Tim Harford The Undercover Economist

Dear EconomistDear Economist

The problem page where personal dilemmas are “solved” with the latest economic theory, “Dear Economist” ran in the FT from 2003 to 2011

Dear Economist

Is internet dating fatally flawed?

Dear Economist,

With yet another one of my relationships in the toilet, I find myself back on the internet dating websites. I have long been confused by the strategy of women on these sites. As a man, I am seeking to convey, modestly, that I have a good, stable job and that I am not a weirdo.

I have no idea what most of the women are on about on the site – most of them have paragraphs of drivel, punctuated with statements such as: “I like going to the theatre and for walks in museums” or “I want a creative man”.

Do the women not realise that most men look at their photos and get in touch with the fit ones? I have a reasonable level of success, so I must be on to something. Why do they waste so much time with their reams of gibberish?

Digital Lover

Dear DL,

Game theorists describe this as a “cheap talk” game because anyone can claim anything online. The question is whether the cheap talk can help people to find a good match.

Saying “let’s meet at Kaffeine at noon” helps to co-ordinate a successful date. “I like going to the theatre” could also serve that purpose, but only if men respond honestly, instead of, like you, saying, “yeah whatever, I like that, too” then hoping to get lucky.

Sadly, women bear much of the cost of your scattergun approach so I can hardly expect you to change it. But perhaps you should, because what you gain in the number of dates secured you may lose later because you have nothing in common. You say that “yet another one” of your relationships is “in the toilet”. Quite.

The psychologist Dan Ariely, with three colleagues, studied internet dating and discovered that people spend 12 hours a week searching and e-mailing, but only two hours a week on dates. Dan Ariely blames the dating websites for being poorly designed. I blame you.

Also published at ft.com.

26th of June, 2010Dear EconomistComments off
Dear Economist

Which economics articles should I read?

Dear Economist,
I am a diligent worker and an avid reader of your column. I have, however, become a victim of imperfect information. I am about to do my first-year exams and have just found out that not only should I have been reading your articles, but the whole of the FT and The Economist as well. I may not have substituted enough leisure for work and fear I am about to pay the price. What should I do? And would it be right for a journalist of high calibre to use his perfect information to suggest articles on macro and micro economics over the past year?
Will, Cambridge

Dear Will,

Nice try, but your story doesn’t stack up.

The Financial Times and The Economist are invaluable sources of information about the real world. You, on the other hand, are about to sit economics exams at Cambridge. If you have not yet learnt to appreciate the difference between reality and Cambridge economics, I really am worried about you.

This is especially true if your ignorance has survived your professed diligence. But I rather doubt that you have worked as carefully as you claim. You say that you are a victim of imperfect information, but surely previous exam papers are available for all to see.

A more likely interpretation is that you’re a victim of hyperbolic discounting, where you irrationally regard revision as a chore that fails any cost-benefit test, right up to the last few days before your exam. It’s a subject you may encounter in your third year, if you get there.

It’s not too late. Memorise your Taylor series and a couple of variants of the prisoner’s dilemma, and you’ll be fine. As for articles, I’m proud of a column I wrote for this magazine on November 6 last year on the economics of Jamie Oliver. It won’t get you through your exams but at least you’ll be able to whip up a fresh garden salad for summer.

Also published at ft.com.

19th of June, 2010Dear EconomistComments off
Dear Economist

Who should I support in the World Cup?

Dear Economist,
I am an Indian but my country never qualifies for the World Cup. I usually support the Netherlands because I am a fan of Dutch football. But this year is different, because I work in England, pay my taxes here and feel that if England wins the World Cup it will lead to positive externalities for me. My boss may go easy on me, the general mood of the country will lift and even the looming spending cuts may feel more bearable. But should I sacrifice my love of Dutch football for the sake of my stake in the British economy?
Deepan Banati, London

Dear Deepan,

I am glad to see you are taking the beautiful game seriously, but puzzled that you are so determined to impale yourself upon the horns of an imaginary dilemma. You seem to think that supporting England and supporting the Netherlands are substitutes with sharply decreasing returns – in other words, you can only afford to support one or the other. I do not really understand why this should be true.

