[Paleopsych] NYT: Exposing the Economics Behind Everyday Behavior
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Sun Jan 1 23:14:41 UTC 2006
Exposing the Economics Behind Everyday Behavior
[These are articles stacked up, as I was complying with Howard's request
to keep my posting down to seven a day. I'm not breaking my Gregorian New
Calendar New Year's resolutions. Sorry about the bad formatting of some of
these articles. I was using different software and can get the lines right
only with a lot of extra work.]
Off the Shelf
By ROGER LOWENSTEIN
A FUNNY thing seems to be happening to economics writing: it's getting
recent books like "Freakonomics" and "The Travels of a T-Shirt in the Global
Economy," economists have taken it upon themselves to explain something of
the world works. They even tell little stories.
What interests Tim Harford, the author of "The Undercover Economist," are
stories behind the myriad little transactions that take place every day. Do
drive to work or ride a subway? Do you buy coffee en route? Is it a
frothy variety, or something plainer? And if it's the first kind, why is it
darn expensive, when the incremental cost of steaming a little milk amounts
One question that interests Mr. Harford is: What will persuade you to fork
$26 for a copy of "The Undercover Economist" (Oxford University Press)? He
to believe that witty, bracing prose will do the trick. "I would like to
you for buying this book, but if you're anything like me you haven't bought
all," he begins. "Instead, you've carried it into the bookstore cafe and
are sipping a cappuccino in comfort while you decide whether it's worth your
While we're on the subject of that cappuccino, Mr. Harford explains that
Starbucks would like to charge each of us exactly what we are willing to
that it would simply not do for it to advertise "Cappuccino for the Lavish,
and "Cappuccino for the Thrifty, $1." It has to be clever about it.
like, "Hot Chocolate, $2.20; Caffe Mocha, $2.75; 20 oz. Cappuccino, $3.40."
the customer, the choice of drinks is what matters. To Starbucks, it is the
choice of prices.
Similarly, when Disney World in Florida offers discounts to people who live
the Orlando area, Mr. Harford observes, "They're not making a statement
grinding poverty of the Sunshine State." They are making an educated guess
out-of-towners, who visit only once in a while, are willing to pay more than
people from nearby.
The author, a Briton who lives in Washington and who writes the cheeky Dear
Economist column for The Financial Times, says that "there is a story to
nearly every such interaction.
For instance, Whole Foods lures you to spend more by offering distinct and -
relative to what the competition offers - more expensive foods. It sells
broccoli in addition to the customary industrial-strength variety, and it is
careful never to display them side by side, because you would then notice
difference in price. Whole Foods wants you to be thinking only about the
incremental good health that organic broccoli presumably confers.
"The economist's job," Mr. Harford says, "is to shine a spotlight on the
underlying process." Sounds reasonable, but that is not what most economists
actually do. Most professional economists are paid to predict the future.
why so much of economics writing is dull - and pretty silly. No one can
the future, least of all an economist.
Mr. Harford fancies himself to be more like a detective - an "undercover"
economist. Perhaps he is less policeman than psychologist. Psychologists are
much good at predictions, either, but they do help us understand behavior,
recognize what sort of social settings induce people to behave better or
Just so, Mr. Harford's undercover op is a creature of incentives. Recalling
in his university days, student clubs allowed unlimited drinking in return
upfront fee, he notes that these encouraged bingeing because the cost of
additional drink was zero. What matters in terms of limiting intake is the
marginal cost of each new drink.
So, too, with reducing automobile traffic: it's not the average cost per
that matters, but the cost of getting into your car each additional time.
To an economist, the truly interesting decisions are those that occur at the
margin - the point at which one employee more is hired, one dollar more is
invested, one cappuccino (on top of all those you have already imbibed) is
Mr. Harford explains this central concept by returning to the source -
the classical economist David Ricardo's explication of how the yield from a
marginal piece of land determined rents in pre-industrial England.
The author is good at showing how such basic concepts apply across a complex
modern economy. After observing that rents in London today are higher thanks
the surrounding Green Belt, which cuts off development, he notes that as an
undercover economist, "you start to see 'green belts' of one kind or another
over the place." For instance, professional associations that restrict entry
into, say, medicine serve as green belts that shield doctors from
NONE of this is the least bit unconventional. Though the author enjoys being
politically incorrect ("sweatshops are good news," he offers tartly), he is
economically incorrect. In fact, lively presentation aside, he has written a
pretty standard primer, one that defends free markets to a fault and attacks
government as the source of just about everything bad.
Predictably, he says that the best way to limit pollution is through
incentives; he then goes overboard by suggesting that environmental debates
mere "moral posturing." Yet without some discussion first, it is unlikely
would have developed any incentives. And some of his arguments are far too
to carry their intended weight. The author cannot really expect to explain
Poor Countries Are Poor" in a single chapter, the highlight of which is an
interview with a cabdriver in Cameroon.
A final criticism is that too many of Mr. Harford's interesting details lack
source or a footnote. He gets Amazon's stock-price history wrong. (The
says that during the dot-com bust, it fell below its initial offering price;
adjusting for splits, it never did.) Many other details lack the specificity
the attribution to enable one to check. But these are quibbles. For those of
even now, still stuck in the bookstore cafe, this is a book to savor.
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