Monthly Archives: August 2008

While marketers and psychologists have long known that you can fool all of the people some of the time and some of the people all of the time, it has taken economic theory a little while to catch up with the idea. Most economic models are populated by decision-makers who have more in common with the cool-headed logician Mr Spock than the impulsive and self-destructive Homer Simpson.

There are good reasons for that. The main argument of my last book was that Spockish behaviour is far more common than most of us appreciate. But unSpockish behaviour certainly exists. Popular discussions of economic psychology tend to start and end with that observation. Yet there is much more to be said, and many economists are now exploring the real-world implications of different brands of unSpockishness.

One useful distinction is between the kind of irrational behaviour so often displayed by Homer Simpson, and that displayed by Odysseus. When Odysseus ordered his sailors to tie him to the mast, it was because he knew that he was weak-willed and would be tempted to his doom by the song of the Sirens. Homer Simpson is also weak-willed, but he lacks the foresight to do anything about it. (Classicists will recall that Odysseus was forewarned by Circe, but Homer is often forewarned by his wife Marge, to no avail.)

The remainder of this column can be read here. [Link fixed.] Please post comments below

I remember reading that men shouldn’t marry career women because such wives were more likely to have affairs and/or seek divorce. Is this based on research? Not that I am facing an imminent choice of marriage partner.

Eligible Bachelor, London

Dear Eligible Bachelor,

You may be thinking of an article in Forbes, published two years ago, which caused a stir by summarising academic research suggesting that professional women are “more likely to get divorced, more likely to cheat and less likely to have children”.

Tone aside, this makes sense. Children interrupt the careers of women more than of men, and so women with rewarding careers face a high opportunity cost when having children. And a woman whose husband turns out to be a pig will find it easier to leave him if she has an independent income.

However, research by Zvika Neeman and two other economists at Boston University suggests that career women have more stable marriages, in part because they marry late, and carefully.

Even if true, the Forbes piece is hardly a knockdown argument. Or if it is, one might equally counsel against an heiress (too independent) or a beauty (too many admirers).

In any case, remember this is the 21st century. You say you have no imminent prospects of marriage. I am not surprised.

Questions to economist@ft.com

Possibly, suggests this new IZA research paper from Guido Schwerdt, Andrea Ichino, Oliver Ruf, Rudolf Winter-Ebmer, and Josef Zweimüller:

Does the Color of the Collar Matter?… In the short run earnings and employment losses are substantial for both groups but stronger for white collar workers. In the long run, there are only weak effects for blue collar workers but strong and persistent effects for white collars.

No further comment; I’m on holiday, remember?

The BBC reports:

Only three economics teachers were trained on teacher training courses in the whole of England last year, shows a study of students entering teaching.
The report’s author, Professor Alan Smithers, warns that economics risks “dying out” as a school subject…
The figures for economics A-level students have been in a prolonged downturn – down by more than a quarter between 1996 and 2006 to about 17,000 – with the subject overtaken by a range of other subjects that have become much more popular.

Hm. Freakonomics has apparently sold over 3 million copies worldwide; The Undercover Economist almost a million. Then there’s the hugely-influential Nudge, Predictably Irrational has done very well in the US, The Economic Naturalist seems to be riding high in the UK. Looks like the education sector is a contrarian investor.

At Sunday’s closing ceremony, the Olympic flag will be handed over to London; the next Olympic Games are to be hosted just down the road from the Undercover Economist. Should we east Londoners expect great things?

A wonderful sporting spectacle is assured, but that will be available to anyone with a television or a tourist visa. Not that the world necessarily queues outside the Olympic stadium: fewer people visited Barcelona in 1992, its Olympic year, than in 1991.

If a sporting spectacle was all that was promised, the games would be an unproblematic affair. The Los Angeles games in 1984 focused on the sport, using existing facilities and renting student dorms instead of building an athletes’ village. It turned a huge profit.

The remainder of this column can be read here. Please post comments below.

My four-year-old son has a July birthday, which would make him one of the youngest in his class at school. I am thinking of keeping him back a year so that when he does start school, he’ll be bigger and more confident. Is this a good idea?
Sarah Goldberg, by e-mail

Dear Sarah

Other parents think it is. The economists David Deming and Susan Dynarski have found that the percentage of six-year-olds not yet registered at school has quadrupled in the US over the past 40 years, largely because parents are holding back their children.

