More From the “Economic Naturalist” Robert Frank

We recently posted a series of excerpts from The Economic Naturalist, a new book by the Cornell economist Robert Frank (who has another new book out this week, Falling Behind, a brief treatise on income inequality). Because the Economic Naturalist excerpts were well received and vigorously debated, we asked Frank if he would reply to some of the feedback. Kindly, he has obliged:

Guest Blog: Robert H. Frank

When I describe my “economic naturalist” writing assignment to students, I stress that it is not important that the answers to the questions they pose be correct beyond doubt. Far more important is that the questions themselves be interesting and the proposed answers economically plausible. The learning stimulated by this assignment stems less, I think, from the writing of the papers themselves than from the animated discussions provoked by the questions.

I was therefore extremely encouraged by the lively reader responses to the examples from The Economic Naturalist on this blog recently. I was encouraged, too, that a Google search a few days after the post ran turned up over 100 other web sites that had linked to it. To my eye, that’s the real beauty of the writing assignment: Once students manage to pose an interesting question, they immediately want to discuss it with others. And in the process, they find endless opportunities to refine their thinking about what a sensible answer might look like. In short, they learn a lot from these conversations, just as I did from reading your comments.

Such exchanges also provide valuable opportunities to push back, to probe the power of opposing views. So I am pleased to take advantage of an invitation to respond to some of the criticisms of my students’ explanations.

McMansions for Retirees: Several respondents objected that the phenomenon to be explained – that retirees are increasingly buying large houses close to home rather than smaller condominiums in the Sun Belt – was a statistical artifact. In the book, I cited studies purporting to confirm the trend in question, but I’m quick to concede that the practice may not be widespread in many areas. It does seem clear, however, that supply and demand in the retirees’ housing market have shifted in precisely the way my student Tobin Schilke described. Because the number of births per adult American woman has remained roughly the same for several decades, the number of children is no greater now than in the past. Yet because of the secular rise in divorce and remarriage, each child now has more grandparents than in the past (on the plausible assumption that we count the parents of step-parents as grandparents).

The upshot is that the demand for visits by grandchildren has increased relative to the supply of such visits. If we grant Mr. Schilke’s plausible assumption that having a large, conveniently located house makes visits more likely, it follows that retirees are more likely to demand such houses.

Of course, there may have been other offsetting changes in the retirees’ housing market. Rising energy costs, for example, may have reduced the demand for large houses. But that wouldn’t challenge Mr. Shilke’s interesting observations about how demographic changes appear to have altered the demand for grandchild visits.

Square Milk Containers: Regarding the proposed explanation that milk containers have square cross-sections in order to minimize the amount of costly shelf space they occupy in refrigerated storage units (in contrast to the cylindrical containers of soft drinks, which are typically stored on unrefrigerated shelves), several respondents pointed out that containers with square cross-sections could not contain the pressurized contents of carbonated soft drinks unless their walls were so thick as to make them prohibitively costly. It’s a fair point.

But a milk container of given volume could also be produced at lower cost if it were cylindrical in cross-section rather than square. Relative to a container with square cross-section, however, a cylindrical design would definitely increase the cost of storing milk on refrigerated shelves. So it seems fair to conclude that the cross-section of milk containers is dictated at least in part by a desire to minimize the cost of refrigerated storage.

Premium Prices for Black MacBooks: When its newly introduced black iPods quickly sold out in 2005, Apple discovered that customers would be willing to pay premium prices for a machine in a previously unavailable color. So when it brought out its new MacBook models the next year, it posted a higher price for the black version and had no difficulty selling them.

Many respondents apparently mistook me to be saying that Apple was somehow exploiting its customers by charging the premium. But the central point of the example was exactly the contrary. Whenever a seller produces under economies of scale, it is always possible to create additional economic surplus for all parties -buyers and seller alike – by using what I call the “hurdle” method of price discrimination.

