How an Economist Thinks

by on August 5, 2008 at 7:05 am in Economics | Permalink

Over the weekend a crew came round my neighborhood offering to paint house numbers on the curb.  Large bold curb numbers, they pointed out, make it easier for emergency service workers to find houses in the dark.  Good argument.  The price was good too.  Then I noticed my neighbors were having their numbers painted.  So of course, I declined.

1 Daniel Klein August 5, 2008 at 7:28 am

Not a Smithian economist!

2 a student of economics August 5, 2008 at 7:38 am

I take it your point is that your neighbors created a positive externality by painting their numbers so that that the emergency workers would now be likely to find your house, too, if only by exclusion.

This is a clever way to get much of the benefit for yourself without having to pay like your neighbors. Your decision hurts all your neighbor marginally, but presumably that does not enter your utility function.

However, it is misleading to conflate maximizing your pocketbook with thinking like and “an economist”. There are plenty of altruistic economists who contribute to charity, leave tips at restaurants, don’t litter even when its legal to do so, and volunteer at the local school or hospital. So, there is zero reason for people who “think like an economist” not to contribute to their neighborhood and community even when they could get away with not doing so. There are economists who are free riders and those who aren’t; there are non-economists who free ride and those who don’t. They are logically separable.

It’s true that introductory textbooks in economics typically make and *assumption* (not a conclusion) that homo economicus only cares about his own personal well-being, especially his own personal finances. This *assumption* of no altruism or envy makes the math for welfare calculations, etc., much easier than if one person’s utility depended on everyone else’s.

However, it is only an ASSUMPTION. It is not the definition of “rational” or a conclusion about correct economic thinking. Yet, that is too often the way it is conveyed. I hope you aren’t teaching your students that one needs to be selfish to “think like an economist”.

3 Phd in Economics August 5, 2008 at 7:52 am

Cooperation or altruism, even when not in one’s immediate self-interest, is usually seen as a sign of being a good person. It says something pretty negative about our discipline when free-riding is taken to be a badge of honor.

Plenty of (damn smart) economists have modeled social preferences or other regarding behavior. There’s been an explosion of research in this area in the past 15 years– see work by Rabin, Fehr, Bolton and Ockenfels, Falk, and others. To echo the comment above: you’re thinking like a selfish economist, and that economics per se doesn’t give any guidance in this situation.

4 chug August 5, 2008 at 7:59 am

Large bold curb numbers, they pointed out, make it easier for emergency service workers to easily find houses in the dark.

Unless you have a car parked in front of them…. As a former cab driver (pretty much full-time for 6 years), what I looked for were numbers facing the street near the front door (preferably large and a contrasting color to the background) and light on those numbers when it was dark.

Of course, if the house is on fire or smoke bellowing from your house, the fire department will likely have no trouble locating it. YMMV

5 Dave Richardson August 5, 2008 at 8:00 am

A classic example of the Free Rider….

6 RUBBA August 5, 2008 at 8:16 am

You actually needed to hire someone to paint a number? Jeesh!

7 Timothy August 5, 2008 at 8:28 am

The point of thinking like an economist is not that it makes you selfish (it require little economics knowledge to think in one’s narrow self-interest) but that it gives a different, and more rational, perspective on how other people’s behaviour should affect your own, whether you aim to maximise your solely your own utility or that of your neighbours. One of my first jobs was in door to door sales for an energy utility, and for some customers, “all your neighbours are signing up with us” was a very powerful selling point (others didn’t care). I once had a man coming round doing the paint the number on the driveway pitch, and he tried (unsuccesfully) to use that exact argument on me. This was a case where the opposite applied (although I didn’t think of Alex’s argument when the man was selling it to me.)

Also, having only odd numbers would not work, as they would all be on one side of the road, and sometimes they do not match up exactly (eg. 115 is not opposite 116).

8 Daran August 5, 2008 at 8:36 am

Avoiding the redundant paintwork is also the ‘green’ choice. Depending on the quality of the paintwork it may also detract of the overall neatness of the neighborhoud, thereby inviting more graffiti. So Alex saved money as well as the environment by his refusal to deface the neighborhoud for his personal gain. He should be lauded for this responsible and selfless action.

9 Matt August 5, 2008 at 8:41 am

In sort of the same vein, how do postal and emergency workers find where the hell an address is in London? You walk down a side of a street in London and the address numbers will go something like 5-10-11-2-25-4-57. To give an address, you usually had to be extremely specific about landmarks and crossing streets and then maybe you’d find it.

