Monthly Archives: May 2009

I notice that my tobacco packet includes merely a helpline number for people who want to quit, and not a grotesque picture of someone in the advanced stages of a smoking-related disease. This leads me to conclude that I might be prepared to pay more for my tobacco if its legally required guilt trips were in text form rather than pictures. Am I on to something?
Ms Lovegrove, Oxford

Dear Ms Lovegrove,

I think you just might be. The pictures you describe are a form of “product sabotage”, a tactic used by companies with some pricing power. Some customers are very sensitive to price while others pay less attention to it. The sensible business, then, will try to separate the two groups and charge them different prices for similar products. This can be easier if the cheaper product is given some additional defect that the price-sensitive customer will swallow and the price-blind customer will not.

Examples abound. Tesco Value products are cheap, but the packaging reminds me of an emergency food drop from the United Nations. The “short cappuccino” from Starbucks is cheap – and not advertised on the menu. Most software packages have a cheaper version in which features are disabled at the vendor’s expense. Some hardware does, too.

The government could allow the sale of tobacco under two different conditions: the current version, with tax and disturbing pictures, and a “guilt-free” version with no pictures but a higher tax. The effect would be something to test, but I would expect school children and the poor to choose the traditional version, while older and more affluent smokers would buy the premium version. I would guess that with two different schemes available, the government should be able to discourage more smokers while also raising extra cash.

Or perhaps I am just smoking something.

Questions to economist@ft.com

By raising the top rate of income tax to 50 per cent, Alistair Darling broke a manifesto promise not to do so in the lifetime of this parliament. It was a self-imposed rule whose spirit had already been ignored; now he doesn’t even bother to pretend.

We can leave to one side the merits of the policy itself; both its costs (driving away entrepreneurs) and its benefits (raising revenue) seem to be exaggerated. What interests me more is the value of government promises.

They can be fragile things. Governments can sign contracts, of course, but without strong constitutional oversight, they can violate those contracts. In any case, contracts do not usually apply to the generosity of future state pensions, to tax rates, or to the changing regulatory climate. When citizens, foreigners and businesses make their decisions, then, they have to guess at how the government will behave in future. A government that lacks credibility will invite a hesitant and economically wasteful response.

The remainder of the article can be read here. Please post comments below.

More or Less airs on Radio 4 this Friday at 1.30pm BST and Sunday at 8pm BST. You can also listen online, subscribe to a podcast, and read more at the More or Less website here.

This program: Kate Bush, Paul Simon and Bob Dorough are among the songwriters to be subjected to our ferocious mathematical test; the maths of cancer; Gerd Gigerenzer on intuition; and why listening to More or Less makes you a meaner person.

A rare sight in these straitened times. A banker who is both smart and ethical. (How To Make A Difference)

What Mamma Mia tells you about writing novels. (Dirty White Candy)

How to get things done. (Remember the Milk)

Aldo Rustichini is a genial Italian economist with a head of hair that seems to have been modelled on Albert Einstein’s. A professor at Cambridge and the University of Minnesota, he quickly transformed my interview with him into a full-blown undergraduate-style tutorial, occasionally asking me questions to check my understanding. Yet this likeable economist has been carrying out work with potentially explosive implications – including the possibility that economic success is genetically transmitted.

Rustichini’s latest research– with Stephen Burks, Jeffrey Carpenter and Lorenz Goette – studies the behaviour of about 1,000 trainee truck drivers in the US. The researchers gave the truckers IQ tests and asked them to participate in a number of small experiments.

In one experiment, the truckers were asked to choose between gambles and certain payoffs. In another, the choice was between a sum of money now and more money later. A more complex experiment required the truckers to play an anonymous “trust” game. The first player was given $5 and offered the choice of sending it to the second player; the second player had his own $5 and was asked how much he would send to the first player were he to receive $5 from him, and how much if he didn’t. The researchers promised to double the money sent in either direction – meaning that if the players managed to co-operate then each could get $10.

The remainder of the article can be read here. Please post comments below.

My partner and I have well-defined boundaries to our relationship; they are already liberal, and we are now considering permitting liaisons with others. The benefits for my partner are enormous, as she is an attractive young woman interested in men and women alike.
I, on the other hand, am an awkward wallflower of unremarkable appearance, who has trouble attracting women. Or at least I was until I met my partner. In the years we’ve been together, I’ve received a startling amount of unsolicited attention from women who would not have looked at me twice when I was single.


Can economics explain why I’m unappealing as a singleton, but hot property when with a stunning girlfriend? More importantly, will I still be hot property in a non-monogamous setup? As a consumer I seem to be able to have my cake and eat it, but as a commodity, can I both be had and eaten?
Confused, Paradise

Dear Confused,

Your sudden attractiveness does indeed have an economic explanation: your new admirers are rationally inferring information about you from the behaviour of your partner. She is vivacious, beautiful and intelligent, and yet she dates you; ergo you have hidden assets.

I am not sure an open relationship is wise. You are right to point out that your partner has much to gain from such an arrangement. Onlookers would rightly conclude that her commitment to you has few downsides for her, so doesn’t convey much of a signal that you are a hidden gem. There is another risk. Through her experiments, your partner may discover an alternative lover who insists on a monogamous relationship. Monogamy may be a price worth paying, given that she is currently dating “an awkward wallflower of unremarkable appearance”. You currently live in paradise; don’t risk being cast out.

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".
Comment: To comment, please register with FT.com, which you can do for free here. Please also read our comments policy here.
Contact: Tim's contact address is: economist@ft.com
Time: UK time is shown on posts.
Follow: A link to the blog's RSS feeds is at the top of the page.
Follow on Twitter
FT blogs: See the full range of the FT's blogs here.