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?