The basic idea is that the seller offers a discount only to buyers who are willing to jump some sort of hurdle, such as mailing in a rebate coupon or settling for a machine in a less desired color. These discounts increase the number of units sold, in the process reducing the average production cost per unit. The resulting cost savings often make it possible for even buyers who pay full list price to end up paying less than they would have if the product were sold to the same price to everyone.

Although some complain that it is unfair to charge some buyers more than others for essentially the same product, in The Economic Naturalist I argue that Apple’s pricing scheme actually appears to mete out a certain rough economic justice. This will be true if, as appears plausible, the buyers who are willing to pay extra for the black machines are also the ones who value the company’s innovative design features most highly. After all, somebody has to pay for Apple’s prodigious research and development costs. Why shouldn’t these costs fall more heavily on those consumers who care most about cutting edge design?

Gas Caps on the Right and Left Side of Cars: In response to her question about why fuel filler doors are sometimes on the left, sometimes on the right (causing confusion for rental car drivers), my student Patty Yu argued that if filler doors were all on the same side (say, the driver’s side), lines at the gas pumps would be much longer during peak periods. Numerous respondents suggested other possible reasons for filler door placement. One pointed out, for example, that manufacturers tend to put the filler door on the side opposite the muffler and tail pipe, perhaps to minimize the odds of gasoline spilling onto a hot pipe during an accident. Click and Clack discussed this hypothesis on Car Talk recently, noting that, although the correlation exists, it is far from perfect.

They also mentioned a variant of another respondent’s observation that European manufacturers tend to put the filler door on the passenger’s side, perhaps to minimize the danger to a driver who runs out of gas and must add fuel to his tank while stopped at the side of a highway. Their variant was that manufacturers in countries that drive on the right tend to put filler doors on the passenger’s side, thereby to keep them farther away from shearing forces in head-on collisions. And indeed, Japanese cars do tend to have their filler doors on the left (drivers in Japan, like those in the U.K. and Australia, drive on the left side of the road). Here again, though, there are many exceptions. (My Miata’s filler door is on the left, but my son’s Subaru’s is on the right.)

By far the most common objection to Ms. Yu’s explanation was that it seemed to presume a conscious attempt on the part of manufacturers to coordinate their fuel-filler door placements – something for which there is no evidence. It is this objection that I find most interesting from a methodological perspective. Suppose manufacturers had not, in fact, coordinated their efforts in an explicit attempt to minimize the queues at gas pumps. Would that make Ms. Yu’s explanation any less plausible?

If one views product design features in an evolutionary perspective, the answer is clearly no. Darwinians argue that useful features evolve from random mutations. The eye, for example, developed from a sequence of random mutations because light-sensitive organisms were better able to locate valued objects and avoid harmful ones. The whole point of the theory is to explain how eyes came to exist without anyone having consciously planned them.

A similar point applies to evolutionary explanations in economics. If all manufacturers had happened to place fuel filler doors on, say, the left side of the car, one consequence would have been long gas lines during peak hours, because drivers in most countries would pull up on the right side of the pump. And in that case, manufacturers would have had a problem worth addressing. Ms. Yu’s explanation thus helps explain why the observed distribution of filler door placements is evolutionarily stable. Evolution, as Richard Dawkins once observed, is less aptly described as “the survival of the fittest” than as “the survival of the stable.”

In Summary: In telling my students that their answers don’t have to be the final word, I’m not saying that it’s not a good thing to be right. Rather, my point is that students are more likely to engage with our subject if we demonstrate that it can stimulate them to think about the world in interesting new ways.

I’ll mention another piece of evidence that the questions they pose meet that test with flying colors. Several hours after I had discussed a couple of examples from The Economic Naturalist in a brief interview on NPR earlier this week (“Econo-reasoning behind everyday things,” Marketplace Morning Report) a listener copied me on this e-mail in which he posed a long list of economic naturalist questions of his own. Some examples:

1. Why do phones and calculators/computers have different number pads? To wit:

Phone:
123
456
789
0

Calculator/Computer:
789
456
123
0

2. Why do hockey games have 3 periods rather than 2 halves or 4 quarters? And why are points used to determine standings, rather than straight won-loss percentages?