10 indiana jim August 5, 2008 at 8:48 am

The price wasn’t “good” enough, obviously. This could be for any
number of reasons that include:
1) Alex thinks that the benefits are small because his
neighbors were already getting their curb numbers painted,
2) Alex, desperate for blog material, finds the
opportunity cost of having his numbers painted is too high (that
would mean forsaking the opportunity to tug at the heart strings
or moral sentiments of MR readers),
3) Alex wants to distance himself from neighbors who have been borrowing
“too many cups of sugar” of late; he refuses the painted numbers in a bid
to regain a semblance of privacy in intrusive suburbia.
4) Alex is competing for status with his neighbors and believes that
he could get a leg up by: a) painting his numbers himself avec more
artistically and individualistically; b) doing the job more cheaply
thereby advancing his relative wealth position; etc.
5) Alex is still bitter about not having been elected an officier of the
neighborhood association and achieves blissful vengence,
6) Alex, re-reading Rand, “shrugged” to be more like his hero John Galt.

My personal favorite, BTW is #2 above; be still my heart!

11 john turnbull August 5, 2008 at 9:48 am

in 12-18 months’ time the numbers will have weathered to the point of illegibility & since it’s unlikely the painters will be back or that anyone will refresh them themselves it was probably a smart decision

12 meter August 5, 2008 at 9:51 am

“Alex already got the most valuable thing for free.”

I would think that the most valuable thing would be goodwill from his neighbors, since $20 is a relatively small price to pay in exchange.

Put another way, he’s not paying for the paint, he’s paying for the signal.

13 Andrew August 5, 2008 at 10:05 am

I’m not an economist and I didn’t take it too seriously. I hope all you bastions of the art feel better about that.

Regardless of his decision, it’s about the thinking. As in, the doing what everone else is doing wasn’t the only thing that he thought out.

It also conveys the most important part about thinking like an economist is actually knowing when you are rationalizing, which is the difference with most people.

14 d August 5, 2008 at 10:08 am

So I’m going to assume you don’t bother with vaccinations either.

15 Zach August 5, 2008 at 10:14 am

It seems to me you’re making a strong assumption about people’s ability to interpolate house numbers under stress. Or are you certain that you’ll get an alert ambulance driver, who got lots of sleep the night before and is alert to contextual clues when locating your house?

16 Millian August 5, 2008 at 10:33 am

Vaccinations have a significant personal benefit to the vaccinated party, unrelated to the social benefit of reduced risk of contracting a contagion from others. Social benefits are why governments provide immunisation programmes; individual benefits are why most people enrol on those programmes.

If I wanted to support college students, I’d fund prizes for excellence to encourage marginal increases in effort among the cohort of top-level performers, rather than encouraging them to waste time away from books. That is thinking like an economist, right?

17 Jim August 5, 2008 at 10:41 am

If you know you need something you probably already own it. Therefore the only things worth selling door-to-door are things you don’t know you need. In most cases, you don’t actually need them anyway.

What I’d like to see sold door-to-door are things I know I need but are easy to procrastinate on: tree trimming, drain cleaning, house washing, trim painting, brush removal, mower maintenance, radon testing, and CO detectors.

-Jim

18 Yancey Ward August 5, 2008 at 11:23 am

Alex appears to have denied his neighbors nothing by freeriding other than the opportunity to freeride themselves.

19 Michael F. Martin August 5, 2008 at 11:27 am

Shame on you for relying on your neighbors to provide a good that improves the neighborhood.

20 Bernard Yomtov August 5, 2008 at 11:33 am

Hey everyone. Lighten up. It’s funny.

21 BoscoH August 5, 2008 at 11:53 am

I feel like I’ve awaken in 1985. Emergency crews all have GPS maps now. If anything, painting your numbers might help the post man or the guy hired to serve you with a lawsuit.

22 Bernard Yomtov August 5, 2008 at 12:16 pm

Sure Caliban, but it might help too. Sometimes the numbers are hard to read for one reason or another.

This way you just say,

“It’s the one without a number on the curb.”

23 angela August 5, 2008 at 12:45 pm

There is a great Simpsons episode that I was convinced you were just retelling. http://en.wikipedia.org/wiki/Regarding_Margie In it Bart, Milhouse and Nelson go around painting house numbers on curbs without asking the people first, then ask for payment. Homer refuses to pay but gets left one letter short prompting the mailman to deliver someone elses mail to their house.

