Monthly Archives: October 2009

Do waiters in mid-priced restaurants work less than those at high-end ones? If not, shouldn’t their tips be the same (in absolute terms)?
Manoj

Dear Manoj,

I can see where you’re coming from: a 10 per cent tip on a £20 meal is less than a 10 per cent tip on a £100 meal. If it’s the same waiter doing the same job, shouldn’t the tip be, say, £5 for each meal – a 25 per cent tip in one case and a 5 per cent tip in the other?

This is not what happens. According to a survey by the economist Ofer Azar, the absolute size of tips in the US is overwhelmingly dependent on the size of the bill. In Europe, formal service charges often replace tips and the FT’s restaurant insider, Nicholas Lander, tells me that such charges tend to be proportionate to the bill – or if anything, to be a higher percentage in the fanciest restaurants.

I am not sure the puzzle is quite as perplexing as you think, though. First, the connection between what the customer tips and what the waiter gets is far from straightforward. Waiters are not slaves: if tips are too low to attract them, then the restaurant owner will have to add a wage. And if a waiter can earn hundreds of pounds in tips at a top restaurant, the owner will be able to demand a share without running short of staff.

Second, high-priced restaurants tend to have fewer customers per waiter, to ensure attentive service. They receive higher tips, but fewer of them.

Despite these points, it is of course possible that waiters are paid more in better restaurants. But in a capitalist society, skilled workers expect to earn more. I suggest you sample the quality of service at El Bulli or the Fat Duck, and pop into Pizza Hut on the way home. Then tell me again that the waiters should earn the same at each place.

Questions to economist@ft.com

Should managers be giving more frequent performance appraisals? Do “customer feedback” questionnaires serve any useful purpose? The answers are not obvious. A feedback-free environment is not conducive to learning new skills, but then again, feedback itself can be confusing or demoralising.

I suffered from both too little and too much feedback in my last year of school. That was when I decided to stop going to piano lessons, having been coasting lazily at a mediocre level for years. My piano teacher, who had maintained a tactful silence, wistfully remarked that I had a beautiful touch on the keyboard – better than any of her hard-working, virtuosic prodigies. I was not impressed. Had she said that five years earlier, I might have worked harder. (Or so I told myself.)

It was also the year that I decided to spend less time with my A-level Further Maths exercises and more time with my girlfriend. I judged that my modest mathematical skills would not deliver a grade I needed to get into university, which would have to come from some other subject. Getting a C was no more useful than getting an E. So I stopped working, duly got the E, and did indeed get into university by other means.

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

Alex Ritson of Cass Business School interviews me about Dear Undercover Economist.

Steven Landsburg, author of the original pop-econ book, the wonderful “The Armchair Economist”, is blogging in support of a new book, “The Big Questions: Tackling the problems of of philosophy with ideas from mathematics, economics and physics”. I expect he will infuriate everyone because that’s his style.

The blog is here. The first two posts are on healthcare reform (insurance is part of the problem: well said!) and on why Richard Dawkins is wrong about God.

This is Paul Ormerod’s offering from 2005. I’m catching up. I enjoyed the book very much, although felt the last chapters were by far the best and most original. In them Ormerod studies patterns of biological extinctions and corporate bankruptcies, looks at the mathematical models that best explain them, and concludes that businesses appear to die out without any process of effective foresight, much as biological species do. Lots to chew over – an inspiration.

A club sandwich, a pair of trousers, a ticket to the movies – in a typical market transaction, I choose and pay for my own desires.

Sometimes, however, I might buy something for someone else, and here trouble begins. If I am buying something – a goat, an HIV prevention course, a bit of paved road – for a complete stranger in a far-off land, the risks that something will go awry are far higher. How am I to know what is needed, where to send it, even whether it has been stolen en route?

This may be why we have aid agencies. Aid agencies are popular symbols of national generosity – witness the Tory commitment to ring-fence the Department for International Development’s budget, even as they speak of inevitable spending cuts elsewhere – and in principle should make better-informed decisions because they are in a position to put expert decision-makers on the ground.

