The Tragedy of the Guacamole

One of the themes of this blog is that economics is everywhere in daily life. Property rights, for example, are at the heart of everyday battles over overhead bins, shoveled-out parking spaces, and food in shared refrigerators.

Continuing in that vein, a friend recently sent me a link to an amusing piece about sharing guacamole. I hesitate to link to it, since this is a family oriented blog, and the piece is decidedly R-rated and NSFW. So I will hide the link under the fold. The basic set-up is that a sort-of-advice columnist named Chris provides humorous answers to reader questions.

In slightly edited form, here’s the bit about sharing guacamole:

[Dear] Chris: My fiancée makes amazing Guacamole, but it leads to the following problem: she only makes one bowl of it, which we then share. The issue is, I like to utilize small amounts of Guac on each chip in order to maximize the amount of time I get to enjoy the sweet green stuff, while she likes to heap massive amounts on each chip, in an effort to eat less chips (which […] I find laughable). This drives me crazy as I always end up with the short end of the Guac stick, and so lately I have been separating the Guac into two equally-sized bowls once she’s made it, in an effort to preserve my fair share. She thinks this qualifies as me being [a jerk] and says I “must have failed sharing in Kindergarten”, but on the contrary, I think it’s her poor sharing that’s lead to the whole situation.

[Dear Letter-Writer:] Well, the obvious solution here is for her to make MORE guac. The other solution? Ask her the recipe, and then begin making it yourself. As head chef of the household, you are in full control of when that guacamole will be presented for consumption. I cook for my wife because it allows me the freedom to eat half of what I’ve made before it even reaches the table.

Furthermore, the strategy of using less guac per chip is fatally flawed. It’s guacamole. All guac is first come, first serve. You must heap as much guac onto one chip as humanly possible (as your fiancée does), only do it at a much faster rate. Think guacamole isn’t a race? IT IS. The faster you eat, the more you get. That’s how it works. And it’s a crucial strategy to exploit when dealing with guacamole, nachos, pizza, wings, and other shared food. Do not hesitate. Don’t even […] chew. You inhale […] until there’s nothing left for her. That’s what I do.

If you were out to eat with your guy friends at a Mexican restaurant, and you ordered guacamole for all to share, would you get [mad] at your friends for digging in too quickly? [Heck] NO. That guac is chum, and you are the sharks. ATTACK ATTACK ATTACK. Never play defense with appetizers.

There you have it, the world’s best explanation of the tragedy of the commons. Garrett Hardin eat your heart out. Let’s just hope we never find ourselves at a Mexican restaurant with Chris.

The letter-writer deserves kudos for endorsing the standard (and effective) economist solution to this problem: well-defined property rights. And his fiancée? Maybe she’s a fan of recent Nobel Laureate Elinor Ostrom.

Continue reading “The Tragedy of the Guacamole”

Enforcing Property Rights: Snowmageddon Edition

In case you hadn’t heard:  the DC area was socked with a boatload of snow over the weekend. We got 27 inches here in Bethesda, and many areas received comparable amounts (pay no attention to the official measure at National Airport which is mysteriously low at 18 inches).

The Washington Post reports on some of the etiquette questions that the snow has created. Being an economist, however, I would describe them as property rights questions. For example, what are your rights if you dig out a parking space?

Boston has codified its citizens’ right to benefit from their backbreaking snow-clearing labor; a city law says that if you dig out your car in a snow emergency, a lawn chair or trash can renders the spot yours for at least two days while you’re away at work. In Chicago, blocking a parking spot is illegal, but city officials acknowledge an informal rule of dibs if you’ve done the digging.

“I know this is public property, but if you spent hours laboring, I mean, come on, I think you have the right to say that is my spot,” said Tanya Barbour, who spent two hours Sunday shoveling free her silver Ford Expedition in the 1500 block of T Street NW. “If someone had clearly taken the time to shovel it out, I would not take that spot because I would not want that done to me.”

Across the District and in the Maryland suburbs Monday, many were not relying on Barbour’s honor system. Some used Boston-style markers — lawn chairs, recycling bins, orange cones, a mattress, even two bar stools with a Swiffer on top — to try to save spots along residential streets.

Keith Green, 37, said he’s heard too many scary stories to slip into a spot someone has blocked off. After the 1996 storm, a man was killed outside New York after a dispute over a shoveled parking spot. In Philadelphia in 2000, it happened again. In South Boston, a handful of assaults, slashed tires and other cases of vandalism end up in District Court each year after drivers are perceived to have broken the code.

In the District, said city transportation spokesman John Lisle, blocking spots is illegal. “We would hope people would work together and clear out several spaces instead of just one, but you can’t block a space,” he said.

In Chicago, Matt Smith, a spokesman for the Streets and Sanitation Department, said the lesson from a more snow-savvy city is that although “staking out a spot may save your space temporarily, it’s bound to create problems with your neighbors.”

Enforcing Property Rights: Shared Refrigerator Edition

In the past two weeks, my students and I have been discussing the importance of property rights. One message: creating property rights isn’t enough. You also need a way to enforce those rights; otherwise, they may be meaningless.

Which brings us to the universal problem of shared refrigerators. At Georgetown, our refrigerator has a big handwritten sign that says, in essence, “Don’t Take Other People’s Food.” I wonder how well that works?

