The test

by on January 1, 2017 at 12:43 am in Economics, Education, Travel | Permalink

I arrived at the Lagos airport and knew I needed to change some money.  And there is in fact a famed “airport market” for exchange.  At the baggage claim, an earnest young man came up to me and asked how much I wanted to change.  “$200,” I said.  He said “Give me the money, I will be back in five minutes with your Naira.”

I paused, and gave him the money.

He came back.

Happy New Year!

Addendum: Samir Varma sends along this interesting piece on global stereotypes.

1 Nick_L January 1, 2017 at 12:55 am

Interesting to see that level of integrity – it’s not like you are repeat business. So, what’s going on? Effective monitoring by the authorities? Licencing? Peer pressure? Also, did you get his email address? After all, it’s an opportunity not to be missed, surely – “I, TC, a noted economist, need to transfer.XXX.”

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2 The Lunatic January 1, 2017 at 1:25 am

Individually he might not be repeat business, but sustaining a “famous ‘airport market’ for exchange” requires that people not be regularly scammed; reputations get around.

If I were to theorize at the enforcement mechanism, there’s going to be security personnel of some sort to prevent theft of baggage in a baggage-claim area in the first place. That security seems to be in a position to get a cut from the people they allow through to do the exchange deals. And they accordingly have an incentive to keep the exchange business free of blatant theft in order to protect that income stream.

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3 So Much For Subtlety January 1, 2017 at 7:50 am

I am impressed with the way people are able to rationalize this. Let me suggest an alternative view of Third World airports. The guards have to buy their jobs. They pay for it by charging other people such as money changers. Those money changers have to get the money somehow. That is not going to work out well for the customers.

Let me point out two Third World experiences from personal experience or the experience of someone close to me. One is the common African one of arresting you as you enter the country because of a visa irregularity. One hitherto invisible to the naked eye and a very hard one to define, explain or otherwise pin down. Held in a cell and threatened until you cough up a fine.

The second one is from South Asia which is the simple one of hiding all the pens. Anyone coming into the country then has to buy a pen. Which costs $20. Each.

You see, people coming from overseas aren’t repeat custom. They are sheep to be fleeced if not flayed. There is no peer enforcement. There is no interest in good will. No one will ever meet anyone else ever again.

Tyler was lucky. That is all.

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4 prior_test2 January 1, 2017 at 10:01 am

‘The second one is from South Asia which is the simple one of hiding all the pens.’

Interesting – considering that one of the better tips when travelling (at least for more than a couple of days), is to pick up a couple of bags of pens, and hand them out, particularly to kids. Better than cash – and at least in this case, gets around something you have either heard about or experienced.

Of course, who travels through borders without at least a pen and pencil on them, along with their passport?

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5 So Much For Subtlety January 1, 2017 at 7:44 pm

So p-a still travels the Third World handing out wampum to the little children. How quaint.

Anyone offered to sell you Manhattan island yet?

6 Robert January 1, 2017 at 11:31 am

My theory: They recognized him! He is, after all, a Famous Economist. Why wouldn’t a man who does foreign currency trading for a living know who he is?

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7 Mark Thorson January 1, 2017 at 1:46 pm

Nigerians seem to be remarkably computer literate. If they were doing searches on “Nigeria” and “Lagos” they may have known Tyler was coming. One good blog posting is better advertising than you can buy, and there have been several. It would make sense for the Ministry of Tourism (or whatever they call it) to keep on the lookout for influencers visiting their country and get the word out to make sure things go smoothly for these people.

8 carlospln January 1, 2017 at 5:54 pm

‘Why wouldn’t a man who does foreign currency trading…….

..for a living’ [SNIP]

Heh heh heh

9 The Lunatic January 1, 2017 at 6:15 pm

You can invent any conclusion you like if you throw out inconvenient data. You are mulishly refusing to deal with the fact that there is, at this specific airport, a “famed ‘airport market’ for exchange”. If your theory is correct, how does Lagos sustain such a reputation?

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10 So Much For Subtlety January 1, 2017 at 7:55 pm

An endless supply of idiotic White liberals?