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

With the imminent passing of my pet rat I am faced with a lot of grief; he has been a great pet and so I will be more saddened by his passing than if he had been a bad one. My question is: is it possible for the cost (the grief from losing a friend/pet/family member) to outweigh the benefit (the joy gained through time spent with them) and so make the purchase of my pet not worth it, as the net benefit would be negative? Would there be a point where you would say: “I don’t want to get involved because I love X so much that I will be destroyed if I lose him?”
Ilka

Dear Ilka,

Your intriguing problem has not, as far as I know, been explored by economists before, although it has been discussed by artists. Your ailing rat puts me in mind of a departed sparrow, mourned in verse by Catullus. Paul Simon expressed the trade-off more directly in his early song “I Am a Rock”: “If I never loved I never would have cried.”

But poetic speculation gets us nowhere. Let’s head straight to the data. Andrew Oswald, professor of economics at Warwick University, provides the following data points to ponder, based on surveys of life-satisfaction. Relative to never having been married, being married is worth 0.38 “points” of life satisfaction on a scale of 1-7. Being separated is worth -0.24, widowed -0.19 and divorced -0.09.

This is not much to go on, but it is better than nothing. If we incautiously interpret these numbers as causal – in fact they are merely correlations – then we could conclude that 20 years of marriage is compensation for up to 40 years of widowhood. Ten years of marriage more than justifies 40 years as a divorcee.

For human marriages, these odds seem pretty good. For a pet rat, less so: the little darlings hit puberty at six weeks and rarely live past three years. Perhaps you should buy a tortoise next time.

Questions to economist@ft.com

Michael Blastland, co-founder of More or Less, has a way with numbers:

The language of politics is billions. Billions up, billions down, billions more, billions cut. Feeling dizzy about the state of the public finances when one telephone number of pounds succeeds another?
Here’s a simple alternative, a language politicians seldom use, perhaps because it would be revealing… we’re talking shares here, or proportions. Not billions.
So two is about the percentage share of what the nation has each year that the government spends on defence. Two is also the percentage share by which defence has been cut in about the last 20 years…
Two is also roughly the extra percentage share of national income that the government put into health over about five years to provide those record quantities of billions we were often told about.

The whole thing is revealing.

Mia de Kuijper, Profit Power Economics. Read more about it in the Times.

William Higham, The Next Big Thing. A book about trend marketing. I am sceptical on principle but perhaps the book is good.

Yoram Bauman, The Cartoon Introduction to Economics. I saw some early drafts and it looked very promising.

Brian W. Arthur, The Nature of Technology. Self-recommending.

Erik Brynjolfsson and Adam Saunders, Wired for Innovation. Ditto.

Malcolm Gladwell, What the Dog Saw. I skimmed this before an interview with Gladwell, although I have read most of it already because it is a collection of his New Yorker pieces, which I usually enjoy. Here is the FT review.

Perhaps I was naive in my reading of Superfreakonomics, but it didn’t occur to me that the chapter on geoengineering would stir up such a storm. I liked the book, but worried about the chapter. I wrote:

As for the final chapter on global warming, it is a striking discussion of geo-engineering, surveying various schemes for cooling down the planet rather than trying to prevent climate change by cutting carbon emissions. This is a strong story, but it is also one-sided, portraying the geo-engineers as brilliant iconoclasts, dismissing the objections to geo-engineering as the knee-jerk reaction of the unreflective, and failing to convey the views of a single credible geo-engineering sceptic. A well-deserved swipe at Al Gore does not really count.

According to this chapter, the only reason everyone is making so much fuss about carbon dioxide is that they’ve never heard of geo-engineering, or are the kind of stubborn Luddites who think technology never solved anything. I have some sympathy with that view but the section nevertheless needed more balance.

Anyway, others have put their criticism in rather firmer terms. (Brad DeLong even thinks the above paragraphs constitute a defence of the global warming chapter; well, you be the judge of that. I won’t deny that I liked the book overall.) Those who are interested could do worse than start at Free Exchange and follow the links. The uberbloggers you’ll find for yourselves, but also check out Yoram Bauman and Joshua Gans. Stephen Dubner defends the chapter here.

As for me? (Not that I am an expert: I presume I was invited to review the book because I am authority on popular economics writing, not an authority on climate change.) Well, I read all the criticism and the back and forth, went back to the original review, which I penned three weeks ago, and… I don’t think I’d change a word. It is a strong story. And it is one-sided.

Update: Nathan Myhrvold responds at Freaknomomics. Brad DeLong apologises to me, which is decent of him but not really necessary.

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.