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Posts Tagged ‘Microeconomics’

A recurring theme of recent happiness research is that when it comes to seeking pleasure, people should “buy experiences rather than things.” People are happier when they skip the shiny baubles (or new high heels) and do something memorable.

Over at the Atlantic, Garett Jones gives one economic explanation for this finding: memories are a durable good.

[M]emory, wholly intangible, is quite durable.

People often shrink from driving to a distant, promising restaurant, flying to a new country, trying a new sport–it’s a hassle, and the experience won’t last that long. That’s the wrong way to look at it. When you go bungee jumping, you’re not buying a brief experience: You’re buying a memory, one that might last even longer than a good pair of blue jeans.

Psych research seems to bear this out: People love looking forward to vacations, they don’t like the vacation that much while they’re on it, and then they love the memories. Most of the joy–the utility in econospeak–happens when you’re not having the experience. …

[P]eople treat memories somewhat like durables, but most of us could do a better job of it. Yes, it’ll be a hassle to find that riad in Marrakech when your GPS fails you, but complaining about it with your sibling years later will be a ton of fun. Get on with it.

A corollary: if memory really is a durable, then you should buy a lot of it when you’re young. That’ll give you more years to enjoy your purchase.

So it’s worth a bit of suffering to create some good memories, since the future lasts a lot longer than the present.

That’s good advice. But I can’t help thinking that people who are unhappy on vacation are doing it wrong. Then again, maybe my recollection is blurred by selective memory?

In any case, the little feline above is a great example of Garett’s thesis. Since I was a child, I had always wanted to see an ocelot in the wild. And last summer, Esther and I found one in Brazil. Our entire encounter lasted about 15 seconds and produced a couple of mediocre photos. But until my brain gives out, I will always cherish seeing the little critter.

P.S. About 20 years ago, I recall someone attributing the “memory is a durable good” idea to Milton Friedman. If anyone’s got a cite to that, please post in the comments.

P.P.S. Will Wilkinson also comments on Garett’s thesis.

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My Twitter feed is, quite rightly, full of links to this remarkable episode of Golden Balls, the British game show that puts contestants in a classic game theory dilemma of “splitting or stealing” the grand prize:

If you have time for more, here’s another famous episode, with a very different display of strategy and tactics:

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After another grueling tax season, my colleague Howard Gleckman is understandably frustrated with America’s complex tax code. And with instructions like this, who can blame him?:

Your ATNOL for a loss year is the excess of the deductions allowed for figuring the AMTI (excluding the ATNOLD) over the income included in the AMTI. Figure this excess with the modifications in section 172(d), taking into account your AMT adjustments and preferences (that is, the section 172(d) modifications must be separately figured for the ATNOL).

So who is to blame? Feckless politicians? High-priced lobbyists? Social engineers?

Well, yes, yes, and yes. But Howard looks deeper and asks why Americans don’t rise up against the scourge of needless complexity. Why are we so complacent?

His answer: TurboTax. By buffering us from complexity, tax preparation software allows that complexity to persist:

[T]echnology both inoculates us from much of the complexity of tax filing and reduces compliance costs. But, more importantly, it immunizes the politicians from the consequences of their decisions that lead to this madness.

Taking this to its logical extreme, Howard calls (tongue-in-cheek) for a one year moratorium on tax preparation software and, for good measure, paid preparers too.

I’m not ready to go that far. But I would like to point out that the dynamic Howard points out is everywhere around us. Give people cellphones that make it easier to call for help, and they will get into more trouble in the wilderness. Offer people low-fat cookies, and they will eat more. Put people in more fuel-efficient cars, and they will drive more. Give people software to do their taxes, and they will accept greater complexity. It’s practically a law of nature.

P.S. Over at Republic Report, Matt Stoller levels a more serious charge at Intuit, the producer of TurboTax. Quoting from its SEC filings and lobbying data from Open Secrets, he argues that the company has been lobbying against efforts to make it easier for citizens to file without the help of software.

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Ran into Felix Salmon out at the Kauffman Foundation’s economic bloggers confab. His latest Felix TV breaks the contemporary art market down into two simple metrics: $ per spot and $ per stripe.

Feliz says buy spots. But a word of warning: Damien Hirst seems hellbent on flooding the dot market. Somehow I think the price of a dot will plummet when he releases his painting with 2 million dots.

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Most modern markets operate on money. I sell my services as an economist, for example, and use the proceeds to buy Tazo Tea, vacation trips, and a surprising number of Apple products.

But that approach doesn’t transplant well (so to speak) to living human organs. Many people find the idea of markets in organs repugnant. As a result, money-based organ markets are generally outlawed.

As economists often point out, that moral stance comes with a major cost: many people who need a new kidney can’t find one. Humans have two kidneys, but can live healthy lives with just one. So there is the potential for gains from trade between those who need a kidney and those who have one to spare. The challenge is getting enough people to donate kidneys, when it isn’t possible to compensate them with money.

Some good samaritans do donate kidneys to strangers. But that’s very rare. Far more common are people who will donate a kidney to a relative or friend. But those offers often run into a harsh biological reality. Just because you want to give someone a kidney doesn’t mean it will be a biological match.