3. How are railroads able to use freight cars that belong to other railroads? United doesn’t fly jets belonging to Southwest — so why should Burlington Northern let Norfolk Southern use its freight cars?

4. Why is whiskey sold in fifths?

5. There’s a metric scale for measuring just about everything — weight, distance, volume, even temperature (Celsius is derived from the metric system) — except for one thing — time. How come there’s never been a metric calendar/time system, with, say, 10 metric months of 10 metric days each, each metric day composed of 10 metric hours, each metric hour composed of 100 metric minutes, and each metric minute composed of 100 metric seconds (which would be different from the seconds currently used)? (I’m surprised that countries that use the metric system have no problem with the “non-metric” way we measure time).

6. Why is Newfoundland a half hour different from other time zones?

7. Why don’t doctors dispense medicine or employ pharmacists in their offices, so we can have one-stop health care and save a trip to the drugstore?

8. Why don’t cell phones have dial tones?


ctcarton

8. Why don't cell phones have dial tones?

The point of the dial tone is to tell you that the phone is working and is connected to the network. Cell phones have a different mechanism to give the same information so they don't need a dial tone.

Mack

There's (at least) one occasion when cell phones do get dial tone: in the movies.

It's not unusual in film and TV that when the distant party hangs up without warning, the on-screen party (and the audience) immediately hears a dial tone. This is an accepted shorthand that never occurs in real life.

Yet in films, it often happens no matter what kind of phone the actor is using: wired, wireless, or cell. Another chance for suspension of disbelief.

Unit

gas caps on the same side would make things faster not slower. Everyone could pull in the same direction.

711buddha

my $0.02

4. Yes, its called a 5th because its about a 1/5 of a gallon, but the reason its that size is scotch. Its no coincidence that there's 18 drinks in a fifth and 18 holes on a golf course.

7. They do in many clinics and in hospitals, but typically one pharmacy can serve many offices of doctors.

pwregdump

For the railroad question: I think this may have been more important in years past. Recently however, there have only been 2 major railroads in the US. Burlington Northern operates the east coast and Union Pacific operates the west. The last major mergers, I believe, were BN and the Sante Fe line and UP and the Southern Pacific line. Due to this, some of the use would be because they wouldn't bother to change the paint jobs on these cars.

However, when you see BN running on UP lines and vice versa, those companies are paying each other to run freight on their lines because they have customers in one area that their lines can't reach their destinations in another. Also, because there are only 2 RR companies in the US, it is highly regulated and these two must allow the others to run freight on their lines.

kip

A few things on dial tones:
1. The dial tone indicates that you have a signal. Cell phones have a display to tell you that.
2. Sending a dial tone to the user while he entered the number on a cell phone would waste a lot of bandwidth, which is scarce (it would lead to other users not being able to make calls) and unnecessary (he can dial before sending). Making the user dial first minimizes the bandwidth usage.

kip

Also, I don't know why Newfoundland is a half hour off, but so is the entire nation of India. It makes me have to do extra math to schedule a conference call (I work in a software company that has an outsourced group in India).

I once read that "what time is it?" used to be something you'd ask astronomers, but now it's something you'd ask politicians (i.e. time zones have less to do with solar alignment and more to do with politics/commerce nowadays).

JJS

On railroad gauge:

Before World War I, the Russian Empire (which owned Finland at the time) retained their wider gauge intentionally, in order to make invasion of the country more difficult. The idea was that shifting supplies between rail systems would hinder the invader's logistics, and likewise efforts to change the rail gauge would be slow.