Until the two teams actually meet, you can support both. This has many merits. You have a real interest in twice as many matches, for example, and are more likely to have some wins to celebrate. If the teams do meet, the situation will be slightly more difficult. But this cannot happen until the semi-finals at the earliest. And it may not happen at all: neither England nor the Netherlands are exactly permanent fixtures in the World Cup’s last four.

In the unlikely event that your divided loyalties are tested, find a Dutch pub and cheer the Dutch with abandon. At work the next day, resume the demeanour of an England fan, whether celebrating victory or heroic failure in a penalty shoot-out.

Economists always assume that people may hide their true preferences; this is one assumption to which you should adhere.

Also published at ft.com.

12th of June, 2010Dear EconomistComments off
Dear Economist

How do I set myself up as a photographer?

Dear Economist,

I consider myself a good documentary photographer, but my full-time job is in another field. I want to start a career in wedding photography, so I need to build a portfolio. But how?

I tried to offer a cut-rate service that basically covers the production cost. No luck.

My theory is: this is a glamorous business, like Hollywood. If you are the client, you probably won’t worry about cost unless you’re on a shoestring. You won’t trust a new start-up on a unique event. If you are on a shoestring, you probably won’t look at a professional photographer’s price list.

I have considered offering myself as a free assistant or second shooter. But as you may notice, wedding photographers are like plumbers – they have quite a local base. I doubt they would want to help out a competitor in their own back yard. So how do I get started?

Camera for hire

Dear Camera for hire,

Actually, your business is more like hedge fund management or heart surgery. Nobody goes for a cut-price heart surgeon.

You really have two options. One is to take photographs at friends’ weddings. You don’t need permission from a rival photographer, you just need permission from a friend.

But I have a more radical suggestion. To win business you need to demonstrate confidence in your expertise. Tell prospective clients that you will pay them for the privilege of taking photos at their wedding, and that you’re confident you’ll make money anyway because they will want to buy your prints. Not only does this scheme give them some compensation if you prove to be an amateurish snapper, but more importantly it sends a signal of your self-confidence. A true incompetent would never be able to afford such a deal. I only hope you are as good as you say you are.

Also published at ft.com.

5th of June, 2010Dear EconomistComments off
Dear Economist

Does free internet access really exist?

Dear Economist,
While on a brief break in Devon, I was sitting in a coffee shop that provides free wireless internet access. As the lunch hour approached, the proprietor asked me to vacate the table for four because he wanted it to be free for a lunch party. This made me feel as though he didn’t really appreciate my being there – even as a paying customer.

Should the coffee shop offer wireless internet access if it isn’t willing to accept the opportunity cost associated with it?

Jon Upton, Paris, France

Dear Jon,

As a man whose espresso is rarely complete without a laptop alongside it, I sympathise with your plight. But I also sympathise with the difficulties of the café owner. The café, like many businesses, offers free goods and services bundled together with the products it sells. You are charged for your coffee, but not for the use of a cup and saucer. Sugar is free.

The trouble is that sometimes these services can be very costly to provide. At lunchtime the opportunity cost of letting you take up a table for four is substantial. Sometimes restaurants cope with this by charging high premiums for products that go hand in hand with long sittings – wine, starters and desserts. At other times they are forced to be more direct.

The wireless access, cheap to provide at any time, is a side-issue. The difficulty is that people like you take it as an invitation worth abusing. Perhaps the proprietor should switch it off at lunchtime. Perhaps he should forewarn customers with a little sign.

But should that be necessary? There are tacit agreements governing the fair use of these “free” resources. If you had walked off with your cup and saucer, or half a kilo of sugar, the owner would have challenged you, sign or no sign. Would you then have felt unwelcome? You would have been unwelcome for a reason.

Also published at ft.com.