I learned about another solution from many Facebook friends this morning (see also this post by Tyler Cowen): a sandwich bag with trompe l’oeil mold:

The bag reminds me of a sign in a gem/jewelry store in Australia. The entrance was like walking through a mine shaft with all sorts of quartz crystals sticking out of the wall. Rather than ask the customers to please not touch the crystals, the store had a sign that said: “Danger, the crystals contain poison. Do not touch.” When I asked, the proprietor confessed that the crystals were harmless, but they had to fib in order stop customers from trying to break off the crystals.

Menu Engineering

Earlier in the semester, my students bravely endured the usual microeconomic approach to understanding consumer choice. You know: budget constraints, indifference curves, and tangencies. Very useful when deployed appropriately, but rather abstract.

To lighten things up—and illustrate some important truths about how consumers actually behave—we then spent a class on the psychology / behavioral economics of consumer choice.

For me, the most fun part was discussing menu engineering. In the usual economic model, people make choices based on prices and the attributes of the goods they can buy. Those things matter in the real world too, but consumers are also influenced by other information. For example, their purchase decisions can sometimes be steered by crafty decisions about what options to include on the menu.

One good example is Dan Ariely’s now-famous experiment with subscription rates for The Economist magazine. In one experiment, his students were offered the choice between paying $59 per year for an online subscription or $125 for print plus online. In a second experiment, they were offered three choices: $59 for an online subscription, $125 for a print subscription, or $125 for a print/online subscription.

Standard economic analysis suggests that the print-only option in the second experiment shouldn’t matter. No one should choose it since they could get print+online for the same price. In practical terms, then, the comparison is the same as the first experiment: online at $59 or print+online at $125. And so standard economics would predict that consumers would make the same choices in the two experiments.

That’s not the way it worked out. In the first experiment, 68% of his students chose the online edition of The Economist and 32% went for print+online. In the second experiment, however, 84% went for print+online, while only 16% went for the online. The good news for standard economics is that no one chose print only. The bad news is that including that option had a big effect on choices. Even though people didn’t want that option, it made the other $125 option look more attractive. In short, it established a reference from which people might decide that the $125 print+online choice was a bargain. So many more of them chose it.

Retailers have understood this psychology for years, of course, while economists are just catching up. But growing interest in behavioral economics has also spawned further innovation in retail, and we are seeing the rise of a new species of consultant: the menu engineer.

Menu engineers advise restaurants and other retailers how to design their menus to encourage customers to buy more and to steer them to more profitable purchases. Consistent with The Economist example, one standard piece of advice is including high-priced items just to make everything else look like a bargain. Menu engineers also recommend that restaurants not use dollar signs; people spend more when they aren’t reminded it’s money. And then there’s a whole science to writing the mouth-watering prose describing each item.

If you have a few minutes, this Today Show interview with a menu engineer is quite amusing.

And for a guided tour of menu tricks, see this piece in New York magazine (ht: Tyler Cowen).

P.S. For completeness, I should note that, according to the Economist entry linked above, the Economist stopped using the three-part pricing system. So maybe it doesn’t work as well in the real world as Ariely’s experiments suggest.

Cupcake Economics

As the New York Times noted a few days ago, cupcakes are hot. I’ve seen shops sprouting around the DC area, and according to the article we are not alone: New York, Los Angeles, Denver, and other cities are also enjoying cupcake boomlets.

I must admit that I don’t know what’s driving the rise of the cupcake. Did Americans finally realize that Krispy Kreme doughnuts are over-rated at best (one man’s opinion)? Was there a technological breakthrough in cupcake production? Has the weak economy lowered rents and labor costs so much that cupcakery is now economically viable?

What I can tell you is that the new cupcake entrepreneurs have a tough road ahead of them. Competition is heating up–good news for cupcake consumers, but bad news for entrepreneurs.

So what is the cupcake entrepreneur to do? Well, the experience of Porche Lovely, who owns a shop in Denver, is instructive:

For each cupcake she sells, Ms. Lovely figures she spends 60 cents on ingredients, 57 cents on mortgage payments and utilities, 48 cents on labor, 18 cents on packaging and merchant fees, 16 cents on loan repayment, 24 cents for marketing, 18 cents for miscellaneous expenses and 4 cents for insurance. That totals $2.45, leaving a potential profit of 55 cents on each $3 cupcake.

So far, the per-cupcake margin is going to pay down start-up expenses. She’s been selling the 2,800 cupcakes a month she calculates she needs to sell to cover her costs — she’s taking only a small salary for now — but she says it’s too early to predict when the store will turn profitable, in part because of the economy and in part because she fears losing business to rival cupcake entrepreneurs.

Ms. Lovely is in the process of rebranding the shop to overcome what she calls “a typical rookie mistake” of underestimating “the power and importance of branding and marketing.” She said she had to do more to tell customers that her cupcakes were made from organic, local and natural ingredients.

Ms. Lovely’s overview of cupcake economics provides a fine illustration of three main points in the economics of competition, which I taught my students a few weeks ago:

  • If you want to stay in business in a competitive market, you’ve got to keep a close eye on costs. You absolutely have to cover your costs to stay in business. (And eventually one of those costs should be a real salary for you, the entrepreneur.)
  • Rivals will eat into your profits. If cupcakes are a good idea, other bakers will follow.
  • To have any chance of making profits in the long run, you’ve got to differentiate yourself. Build a brand and maybe, just maybe, customers will keep coming despite all your rivals.