Freakonomics: Why Do Drug Dealers
Live with Their Mothers?

UH-OH... "How is the Ku Klux Klan like a group of real-estate agents?" That's a chapter title in Steven Levitt's new best seller, Freakonomics. Relax. It's not about morality. It's all about information.

Both the Klan and brokers guard their proprietary information. Both speak in code. Here are five listing terms associated with lower house sales prices: "Fantastic ... Spacious ... ! ... Charming ... Great Neighborhood." And higher prices: "Granite ... State-of-the-Art ... Corian ... Maple ... Gourmet."

"Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real-estate agents, who know much more about the housing market than the typical homeowner, are one example."

Levitt's theory is based on his study of 98,000 home sales in Cook County suburbs (Chicago, IL) from 1992 to 2002 published as Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions (National Bureau of Economic Research, Jan 2005).

"Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly.

"Consistent with this theory, we find homes owned by real estate agents sell for about 3.7 percent more than other houses and stay on the market about 9.5 days longer, even after controlling for a wide range of housing characteristics."

Hmm. As a commercial broker for the majority of my business life, I love the industry. And my wife and I happily paid a full commission when selling our home recently.

But Levitt's book is filled with provocative conclusions based upon analyzing data, not morality. He encourages you to think about common problems in new, unconventional ways.

So why do drug dealers still live with their mothers? Because most of them don't make much money. Based on unbelievably detailed records of an actual Chicago neighborhood gang, Levitt found that, while the leader (who's now in jail) made $100,000 a year (tax free) over four years, his officers made only $700 a month and his foot soldiers made only $3.30 an hour, less than the minimum wage. "They had no choice but to live with their mothers." Who knew?

--Peter Pike