29th of May, 2010Dear EconomistComments off
Dear Economist

Can I press my char into ironing for free?

Dear Economist,
My ironing lady – housebound and bored – has taken to phoning me up and begging me to bring round my bed linen for ironing. As I return to pick it up again, proffering a pair of crisp £20 notes, I quip: “But Sheila, aren’t I providing occupational therapy and shouldn’t you be paying me?” She laughs, pocketing the banknotes, and glows with satisfaction as I take my pile of pillowslips. It is my social duty to continue this relationship, but why do I feel I am the one being flattened?
Flora Fortis, London

Dear Ms Fortis,

You are indeed providing great satisfaction to a vulnerable woman. But don’t feel too smug. You seem to be imagining that you could demand free ironing, or even charge your ironing lady for the loan of sheets that she wants to iron. I rather doubt this.

Naive game theory suggests that since Sheila enjoys ironing so much, you can threaten to withhold your custom and she will agree to iron for nothing. But to analyse the situation properly you must consider Sheila’s outside options. There are many dirty sheets in London, and she will not find it hard to secure other customers. You, on the other hand, will have to travel a long way before you find another ironing lady so cheerful.

Sheila’s satisfaction with her job is surely not unique. I know we talk of work as a terrible chore, something we do only for cash. Yet in reality, many people enjoy their jobs and get paid to do them. The leisure time “enjoyed” by the unemployed is not enjoyable at all. It is a crushing experience, especially on top of the loss of income.

In a world where rumpled linen is in plentiful supply, Sheila’s enjoyment of ironing is simply her good fortune. It is not something you will be able to parlay into cheap laundry services.

Also published at ft.com.

22nd of May, 2010Dear EconomistComments off
Dear Economist

Is it worth trying to get a good degree?

Dear Economist,
After years of hard work I am about to finish my degree in economics. Maybe I shouldn’t say “years of hard work”. I skipped quite a lot. Now I’m worried that in the middle of a recession, I’m going to graduate with a lousy degree. Will reading “The Undercover Economist” get me through? Or should I be in the library?
George, London

Dear George,

Flattery will do you no good: I shall give my usual frank advice. You should be worried about graduating in the middle of a recession. I’ve written before about the research of Till Marco von Wachter, who estimates that graduating in a recession depresses your earnings for many years thereafter. You should also be worried about graduating with a bad degree, but not for the reasons you think.

Researchers have known for a long time that graduates with first-class degrees are more likely to end up with a job or a postgraduate place than graduates with third-class degrees. The question is whether this is because of the degree class itself, or because both employers and examiners are independently picking up the same traits. It’s hard to say, because employers – with access to references and interim test results – may have much more information than researchers do.

New research by Giorgio Di Pietro looks at data from an unnamed UK university. Di Pietro compares candidates with identical – or very similar – test scores, but who (because of the arbitrariness of the dividing line, or because of the discretion of the board of examiners) are awarded a different class of degree.

The good news is that once your underlying scores are taken into account, your degree class seems to make no difference to your chance of a job or further place. The bad news is that no matter how hard you work from now on, your fate has probably been sealed already.

Also published at ft.com.

15th of May, 2010Dear EconomistComments off
Dear Economist

Are shoes an inelastic fashion accessory?

Dear Economist,
We need shoes come rain or shine and the more shoes we have, the better prepared we are for the unpredictable circumstances we face in our daily lives. Because of this, we should buy shoes no matter how much they increase in price, because their demand will always exist – we can’t walk around barefoot. Perhaps I’m just trying to convince myself that £60 on a pair of shoes is a solid investment.

Dear Shoe-shopper,

I am unschooled in The Way of the Shoe and hesitate to offer my usual unambiguous advice, but I draw the line at the use of the politician’s favourite euphemism, “investment”. I regard my lunch money as well spent, but let’s not pretend that my lunch is a hundred shares in General Electric, shall we?

To answer your question, shoes are “income inelastic” if you do not cut back much on shoes when your income falls. They are “price inelastic” if you do not cut back much on shoes when their price rises. Something tells me you think shoes are inelastic in both respects.