Famed in what sense? West Africa has a famed used car market. I doubt that many people here have heard of it. Who here had ever heard of Lagos Airport’s money changing desk before? Even if it were so, the fact that the New York Stock Exchange is famous does not mean it is a good idea to buy the Empire State Building from some guy you met while waiting for a taxi at La Guardia.

Again, in parts of the Third World, stupidity gets you hurt if not killed. It is not sensible to encourage people to do stupid things.

11 leppa January 1, 2017 at 1:12 am

You are a brave man.
What rate did you get ? 480 compared to the official 315 Naira to the Dollar?

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12 me January 1, 2017 at 11:02 am

I too am quite curious what rate he got.

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13 Tom T. January 1, 2017 at 11:06 am

Tyler said the man came back. He (quite pointedly, it seems to me) did not say that the man came back with his naira.

For all we know, the man came back with a story about needing more cash to pay a processing fee at the money-changer.

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14 Daniel Weber January 2, 2017 at 12:55 pm

Even if he lost his money, it was worth it for the data point.

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15 stephan January 1, 2017 at 1:27 am

Happy New Year and thank you very much for the most excellent blogging. Keep it up !

Even though TC is not repeat business, the changer may be there all day every day. If the word gets out, that street changers at the airport are thieves, he has no more business. If the word gets out, they offer a good service, he may have a lot of continuing business. The changers themselves may well have an incentive to police the occasional rogue operator to maintain their reputation.

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16 Mark Thorson January 1, 2017 at 1:45 am

If the locals were alerted Tyler was coming, it would have been well worth it to give him an even break just for this one blog posting.

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17 massimo January 1, 2017 at 1:46 am

Absolutely right. Reputation in the market and self-policing by the peers. Perfect example of spontaneous production of security by the market without state intervention. A beauty.

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18 Cliff January 1, 2017 at 1:39 am

Terrible closing line: “More important Punchline No. 2: Don’t believe it when people say that stereotypes reflect a kernel of truth.”

It’s almost like he didn’t bother to review any other research!

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19 Martinsactually January 1, 2017 at 1:59 am

Every body knows “Äboki”s {friend in Hausa} are reliable. The forex guys operate on a trust economy that is very strong. It will take a much bigger temptation to make anyone of them jeopardize the trust that has been earned over decades..

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20 stephan January 1, 2017 at 3:24 am

Totally off topic. Just fooling around with Mathematica. What can we say about 2017 ?( the number)

2017 is a prime number, the 306th prime to be exact. The next one will be 2027. It is also the sum of two squares (44^2 + 9^2) and of course the difference of two consecutive squares 1009^2 – 1008^2 (by simple arithmetic). It’s not the sum or the difference of two cubes.

It’s also has the semi weird property: φ(2017) = φ(2016)+ φ(2015) where φ is Euler’s totient function ( number of positive integers ≤ n that are relatively prime to n ) since φ(2017) = 2016, φ(2016) = 576 and φ(2016) = 1440. It looks like the smallest number with this property ( φ(n) = φ(n-1) + φ(n-2.) OK, not all that fascinating. that’s all I found, I am sure there is more

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21 Enrique January 1, 2017 at 3:40 am

Sweet!

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22 sbh January 1, 2017 at 9:47 am
23 So Much For Subtlety January 1, 2017 at 3:54 am

How is that a test passed? It is insane. It is insane anywhere in the world but it is especially insane in Nigeria.

You were lucky. Not morally superior. Look, if it is idiotic to do that in America, it is idiotic to do that in Lagos. And yes, if someone comes up and asks for $200 from you at La Guardia, you are going to lose your money more often than not.

Doing something stupid because you are afraid other people will think you are racist is worse than stupid.

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24 Flyover Man January 1, 2017 at 5:42 am

And yes, if someone comes up and asks for $200 from you at La Guardia, you are going to lose your money more often than not.

Well, duh. New York is infamous for scam artists fleecing newcomers. It’s idiotic to do it at La Guardia because the inhabitants of New York are well-known to be morally inferior to real human beings.

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25 So Much For Subtlety January 1, 2017 at 7:26 am

And Nigeria is well known for what?

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26 prior_test2 January 1, 2017 at 10:02 am

Oil exports.

