Tim Harford The Undercover Economist

Articles published in June, 2004


Dear Economist,

My close circle of friends follow a scheme of “tour accounting”, the basis of which is that we never really bother who pays the bill, because, as we plan to remain friends for a lifetime, it will work out in the long run.

Is this sensible economically?

— Ruth Kirby, Surrey

Dear Ms Kirby,

Your inventive scheme mixes high risks with high rewards. The rewards are twofold: first, a massive saving on transaction costs. The late humorist Douglas Adams, who surely could have been an economist, theorised that the calculations involved in splitting a restaurant bill were so nonsensical as to deserve their own branch of surreal mathematics, called “Bistromathics”. Your system means that the waiter need not swipe a dozen credit cards for each meal and that you and your friends need never bother themselves with Bistromathics.

Second, each time a person picks up the bill, she is sending a signal that she expects to be in the friendship long enough to be paid back. Life with your friends is an endless sequence of credible signals of friendship – a real love-in for the economically literate. Sadly, you are making a mistake common to many junior game theorists: the equilibrium you describe is unstable in the face of entry. Pseudo-friends have an incentive to join your group, freeload on its generosity until challenged, and then walk away in debt to the tune of several meals.

Your only rational response is to require any new friends to pay a substantial deposit when they join your circle. Their early obligations could be paid out of the deposit, which would be forfeited in the event of non co-operative behaviour. Such a scheme will ensure that excess entry is not a problem that will trouble your circle of friends.

First published at ft.com.

12th of June, 2004Dear EconomistComments off

Talking and driving

Dear Economist,

I find it so convenient to talk on my mobile phone while driving. Must I really stop?

— Erica Talbot

Dear Ms Talbot,

Since your petulant tone suggests that you believe that the law should not apply to you, let us consider the issue independently of the legal position.

Talking on your mobile while driving makes you more than four times more likely to have an accident. While 3,000 people die each year on British roads, mobile phones are responsible for about 2 per cent of these fatalities – roughly 60 deaths last year.

We continue to allow driving because it has its benefits.

Talking and driving conceivably also has benefits. Clearly, a more considered view is required to weigh those benefits against the grim costs.

The AEI-Brookings Joint Centre for Regulatory Studies, an American think-tank, often publishes such analysis. Its paper on this subject estimated that the cost of talking while driving – in terms of damage, injury and death – was about $15 for each American citizen. Yet the paper estimates that the average citizen is willing to pay about $65 to keep making calls while driving (this estimate comes, in part, from looking at mobile-phone bills).

All this suggests that there are cheaper ways to save lives than with an outright ban – such as taxing garrulous drivers and using the money to pay for ambulances.

As for your personal decisions, using a hands-free device and postponing trivial calls would save lives for a small cost.

Overall, you simply have to decide whether you are happy to enjoy benefits for yourself despite the costs you inflict on others. It may be economically efficient, but it is still selfish and rude.

First published at ft.com.

5th of June, 2004Dear EconomistComments off


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