How to End (Price) Discrimination

(Photo: Steve A Johnson)

(Photo: Steve A Johnson)

John List and Uri Gneezy have appeared on our blog many times. This guest post is part a series adapted from their new book The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life. List appeared in our recent podcast ”How to Raise Money Without Killing a Kitten.”

The passage of the Americans with Disabilities Act was a landmark civil rights bill. It afforded the disabled protections against discrimination that were similar to earlier landmark civil rights bills. In particular, the bill targeted two types of discrimination. One type was the discrimination against the disabled motivated by hatred or disgust. For example, one provision targeted employers that denied employment opportunities to those that truly qualified. Other parts of the bill focused on ensuring a level playing field for the disabled, like one requirement for businesses to make readily achievable retrofits to their businesses to afford the disabled access.

When economists think about the causes of discrimination, they tend to lump them into these two categories. The first is called animus discrimination, which is the type of discrimination we tend to associate with the treatment of African-Americans in the early 20th century. The second is called statistical discrimination, which is discrimination motivated by statistical trends associated with groups. For example, women tend to pay less for auto insurance because they are safer drivers. 

The distinction between animus and statistical discrimination might seem mundane, but for policymakers it’s crucial. Everyone tends to support policies aimed at reducing discrimination, but how should policies tackle discrimination? To answer that question you have to know what’s causing the discrimination in the first place.

In fact, this is the exact pitch we gave to a disabilities-rights group interested in working on testing the causes of discrimination with us, and the experiment we ended up running yielded a shockingly simple way to remove discrimination for the disabled.

But before we get ahead of ourselves, here’s how the experiment ran: First, we recruited several men between the ages of twenty-nine and forty-five to act as our secret agents. Half these men used wheelchairs and drove specially equipped vehicles. The other half were non-disabled, but in all cases the individuals hopped into a specially equipped vehicle for the disabled with a fresh ding on the side and headed to Chicago-area repair shops. 

autobody shopWhen our secret agents got to an auto repair shop they simply asked for a price quote to fix their car. What we found initially was shocking. The disabled were given quotes 30 percent higher than the quotes given to non-disabled for the exact same repair!

Curious about the extent to which car repairman were motivated by hatred or just profit motive, though, we did one run of the experiment where both types of our secret agents got a quote and told the repairman that they were, “getting three price quotes today.” 

What did this extra sentence do? Well the figure shows that for the able-bodied subjects, their price quotes didn’t change at all, but for the disabled they plummeted. Furthermore, the difference in prices for the disabled and abled disappeared. 

It turned out that mechanics were just making an economic calculation when they gave out price quotes. Put differently they were engaging in classic, blatantly unfair, economic discrimination by taking advantage of a customer’s disability. Luckily, policymakers may already have the solution for this sort of discrimination in place. The Americans with Disabilities Act has forced businesses to facilitate easy access for the disabled, making a task like obtaining multiple quotes possible. Now we just need to make it predictable enough for mechanics to catch up.

If you want to explore our world further, take the Why Axis Challenge: visit www.thewhyaxischallenge.com, post a photo of your copy of The Why Axis, and be entered to win prizes, including a meeting with Uri, John and Freakonomics author Steven Levitt! Be sure to stay tuned for more posts to come, which will give a glimpse into more “undiscovered economics.”

Leave A Comment

Comments are moderated and generally will be posted if they are on-topic and not abusive.

 

COMMENTS: 7

View All Comments »
  1. Matt says:

    Interesting experiment, though it still sounds like this falls under the category of statistical discrimination–mechanics don’t have any special antipathy towards the disabled, but reasoned that they could adopt monopoly pricing because the disabled were less likely to seek another quote. It sounds like that makes it much less actionable than animus discrimination.

    Given that the ADA has been law for a generation now, I don’t know how much more “catching up” there is for mechanics to do.

    Well-loved. Like or Dislike: Thumb up 13 Thumb down 2
    • James says:

      Yeah. Are you sure this book isn’t just a collection of grad theses from the mid-70s?

      Thumb up 4 Thumb down 2
    • twelch4028 says:

      If claiming three price quotes made the difference disappear for African American men would you no longer consider it animus but just statistical? Three quotes may have every thing to do with knowing you’ll get caught giving a higher quote, regardless of the underlying motive for the higher quote.

      Thumb up 3 Thumb down 1
  2. steve cebalt says:

    Seems to me the cheapest remedy is to train everyone to say that they are getting three price quotes today. Disabled people, women, college kids — anyone who feels they may face any sort of discrimination. It certainly solved the problem in this experiment.

    Well-loved. Like or Dislike: Thumb up 9 Thumb down 0
  3. William Scott says:

    That sounds a great solution for the 0.01% of the population that are physically disabled, but what’s this do for the much larger percentage that are mechanically disabled? i.e., if my car is broken down and sitting in the garage parking lot, what are the chances a mechanic will truly believe me when I tell him I’m going to get three more quotes?

    My prediction is that if the public sector tells the private sector how much their service must charge, the outcome will result in higher prices and lessor service for everyone.

    Thumb up 1 Thumb down 0
  4. MarcusC says:

    What is the sample size for each cell? Where there any outliers (important given the between-subjects design)? What is the effect size (or p-value for those obsessed with statistical significance)?

    Thumb up 2 Thumb down 0
  5. Edward says:

    I have a friend in a wheelchair with a specially-equipped vehicle and while the result the above study found is disappointing, it is minor in comparison to the repair price difference caused by the “specially-equipped” portions of the vehicle. My friend routinely has to pay for very costly repairs – not from discrimination – but directly from the fact that repairs to custom components and controls (wheelchair lift, driver controls, etc.) must be made by certain mechanic shops (only one or two in Chicago area) and their are similarly only one or two parts manufacturers for these custom parts. Two levels of near monopoly control of such repairs means inflated prices.

    “I am getting three quotes today” doesn’t work under these conditions.

    Thumb up 1 Thumb down 0