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27 Jan January 1, 2017 at 6:08 am

I image Tyler did some advance research and found that the process he followed typically works in Lagos. No, that does that mean you give $200 to anyone who says they can change it for you anywhere in the world.

Also, are you having a stroke?

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28 So Much For Subtlety January 1, 2017 at 7:39 am

Yeah Jan, you imagine a lot of things. Tyler does not mention any advanced research – and it would kind of defeat the point of his “test”. If he knew he could trust someone it wouldn’t be a test.

You are rationalizing. Badly.

Nowhere in the world is it a sensible idea to give someone $200 and let him walk out of your sight. It is several orders of magnitude less sensible to do it in the Third World much less in Nigeria.

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29 Bill January 1, 2017 at 9:27 am

Why don’t you do a natural experiment in a third world country with your own money and report back.

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30 Bill January 1, 2017 at 9:28 am

Sorry, responded to wrong comment.

31 Sam Haysom January 1, 2017 at 8:59 am

Yea screw Subtlety for having the decency to point out just how bad an idea this is for anyone not addicting to moral preening about the third world.

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32 ladderff January 1, 2017 at 12:33 pm

Sad what rank fanaticism can do to someone.

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33 Alain January 1, 2017 at 1:40 pm

+1

The moral preening really is disgusting. I bet you that this will, somehow, make it into a Bloomberg article and we’ll be hearing about it from the liberal bloogesphere forever.

Sigh. Well played Tyler on expanding your readership.

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34 londenio January 1, 2017 at 4:22 am

“if it is idiotic to do that in America, it is idiotic to do that in Lagos. ”

Wrong!

You clearly do not understand how informal markets work. Or perhaps, how trust works in economies where informal markets are common. You are more likely to be mugged in the street in Buenos Aires than in Frankfurt. However, the existence of informal, grey and black markets mean that you are better off trusting the stranger in Buenos Aires than in Frankfurt.

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35 So Much For Subtlety January 1, 2017 at 7:30 am

This is so contrary to actual reality and experience I find it hard to respond. No, this is not how informal markets work. People do not give other people their cash so that they can wander off with it in informal markets. People have guns and don’t let the money out of their sight.

The existence of black markets in Argentina means you are probably fine if you are a local and can credibly threaten retaliation if cheated. But it also means that any foreigner will be cheated blind.

Again, doing something insanely stupid because you don’t want people to think you are racist is idiotic.

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36 prior_test2 January 1, 2017 at 10:09 am

‘because you don’t want people to think you are racist is idiotic’

Wait, you honestly think that Prof. Cowen used a money changer because he cared about someone considering him a racist? Seriously, do you know any Africans at all?

Really?

I wonder how you would rationalize him using a money changer in South America or Asia. Especially considering the major advantage of money changers is stretching your dollars (not that Prof. Cowen likely cares all that much about 200 dollars at this point).

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37 prior_test2 January 1, 2017 at 10:11 am

And just to add to this point – one can reasonably assume that just about anyone who handled Prof. Cowen’s currency exchange would be Nigerian. Meaning that using your framework, however Prof. Cowen exchanged cash in Nigeria would be an act of him not wanting to be considered a racist.

Amazing world you inhabit.

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38 So Much For Subtlety January 1, 2017 at 7:42 pm

I am actually impressed. It is more important for p-a to pose as an anti-racist than it is to pursue his bete noir of the people who fired him all those years ago at GMU.

Yeah, I think Tyler is posting this because he expects us to all be impressed he did something stupid because he did not want to appear racist and it all worked out for him. As is obvious to anyone who actually read what I said, the anti-racism is not in changing money. It is in allowing some random stranger to take 200 of your dollars and disappear with them.

Africa is a tough place. When First World people do dumb things there, they often come to a bad end. Even die. It is wrong to give people advice that will encourage them to do dumb things.

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39 Axa January 1, 2017 at 4:28 am

Assume it was a bet. What is the probability of getting a good exchange rate and the money back? It may several orders of magnitude higher than getting your money back in a casino. Thus, relatively low investment, great pleasure.

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40 Sam Haysom January 1, 2017 at 9:03 am

This is an insightful take. For someone like Cowen, relatively affluent and addicted to status enhancing virtue signalling, this is a no brainer. Even if they don’t come back with the money he gets to write about how he trusted two hundred bucks (why not 1000 if he really believed in their honesty) and stood up to stereotypes.