Enter the kidney exchange. Simple case: Alice may want to donate to Bob but not be a match. Chuck may want to donate to Daphne but not be a match. But if Alice is a match to Daphne, and Chuck is a match to Bob, then can make an exchange. Alice donates to Daphne, Chuck donates to Bob, and everyone is happy. The miracle of a good match in the kidney barter market.

The trick is finding those matches and extending them to larger groups. Today’s New York Times has a moving article that illustrates how far this idea has come. Kevin Sack recounts how the 60 people shown above were linked through a chain of 30 kidney transplants thanks to the efforts of Garet Hil and the National Kidney Registry. The first donor,Rick Ruzzamenti (upper left), is a good samaritan who felt inspired to give a kidney to a stranger. The other 29 donors all donated on behalf of a friend or relative.

What made the domino chain of 60 operations possible was the willingness of a Good Samaritan, Mr. Ruzzamenti, to give the initial kidney, expecting nothing in return. Its momentum was then fueled by a mix of selflessness and self-interest among donors who gave a kidney to a stranger after learning they could not donate to a loved one because of incompatible blood types or antibodies. Their loved ones, in turn, were offered compatible kidneys as part of the exchange.

Chain 124, as it was labeled by the nonprofit National Kidney Registry, required lockstep coordination over four months among 17 hospitals in 11 states. It was born of innovations in computer matching, surgical technique and organ shipping, as well as the determination of a Long Island businessman named Garet Hil, who was inspired by his own daughter’s illness to supercharge the notion of “paying it forward.”

Dr. Robert A. Montgomery, a pioneering transplant surgeon at Johns Hopkins Hospital, which was not involved in the chain, called it a “momentous feat” that demonstrated the potential for kidney exchanges to transform the field. “We are realizing the dream of extending the miracle of transplantation to thousands of additional patients each year,” he said.

The entire article is inspiring.

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Today’s exercise in everyday economics: Brian Stelter and Amy Chozick making the case that cable and satellite TV subscribers are paying a “sports tax”  (ht: Jennifer R.). Writing in the New York Times, they say:

Although “sports” never shows up as a line item on a cable or satellite bill, American television subscribers pay, on average, about $100 a year for sports programming — no matter how many games they watch. …

Publicly expressing the private sentiments of others, Greg Maffei, the chief executive of Liberty Media, recently called the monthly cost of the media empire ESPN a “tax on every American household.”

Patrick Flynn personifies the consumer challenge. He and his wife, who pay Comcast $170 a month for television, Internet and a home phone in Beaverton, Ore., are keenly aware that part of their bill benefits the sports leagues that charge networks ever-increasing amounts for the TV rights to games. Save for one regional sports channel, he said, none of them are worth it. …

But there are also millions of viewers like Russell Tibbits, of Dallas, who says, “If you eliminate sports channels from cable packages, I literally would not own a TV.”

Sports channels apparently make up a sizeable chunk of subscription costs. The authors report, for example, that ESPN earns about $4.69 monthly for each subscriber, while the next closest channel is TNT at a mere $1.16.

Given the limited number of channel bundles that cable and satellite services typically provide, the relatively high cost of sports channels creates the possibility of significant cross-subsidies. The sports-agnostic end up covering some of the costs of the sports-obsessed.

Of course, the reverse can also be true. Russell Tibbits may watch only sports channels, but he’s helping pay for AMC, Lifetime, and TNT, too.

For that reason, both sports fans and non-fans may prefer more choice about which channels they pay for. This “a la carte” discussion has been around for years, but Stelter and Chozick highlight a new factor. Changing technology make it make it easier for subscribers to get around current subscription models:

Soon, though, there may be an Internet alternative — something that was heresy until recently. Distributors like Dish Network are talking to channel owners about creating virtual cable providers that would stream channels over the Internet instead of traditional cables. That would break up the bundle of channels that subscribers have grudgingly accepted for years and allow subscribers who don’t like sports to avoid paying for them.

“They’re aggressively looking for ways to offer a lower-cost package of channels without sports,” said the chief executive of one such channel owner, who insisted on anonymity because the talks were confidential. “There may be a market in America, whether it’s 10 or 20 million people, that would be very happy to have 50 or 60 channels but not ESPN.”

By streaming the channels online, old distributors like Dish or new ones like Google could do an end run around the contractual commitments and market dynamics that effectively force them to carry sports channels now.

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Over at Quora, restaurateur Jonas M. Luster explains why he charges more for items at dinner than at lunch:

  • Lunch isn’t prepared and served by my A-team. Many times waiters and cooks have to prove themselves during lunch before being allowed on the dinner line. This means I pay less in payroll.
  • Lunch doesn’t usually serve a full menu. The menu is optimized for faster production and oftentimes smaller portioned. Smaller menu means less storage, smaller dishes mean less storage, and faster turnaround means less secondary storage costs (hot/warm holding, etc.)
  • Lunch diners spend an average of 45 minutes from entry to exit, dinner guests take over twice as long. This means faster turnaround during lunch hours, which either means more covers or less staff needed. Both saves me money.
  • Lunch guests don’t want/need candles and expensive bottles of water. They want food. We cater to this by dropping down to the bare bone of fine dining hospitality, removing fluff.

Last, but not least, lunch is a competitive market. We compete with in-house cafeterias, the dirty water hot dog cart, chain restaurants, and delivery businesses.

More answers here.

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