When Nazi Germany invaded the USSR in 1941, this proved to be the case. The need to shift cargo between rail systems and/or convert the rail lines added strain to the German's already-overstretched logistics (there's debate over just how critical the strain was). German logistical problems played a significant role in their failure to move swiftly enough to prevent the Soviets from recovering from the initial attack in order to avoid defeat in 1941 - which put the combatants in a long war that the Soviets & Western Allies were much more likely to win.

Thus, this decision to increase the difficulty of cross-border commerce turned out to play a noticeable role in the outcome of the bloodiest war in human history.

Dial tones:

Land lines needed a dial tone.

Cordless phones retain the land line's dial tone because customers expect it; they are used to having the dial tone tells them that the phone is working.

However, cordless phone's option to dial-then-connect teaches consumers that the dial tone isn't really necessary.

Cell phones can then drop the dial tone entirely.

(Did very early cell phones have dial tones?)

Routing rail cars: See http://en.wikipedia.org/wiki/Railbox

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kah

In the fictional book "Me and My Little Brain" the narrator brings the bad guy a quart bottle of whiskey. The text implies that pint and half-pint bottles are also available. The author, John D Fitzgerald, based the setting of the books on his own life experience growing up in a small Utah town in the 1890's.

travisrector

In regards to time:

The origins of the units of time are astronomical, as it is the original method for measuring time. The earth completes one orbit around the
sun every 365.25 days; and the moon completes a cycle of its phases
every 29.5 days. The lunar cycle therefore occurs about 12 times a year,
hence the origin of the month ("moonth").

The seven days of the week are named after the sun, moon and five
planets visible to the naked eye. (Which days are named after what
objects is more clear in spanish and french). Since there are almost
nearly four weeks in a lunar cycle this was convenient as well.

After the french revolution there was an effort to switch to a "metric"
system of time, but it didn't offer the advantages that the metric
system does for other units and was eventually scrapped.

dave.wombat

re pwregdump comment (#25) There are more than 2 railroads in the US. There are maybe 500. There are seven "Class I" railroads including Union Pacific and BNSF. Both of those are focused on the western US. In the east, Norfolk Southern and CSX predominate. Two Canadian railroads, Canadian National and Canadian Pacific have enough track and business in the northern US to be Class I railroads in the US. The seventh Class I railroad is Kansas City Southern which serves its namesake, Mexico, Texas, north to Illinois and east to Lousiana.

DG Lewis

For the canonical explanation of the difference between telephone and calculator/computer keypads, see http://www.vcalc.net/Keyboard.htm.

Cell phones don't have dial tones because the apparent difference to the user between a cell phone and a house phone is larger than the apparent difference between a dial phone and a manual phone (in which you pick up the handset and the operator says, "Number, please.") When dial phones were introduced, they were sufficiently similar to manual phones that the phone company had to provide a cue to the user to start dialing, equivalent to the operator asking for the number. Cell phones, however, are sufficiently different from house phones that when they were introduced there was no expectation of the same user experience - so users could be taught to "enter the number then press Send" instead of pressing an "offhook" button then entering the number.

The "number then send" method, by the way, is a much cleaner interface design; there are countless rules and hacks in landline switching equipment to enable the switch to figure out when you've actually finished entering the phone number (seven digits, ten digits, 1+ten digits, 011+some variable number of digits...).

You could easily build a cellphone with a dial tone (see http://www.jitterbug.com/Home.aspx and http://machinist.salon.com/feature/2007/06/20/jitterbug/) - the phone generates the tone; it's not sent from the switch or cell site.

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proales

8. Why don't cell phones have dial tones?

I'm not a EE but I do have some information on this.