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41 Sal January 1, 2017 at 10:07 am

No – if the guy doesn’t come back, Tyler never publishes the story.

It’s a lot like how “climate research” works.

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42 prior_test2 January 1, 2017 at 10:15 am

Nah – climate research works likes this. ‘Half a decade before he took this trip to the farthest reaches of the north, Andreas Muenchow had his doubts about whether warming temperatures were causing one of the world’s great platforms of ice to melt and fall apart.

He even stood before Congress in 2010 and balked on whether climate change might have caused a mammoth chunk of ice, four times the size of Manhattan, to break off from this floating, 300-square-mile shelf. The University of Delaware oceanographer said he wasn’t sure. He needed more evidence.

But then the Petermann Ice Shelf lost another two Manhattans of ice in 2012, and Muenchow decided to see for himself, launching a project to study the ice shelf intensively.

He was back again in late August, no longer a skeptic. It was hard not to be a believer here at 81 degrees north latitude, where Greenland and Canada very nearly touch. The surface of the bumpy and misshapen ice was covered with pools and puddles, in some cases frozen over but with piercing blue water beneath. Streams carved through the vast shelf, swelling into larger ponds or even small lakes.’ http://www.washingtonpost.com/sf/business/2016/12/30/with-enough-evidence-even-skepticism-will-thaw/

Admittedly, who cares about empirical data in a post truth world.

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43 TMC January 1, 2017 at 6:34 pm

No, if Tyler were a climate scientist, they guy in Nigeria would stiff him, and Tyler would still write this exact same post.

44 Sam Haysom January 1, 2017 at 2:22 pm

You are vastly underestimating Cowen’s affinity for virtue signaling.

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45 RustySynapses January 1, 2017 at 12:17 pm

I agree. To some extent, you choose the world you live in (or at least how you see it). If you take some risks, you may be pleasantly surprised sometimes (and have more fun). (That seems consistent with someone who tries a lot of local restaurants.)

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46 Nathan January 1, 2017 at 5:33 am

why is it the tourist who advances the money and not the person on the other side of the exchange? Presumably the broker does repeat business with that person (and it’s probably a small community) which would make the reputational cost of cheating much higher. I imagine a lot of tourists would not be so trusting, and so they are leaving dollars on the table.

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47 Ross Parker January 1, 2017 at 5:15 pm

Spot on

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48 jim jones January 1, 2017 at 5:56 am

They do the same thing in London when tourists try to buy marijuana except you never see the scammer again.

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49 Jan January 1, 2017 at 6:09 am

So not the same thing?

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50 Steve January 1, 2017 at 6:17 am

I expect peer pressure to maintain the integrity of the market. I expect non-peers are not welcome to offer services. So, everyone knows everyone. Discipline if there is cheating. And, if you were cheated the peers would make you whole.

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51 Michael January 1, 2017 at 7:25 am

I had a similar experience in pre-1990 Romania. We were trading coffee for Romanian Lei in a long-distant train compartment when e train suddenly entered a tunnel. This being the Balkans, no lights went on — we were sitting in pitch dark. That’s it, I thought, this guy new exactly what’s going to happen. I hope he just grabs the money and merchandise lying in a heap on the bed, and doesn’t do anything nasty to us. The next moment, a lighter went on, and this black-market trader kept the light on during the whole tunnel time…

Also, it was customary to top up our travel budget by bringing low-weight, high value items like spices or medicine. You could sell them in any village, where a crowd would immediately form. You passes around the items, and eventually, they or their purchase price would come back to you

This stuff seems to happen in pre-market societies (don’t know if s still applies to Nigeria). I’m a rabid free market guy, but I have to confess that mores went down considerably when a little market was introduced. We were scammed and mugged in places like Hungary, which was more than a bit more liberal, (in Bulgaria, too), but never in Romania at that time

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52 Thiago Ribeiro January 1, 2017 at 7:33 am

In Brazil, it is common to be returned missed wallets, bags, etc. Sometimes, the poorest people return bags full of thousands of so-called American dollars.

