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How to spot a cheat

There are some people who can see through the clutter of complexity and false assumptions and spot a truth that the rest of us have all failed to spot. I find Steve Levitt, the ‘rogue economist’, interesting for this reason.

He’s particularly good at spotting cheats. One of Levitt’s earliest papers, which brought him to the attention of the economics community, was on why and how Sumo wrestlers cheat. He worked it out simply by studying the win-lose statistics and seeing patterns no-one else saw.

“He does not rely on fancy statistical techniques but on lateral thinking,” says The FT’s Tim Harford. “After dealing with a series of estate agents, he realised that they maximised their commissions by selling houses cheaply and quickly, because they were paid a small commission on the wholesale price, rather than a large commission on the extra value they were able to generate. But how to prove it? Levitt simply contrasted sales for clients with sales of the agents’ own houses. They take more time and get a higher price when their own cash is on the line.

As a fellow economist observes, “That result about real estate agents was just sitting there for any of thousands of economists to find. But they didn’t see it.”

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