24 geoff August 5, 2008 at 1:19 pm

I can’t believe this thread has gone on as long as it has with no one quoting the Simpsons on this precise point–with Homer failing, of course, to get Alex’s reasoning:

Loan Officer : We are gonna have to take your house if you don’t pay your mortgage.
Homer : I’ll take the numbers off my house.
Loan Officer : We’ll look for the house with no numbers.
Homer : I’ll take the numbers off my neighbor’s house.
Loan Officer : We’ll look for the house next to the one with no numbers.
Homer : D’oh!

25 Yancey Ward August 5, 2008 at 2:35 pm

meter,

But don’t you have to show that painting numbers on the curbs does add value? If all my neighbors let their lawns go to weed, but I did not, who is is the freerider?

26 Jimbino August 5, 2008 at 6:14 pm

When the curb painters come around,I always ask them to paint “666” (“mark of the beast”) on my curb, so as to tweak the Fundamentalist Christians, and they always refuse!

27 J Thomas August 5, 2008 at 9:41 pm

I was going to respond here, but then I saw that many of my neighbors had already done so.

So I didn’t bother.

28 Allen August 6, 2008 at 12:00 am

I get it. Economists think like assholes.

29 arthur August 6, 2008 at 4:16 am

Problem: Thinking like an economist promotes free riding and creates negative externalities.

Solution: Tax all economics books and courses.

30 indiana jim August 6, 2008 at 9:04 am

arthur wrote:

“Problem: Thinking like an economist promotes free riding and creates negative externalities.

Solution: Tax all economics books and courses.”

I understand we are all probably just hacking around here, but where is the negative externality here. The neighbors with the painted curbs have created a POSITIVE externality, but so what? What loss is imposed upon those with painted curb when Alex decides not to have HIS curb painted?

My wife plants flowers that passers-by, without charge, enjoy; so what? No loss is imposed upon me when passers-by enjoy landscaped and manicured gardens my wife creates. Would arthur really conclude that people passing by the front of our home are creating negative externalities by passing by? Does anyone seriously think the “solution” is therefore to tax all passer’s by because my wife has a green thumb?

31 chug August 7, 2008 at 7:17 am

I’ve one small problem with your solution: What happens if the fire department are idiots?

My guess is then you live in a place with no curbs to paint.

Does anyone seriously think the “solution” is therefore to tax all passer’s by because my wife has a green thumb?

Tax all forms of wealth, including green thumbism! Especially green thumbism!

Just kidding….

(60-plus comments on this post and still going strong.)

32 Intrigued August 8, 2008 at 1:08 pm

I dont Alex’s behaviour is an example of free riding at all. At the risk of being a bit verbose, heres an analogy:
Suppose you want to identify yourself in a crowd by the color of your shirt and suppose that shirts are of only two colors bright organge and gray. Before you go into the store you decide on bright orange – because you think its easily identifiable. Once you go into the store you see every one else getting bright orange. The rational thing for you to do is to change your decision and buy blue. If you already had a blue shirt the rational thing for you to do is to not buy any thing. In other words, the rational thing is for you to not get the orange shirt. Spending money on an orange shirt is not just unnecessary it hurts your objective of distinguishing yourself.

In this case, Alex already had the blue shirt – the small lettering, so had no use for the orange shirt – the big lettering. And the reasoning behind has nothing to do with spending money or not, so I think Alexs reasoning is not based on free loading.

33 Walt French August 11, 2008 at 6:28 pm

Well, this post and comments probably won’t make even the weak Wikipedia list of “unsolved problems in economics.” And maybe what I’m pondering won’t, either.

But the weekend’s events makes me wonder. Does economic theory–no, “evidence” — offer a cost estimate of allowing the IOC to grant a monopoly to NBC to broadcast the games? Most economists say that monopolies raise prices (ads per hours, CPM for the advertisers) and limit sales (amount of competition actually watched), and I can’t quite figure out any “natural monopoly” argument here, either.

For that matter, Uncle Sam directly auctions off radio spectrum to cell phone services, who are obviously an oligopoly. By trying to generate the highest auction revenue, our Esteemed Leaders raise the customer price and reduce the quality of service, both thru helping the oligopoly carve up territories and allowing lock-in arrangements that have only recently, and barely, at that, been ameliorated.

Of course, there was once, and may still be, some natural monopoly that links street wiring to homes. But theoretically, the “content,” back-office switching or AC power has been unlocked from that supposedly fully-depreciated capital base. That has not resulted in any obvious level of competition for the majority of the population, no?

Yo, “Economists!” Why are we living in a world that so thoroughly violates our textbook claims of efficiency and capitalist organization?

34 aion kina March 18, 2009 at 10:14 pm

Comments on this entry are closed.

Previous post:

Next post: