A correlation simply means that a relationship exists between two factors—let’s call them X and Y—but it tells you nothing about the direction of that relationship. It’s possible that X causes Y; it’s also possible that Y causes X; and it may be that X and Y are both being caused by some other factor, Z.

does having a lot of books in your home lead your child to do well in school? Regression analysis can’t quite answer that question, but it can answer a subtly different one: does a child with a lot of books in his home tend to do better than a child with no books? The difference between the first and second questions is the difference between causality (question 1) and correlation (question 2).

Morality, it could be argued, represents the way that people would like the world to work—whereas economics represents how it actually does work.

Incentives are the cornerstone of modern life.

The conventional wisdom is often wrong.

Dramatic effects often have distant, even subtle, causes. The answer to a given riddle is not always right in front of you.

“Experts”—from criminologists to real-estate agents—use their informational advantage to serve their own agenda.

Knowing what to measure and how to measure it makes a complicated world much less so.

Since the science of economics is primarily a set of tools, as opposed to a subject matter, then no subject, however offbeat, need be beyond its reach.

Smith’s true subject was the friction between individual desire and societal norms.

Economics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing.

An incentive is simply a means of urging people to do more of a good thing and less of a bad thing. But most incentives don’t come about organically.

There are three basic flavors of incentive: economic, social, and moral. Very often a single incentive scheme will include all three varieties.

Any incentive is inherently a trade-off; the trick is to balance the extremes.

For just a few dollars each day, parents could buy off their guilt. Furthermore, the small size of the fine sent a signal to the parents that late pickups weren’t such a big problem.

Who cheats? Well, just about anyone, if the stakes are right.

Cheating is a primordial economic act: getting more for less.

cheating is more common in the face of a bright-line incentive (the line between winning and losing, for instance) than with a murky incentive.

often a small and simple question can help chisel away at the biggest problems.

people will pay different amounts for the same item depending on who is providing it.

How selfish soever man may be supposed,” Smith wrote, “there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.

there are few incentives more powerful than the fear of random violence—which, in essence, is why terrorism is so effective.

The Ku Klux Klan—much like politicians or real-estate agents or stockbrokers—was a group whose power was derived in large part from the fact that it hoarded information.

Information is so powerful that the assumption of information, even if the information does not actually exist, can have a sobering effect. Consider the case of a one-day-old car.

information asymmetry. We accept as a verity of capitalism that someone (usually an expert) knows more than someone else (usually a consumer). But information asymmetries everywhere have in fact been gravely wounded by the Internet.

real-estate agent’s job, it would seem, is to persuade the homeowner to sell for less than he would like while at the same time letting potential buyers know that a house can be bought for less than its listing price.

Just because a question has never been asked does not make it good. Smart people have been asking questions for quite a few centuries now, so many of the questions that haven’t been asked are bound to yield uninteresting answers.

Economic and social behaviors, Galbraith continued, “are complex, and to comprehend their character is mentally tiring. Therefore we adhere, as though to a raft, to those ideas which represent our understanding."

Every day there are newspaper pages and television newscasts to be filled, and an expert who can deliver a jarring piece of wisdom is always welcome. Working together, journalists and experts are the architects of much conventional wisdom.

when there are a lot of people willing and able to do a job, that job generally doesn’t pay well. This is one of four meaningful factors that determine a wage. The others are the specialized skills a job requires, the unpleasantness of a job, and the demand for services that the job fulfills.

An editorial assistant earning $22,000 at a Manhattan publishing house, an unpaid high-school quarterback, and a teenage crack dealer earning $3.30 an hour are all playing the same game, a game that is best viewed as a tournament. The rules of a tournament are straightforward. You must start at the bottom to have a shot at the top.

the factors that, according to John Kenneth Galbraith, most contribute to the formation of conventional wisdom: the ease with which an idea may be understood and the degree to which it affects our personal well-being.

The broken window theory argues that minor nuisances, if left unchecked, turn into major nuisances: that is, if someone breaks a window and sees it isn’t fixed immediately, he gets the signal that it’s all right to break the rest of the windows and maybe set the building afire too.

what is a gun? It’s a tool that can be used to kill someone, of course, but more significantly, a gun is a great disrupter of the natural order.

regulation of a legal market is bound to fail when a healthy black market exists for the same product.

These two factors—childhood poverty and a single-parent household—are among the strongest predictors that a child will have a criminal future.

We have evolved with a tendency to link causality to things we can touch or feel, not to some distant or difficult phenomenon.

An expert must be bold if he hopes to alchemize his homespun theory into conventional wisdom. His best chance of doing so is to engage the public’s emotions, for emotion is the enemy of rational argument. And as emotions go, one of them—fear—is more potent than the rest.

“The basic reality,” Sandman told the New York Times, “is that the risks that scare people and the risks that kill people are very different.”

“Risks that you control are much less a source of outrage than risks that are out of your control,” Sandman said.”

in a world that is increasingly impatient with long-term processes, fear is a potent short-term play.

Risk = hazard + outrage “When hazard is high and outrage is low, people underreact,” he says. “And when hazard is low and outrage is high, they overreact.”