Being older seems to convey lasting benefits in sports: an unusual number of international footballers are old for their year, for instance. That is surely because the older children are more likely to be selected for the most competitive games with the best coaches. Academic streaming may create a similar effect. An influential piece of research, from Kelly Bedard and Elizabeth Dhuey (also economists), found that the oldest in the class tended to do better not just when five or six but even as college students.

Not every study agrees, and Deming and Dynarski also point out that starting school late has its costs. Still, one thing is certain: since your boy has a mother who is fussing about this sort of stuff, he’s going to do fine no matter what.

Questions to economist@ft.com

Maybe consumers are stupid and think 99p is a lot less than £1. That’s possible, especially if they’re French:

…according to a French study the phenomenon still swings a considerable number of shoppers. Researchers found that lowering the price of a pizza from 8.00 euros to 7.99 euros boosted sales by 15%.

An explanation more consistent with the assumption of hyper-rational consumers is that it’s an technique to deter theft by employees:

…cashiers had to open the till for change, reducing the chances of them pocketing the bill.

But perhaps not, according to Robert Schindler,  a marketing professor:

 ”I studied adverts in the New York Times from 1850 – where there were no 99 endings – to the 1870s and 1880s where they started to appear. Although department stores were doing it – which would fit with the cash register hypothesis – they were advertising discounts. But for the regular price they would use a round number,” he says.

The source is here.

Where have all the heroes gone? For gone they have, if we believe congressional medal of honour awards are a good proxy for heroism – such awards are scarcer in absolute terms, let alone proportional to the US population. Brock Blomberg, Gregory Hess, and Yaron Raviv think it’s all perfectly rational. (HT: Zubin Jelveh)
For an alternative perspective, check out Philip Zimbardo’s view on “the banality of heroism”. Zimbardo – yes, he of the Stanford Prison Experiment – argues:

It is vital for every society to have its institutions teach heroism, building into such teachings the importance of mentally rehearsing taking heroic action—thus to be ready to act when called to service for a moral cause or just to help a victim in distress.

There is a little bit more here; frustratingly little. Zimbardo argues that people act heroically when unexpectedly called to do so – “I only did what anyone would have done in the situation” – if they have mentally rehearsed acts of heroism. Not everyone does this, and not everyone does “what anyone would have done”.

For many business owners, getting the most out of staff is a perennial problem. In the case of fruit farmers, perhaps perennial is the wrong word: workers show up only for the summer harvest. In a couple of weeks they will be heading home, usually to a university course somewhere in eastern Europe.

Tough work for the fruit pickers, the business is also a headache for the owner, who must offer a pay scheme that both satisfies minimum wage laws and motivates workers in an industry in which slacking is an understandable temptation.

The owner of a large fruit farm business, “Farmer Smith”, was pondering the problem one Christmas, when he discovered that the connection between pay and performance was also an area where economists were scratching around for solid evidence.

The remainder of this column can be read here. Please post comments below

As a wine evangelist, I always bring a bottle of something really decent whenever I visit friends. The trouble is, their thanks rarely reflect my expenditure. Should I make more of a fuss about the cost of fine wine, or just bring plonk?
Gabriel Elliott, London

Dear Gabriel,

Either plan would work just fine. Several pieces of research by wine critics and “neuro-economists” have found that most wine drinkers pay more attention to price than they do to taste.

Research published by the Journal of Wine Economics shows that inexpert wine drinkers actually prefer cheap wine in a blind tasting. More skilled oenophiles do prefer pricier booze, but only a little. That suggests you should buy plonk with a nice label and a clear conscience.

The alternative is to point out the expense of the wine. This is crass, but should encourage people to rate it more highly.

Or you could bring plonk but claim it is expensive wine. The “neuro-economist” Antonio Rangel has found people enjoy wine more if they are told (truthfully or otherwise) it is expensive. Not only do they rate the wine more highly, but their brains seem to process the experience differently.

Your friends probably can’t tell the difference between expensive and cheap wine. Exploit that information as you wish.

Questions to economist@ft.com

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
More about Tim: Tim also writes editorials for the FT, presents Radio 4's More or Less and is the author of "The Undercover Economist" and "The Logic of Life".
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