about keeping all the money when there is a morally inferior option, such as stealing, relative to which their choice seems more acceptable.

"Suddenly these incredibly altruistic people are stealing about $3 from others,"Levitt said.

Moreover, if the individuals are forced to work to earn the $10, before they are given the choice to donate or steal money, about 90 percent choose to neither give nor take.

"People are altruistic," Levitt said. "What I'm saying is that 20 years of economic research told us nothing but that. It ended up being a complete waste of time."

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Recently named by "Time Magazine" as one of the "100 People Who Shape Our World," Levitt is an economics professor at the University of Chicago. In 2003, he received the 2003 John Bates Clark Medal, which recognizes the most influential economist in America under the age of 40.