I would argue that a more pertinent term here is “diminishing marginal utility”. The first pair of shoes protects your feet. All subsequent pairs of shoes are merely variety. I write without fear of contradiction when I suggest that the more shoes any one person has, the more time each pair will spend at home in the shoe cupboard.

In short, whether you are wise to spend £60 on new shoes rather depends on whether you now have no shoes (the scenario you gesture towards) or whether you have a spare bedroom full of them, which I fear may be the truth.

Let’s face it, you don’t want advice from me. Why don’t you look to Carrie Bradshaw, the Sex and the City character who once explained: “My new shoes shouldn’t be punished just because I can’t budget.”

Also published at ft.com.

8th of May, 2010Dear EconomistComments off
Dear Economist

How can we get big wedding presents?

Dear Economist,
My partner and I are ready to register for gifts and we are seeking the most efficient way to do it. Most registries allow any gift to be returned to the store for cash. Additionally, one can often find 20 per cent coupons for this store (meaning that one can return a gift worth $100 and then buy it back with a coupon for $80). Which gifts should we register for? I am worried that if we register for lower-priced gifts, then people who have a higher willingness to pay will take advantage of the consumer surplus and buy a cheaper gift. Or should we just register for the gifts we want because the opportunity cost spent returning gifts and buying new items will be too high?
Meir, New York

Dear Meir,

Many congratulations! Not on your nuptials of course, which I presume are imminent –although you do not mention them – but on your single-mindedness. Weddings can be expensive, and it’s important to focus if you are to stand any chance of turning a profit.

You’re missing a trick with this coupon business. You need to circulate coupon details along with your demands. That way, someone willing to spend $80 will have to buy a $100 gift – because they know, and know you know, that the coupon was available. You can then parlay the $100 into a $125 gift if you wish.

As for the price range you choose for these gifts, best to offer a broad selection. This will maximise the extraction of consumer surplus from your guests, who will have varying willingness to pay. This is one splendid occasion when people will not try to secure a bargain: you can be sure they will buy the flashiest gift their budget allows.

My only puzzlement is at this talk of opportunity cost. Enjoy yourself! Is there any more enjoyable part of a wedding than squeezing money out of the guests?

Also published at ft.com.

1st of May, 2010Dear EconomistComments off
Dear Economist

Should I forgo my holiday to vote Tory?

Dear Economist,
Would it be very wrong to go on holiday and miss voting in the forthcoming general election? We have an excellent constituency MP (Tory) who has a reasonably safe seat. I don’t agree with all his party’s policies, such as they are, but he has an excellent voting record and works very hard. I’d like to see him retain his seat – but not as much as I’d like to go on holiday.

Last election, the Liberal Democrats came second in my constituency and Labour came third, with a turnout of 70 per cent. If my vote were material in preventing a Labour government, I would be prepared to forego the holiday. Should I?

Unmarried UK Voter

Dear Unmarried Voter,

The country is fortunate indeed to have voters like you. Many people choose not to vote because of far smaller inconveniences – that it is raining, or that every local candidate is an uninspiring stuffed suit. (Next time, though, might I suggest registering to vote by post?)

I think you can cut yourself some slack. In the vanishingly unlikely event that your vote does make the difference between Tory and Labour government, the margin of victory will be so fine that the joy of Tory voters will be precisely balanced by the misery of Labour voters. For this reason I believe you need not vote at such great inconvenience to yourself. Let us consider your own preferences instead. The Conservatives are far more popular than at the last election, while Labour’s popularity has slumped. Unless there is some local scandal you have not mentioned, there is almost no chance that your MP will lose a safe seat while swimming with a favourable tide. The chance your vote will matter locally must be much less than 1 per cent. If you value that more strongly than a vacation, you’re a committed voter indeed – unnervingly committed. Sounds to me like you need that holiday!

Also published at ft.com.

24th of April, 2010Dear EconomistComments off
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