In Freakonomics, Steven Levitt and Stephen Dubner take many seemingly innocuous things from the world around us and use data to analyze them in order to draw real and useful conclusions. They ask strange questions like, “What do schoolteachers and sumo wrestlers have in common?” and then use data analytics to expose a relationship between two things that, on the surface, are so very different. This field, which has become known as behavioral economics, uses data, both new and historical, to give us a fresh perspective on the world, a perspective that is relevant when it comes to both personal and business matters.
Going back to schoolteachers and sumo wrestlers, Levitt and Dubner use data to show that under certain circumstances both groups are willing to cheat despite the moral problems involved. They analyzed standardized test scores from the Chicago Public School System, and found that some teachers were changing test scores to get their students ahead (see article here). They said they were trying to help their students advance in life, but now students were going to be learning higher level material when they had yet to master the prerequisite course work. This justification of helping allowed teachers to get over the moral problem of cheating, while not having to actually teach their students. So too with sumo wrestlers, who only have to win a certain percentage of their fights in order to maintain a professional ranking. Thus, once they reach that number of wins, sumo wrestlers may throw a fight for a number of reasons, because they do not need any more wins (see article here). In both cases, data, which was kept simply to record events, was able to reveal some interesting insights into the behavior of teachers, sumo wrestlers, and humans as a whole.
Behavioral economics is very relevant to business as well. On a given day users on any eCommerce, or gaming platform perform multiple actions that some companies may or may not keep track of. Actions like logging onto a certain page, progressing from page to page before buying something, or navigating to a certain page and then logging off. This data is very similar to that data from Freakonomics, in that several insights can be gained from it. One can look at how many people logged into their site and determine web traffic, and the percentage of those people who ended up buying something, but that is very basic and limited in usefulness. By utilizing behavioral analytics and analyzing a sequence of events, one can now take that same data and determine why users are doing what they are doing. A game developer can look at user stats by analyzing the features users frequent and looking for improvements. Behavioral analytics takes data that may not look so relevant and draws out much deeper insights.
This can be seen in the business and health areas where companies are analyzing new and previously recorded data to cure diseases, better understand their customers and improve products and bottoms lines. Based on this, we think the question is “what do sumo wrestlers and big data have in common?”
If you want to learn more about behavioral economics make sure to check out a video (posted below) by Freakonomics on sumo wrestling and Dan Ariely’s blog and TED talks. Like the authors of Freakonomics, Dan Ariely focuses on behavioral economics, and is a world renowned speaker and expert.