Dial Tones are produced in-line, meaning they use the same communications channel as the voice conversation. The spectrum that cellular networks use is extremely expensive (think tens of billions of dollars range) and so the carrier tries as hard as they can to conserve network spectrum. By conserving network spectrum even during the dial tone part of a conversation, cell phone companies can make sure other phones can get a less congested signal (or download a ringtone, or background)

SteveSC

I agree with JanneM that the shape of the container of milk is driven by the material it is made from. When milk was sold in bottles, they were round, despite the fact that cooling was much more expensive at the time. Containers made in an extrusion (plastic or metal) or blown (glass) process are easier to make in a round shape. Paper/cardboard is made flat, and then must be folded. Paper containers can be cylindrical (e.g., paper cups), but my guess is that the extra complexity and waste from the round bottoms increases the cost a bit.

RottedOak

Regarding metric time, others have pointed out that at least some measurements of time are based on natural cycles. I'd like to point out that there is also a semi-natural relationship among the various measurements that are metric. The liter and gram were derived based on the volume and weight of an amount of water within a cube based on metric length. Celsius temperatures are also based on natural phenomena (freezing and boiling of water). If someone came up with a "metric" time system that was based on natural relationships, it might get some traction. But they natural day and year are hard to ignore, and there is no obvious way to make those relate to one another in 10s or 100s.

By the way, there is another type of measurement that uses non-metric units: angles are typically measured in degrees or radians, neither of which are metric. There is a metric system for measuring angles, but it isn't commonly used.

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leblonk

There was a guy in the 70s, who proposed a metric time system (10 seconds per minute, 10 minutes per hour, 10 hours per day) where a second would be the same time as the current second. The results would be days that wouldn't align with earth-rotation. The idea was that this would create a society that wasn't dominated by the daytime-nighttime rhythm and thus create a (then misnomered) 24-hour society.

tonynick

#7. You would be happy to know that pharmacists are currently being employed in doctor's offices in Canada, but not in a dispensatory role. Pharmacists today are trained to be cognitive service providers not pill counters. We use our heads, not our hands. Primary care network pharmacists work in physicians clinics as the clinical pharmacist providing consultative and cognitive services for patients. They do medication reviews, consultations for physicians, educational sessions, etc. Furthermore, the reverse is also occurring, as in some Canadian jurisdictions, namely Alberta, pharmacists have broad prescribing rights so they can prescribe and dispense in the same venue.

zatavu

I think I have a better explanation for the gas caps. Not everyone is making cars for the home market alone. If you have a company that was making more cars for the Japanese market than the US market, it would make sense that they would maintain that feature in cars for the US market, and that they probably wouldn't change design when the number being sold in the US market increased. On the other hand, if a company planned to sell a car primarily in the US market, it would make sense to have it on the other side. That would result in a mixed strategy. This, of course, does not explain why my Ford Focus has its cap on the passenger side, it being an American-made car -- though two explanations do come to mind. One, the Focus is an attempt to emulate smaller Japanese cars, and thus it was designed with that in mind. Two, cars are globally constructed, so it's possible that it was designed by a Japanese designer, partially fabricated elsewhere, then assembled in the US.

As for #7, many doctors are sending many patients to fewer pharmacists, so it wouldn't be cost-effective. Further, many hospitals and clinics do have pharmacists

#8 -- the ring tone comes about from the sound of the open wire, and cell phones don't have wires

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Cain

A little note on Fuel Filler doors. One of the things brought up in the article is the inability to determine the side of the car the fuel filler is on.

When I started to travel for work I quickly learned one thing about almost every fleet car on the market. Next to the fuel gauge inside of the car, there is a small arrow. This arrow lets you know which side of the car the fuel door is on.

Engineering design has the most control over this. I will add another level to this question. "Why is the gas door almost always on the opposite side of the car than the exhaust (for cars with single tail pipes)?"

I think it is so that if there is a fuel spill the fuel is less likely to run down the side of the car an onto the hot exhaust pipe. But there is no cut and dry answer.

rphtulsa

7)another reason that doctors don't dispense medications themselves is that it's considered a conflict of interest, some states have pharmacy laws prohibiting doctors from owning interest in a pharmacy business.