Tim Harford The Undercover Economist

Articles published in February, 2004

Increasing Capital Flows to Africa

by Stan Fischer

I assisted Stan Fischer with the preparation of this speech. The slides are available here:
http://www.africacncl.org/downloads/Opening%20StanFischer.ppt

26th of February, 2004Other WritingComments off

Supermarket queues

Dear Economist,

How do I choose the shortest queue at the supermarket?

Yours sincerely,

P.N., Aylesbury

Dear P.N.,

Mathematicians reckon the odds are against you. If you choose a queue at random, there will be a line on either side of you, and thus a two-thirds chance that one will be faster.

Economists take a more sophisticated view. David Friedman, for instance, argues that the relevant discipline is financial market theory. Choosing the right queue is like picking the right portfolio of shares: if it were obvious which shares were good value, they wouldn’t be good value any more. If it were obvious which queue would be quickest, everyone would join it. Naive attempts to “beat the market” will fail.

Then there is “efficient market” theory – you can’t out-perform a random choice of shares because public information is immediately incorporated into share prices. In truth, most markets are not efficient and thus it is possible for an informed decision-maker to beat them. Even if supermarket queues were efficient, no queue would be a superior bet, because expert supermarket customers would quickly join any queue that was likely to be quicker.

More likely, queues are not efficient because few have much to gain from becoming expert queuers. Some have other considerations, such as minimising the distance walked, while others shop rarely, so the calculations are more trouble than they are worth.

And unlike the stock market, which a financial wizard can make more efficient by outweighing the foolish decisions of small traders, in the supermarket a single expert queuer has a limited effect on the distribution of queuing times.

I can advise you to steer clear of elderly ladies with vouchers, but more advice would be self-defeating. Too many of your rivals would read it.

First published at ft.com.

21st of February, 2004Dear EconomistComments off

Valentine’s day

Dear Economist,

I have a Valentine’s Day problem.

I will be taking my sweetheart out for a romantic dinner and I know how it will conclude: Juliet will refuse dessert, I’ll order a chocolate cake and she will proceed to eat most of it. I find it an infuriating habit. Can you offer me any advice?

Yours sincerely,

Romeo, Verona

Dear Romeo,

It is safe to say that you will never persuade Juliet to order her own dessert, and ordering two for yourself as a joke is likely to be lost on her. You must take the quantity of cake as fixed and your problem as simply one of division.

This problem is not insoluble if basic utility theory is inventively deployed. Normally, utility theory allows us to choose between spending income on different goods. Your problem is how to choose between two goods: cake for you and cake for Juliet (which will also make you happy, since you love her). Your calculations are complicated by the fact that while Juliet enjoys eating cake, she also enjoys watching you eat cake. Each of you would, given the choice, only eat part of the cake and donate the other part to your lover. But how much to donate?

Fortunately, the economist Ted Bergstrom tackled the necessary equations 15 years ago. All you need to do is work out how strong your love is for Juliet, compared with your love for cake – and perform the same calculation for her. Substituting the result into Bergstrom’s equations gives you the answer. If you both tend to prefer cake, you will have to split the difference and each concede some cake to the other. If you care little for cake but love to watch each other enjoying it, you will try to foist the cake on each other.

True selflessness comes when both agree, without haggling, what the ideal division of cake should be. Then, true love is in the air.

First pulished at ft.com.

14th of February, 2004Dear EconomistComments off

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