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53 Sam Haysom January 1, 2017 at 9:06 am

Probaly because when all you know is bartering chickens for tin to fix the holes in your roof American dollars just like worthless paper. Does anyone ever return a sack with a chicken in it?

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54 Thiago Ribeiro January 1, 2017 at 10:31 am

It is not true. Brazil’s banking system is among the most sophisticated of the world since the reforms in the 90’s .
I doubt tourists bring sacks with chickens in Brazil or forget them at taxis or airposts. But many street sweepers have already returned expensive watches, jewrly, bags full of money, foreign and Brazilian. Brazilians are the most faithful emolous of the Spartans of yore.

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55 Sam Haysom January 1, 2017 at 8:54 am

Straussian take and therefore the most likely. The guy ran off with Cowen’s money but that makes Cowen look even dumber, Lagos look bad, and Cowen kind of racist for even mentioning it so instead we get this story.

As a political moderate it is pretty interesting to observe the leap frogging loyalties at play here from the hard leftists like Jan. Jan screeches mistrust at anyone American to the left of Pete Stupak but is hyperinvested in the idea that you can trust random strangers in Lagos. Angrily, emotionally invested.

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56 Sam Haysom January 1, 2017 at 8:56 am

*to the right of

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57 prior_test2 January 1, 2017 at 10:18 am

‘hard leftists like Jan’

Have you ever met a real hard leftist in your life? Because until Jan is talking about arresting bankers and actually nationalizing bankrupt financial insitutions, she is to the right of how Angela Merkel acted in the Finanzkrise.

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58 Cliff January 1, 2017 at 9:32 pm

Sorry, you think that Jan opposed Merkel’s actions?

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59 Thomas Taylor January 1, 2017 at 10:33 am

I see. Something that doesn’t confirm your racism happens, so the opposite must have happened. Are you a pro-Trump site-owner from Macedocia?

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60 Sam Haysom January 1, 2017 at 2:19 pm

No I’m a super well travelled, multi-lingual guy that’s heard a ton of stories about just how stupid it is to trust people in low trust third world countries. Are you a guy that’s never left his home town?

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61 Thomas Taylor January 1, 2017 at 3:12 pm

It is funny how your “stories” could be heard from any guy who has never left the 60’s Alabama.

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62 Ricardo January 1, 2017 at 12:03 pm

To summarize, Tyler writes a quick post about being pleasantly surprised by the honesty of informal money-changers who operate in Lagos airport and you accuse him of lying and engaging in moral preening and status signaling. Happy New Year to you, too, Sam. May you find more worthwhile hobbies in 2017 than trolling the comments section here.

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63 Sam Haysom January 1, 2017 at 2:17 pm

Right because I’m the guy who routinely applies tortured explanations under the guise of Straussian takes. Cowen never ever ever does that. If anything you are trolling the site by rejecting the Straussian lens that Cowen so adores.

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64 Heorogar January 1, 2017 at 9:20 am

Who loves you more, your significant other/wife or your dog?

Quick test: lock your dog and your significant other/wife in the car’s trunk. After an hour, open it and see which one is happy to see you.

Happy New Year all!

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65 Bill January 1, 2017 at 9:25 am

I would have said,

“I’ll pay you $5 if you take me to the money exchange bureau”,

This is, after all, Nigeria.

And, there is a difference in paying for information to enable you to exchange money and giving up the money for someone who promises to exchange it for you.

What was the exchange rate?

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66 prior_test2 January 1, 2017 at 10:22 am

This is always such a fascinating comment section with its obsessions about race. Reminds me of a story of a black British actress being asked what it was like being an African American star. She replied she wasn’t African American, though the reporters kept insisting she was.

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67 Ray Lopez January 1, 2017 at 11:36 am

All of you guys missed the key sentence: “At the baggage claim, an earnest young man came up to me and asked how much I wanted to change.”

Do you realize that at the baggage claim the young man is known to the airport? If he’s a thief, somebody at the baggage claim is going to lose their job for letting him scam customers. It’s simple: TC trusted an airport employee surrogate (a hanger on, but still affiliated with the airport).

Little risk at all. If however it was just a man on the street, not affiliated with any store, then you’d be foolish. I myself have trusted, many times all over the world, somebody from a store who told me to hang on for a few minutes while they got change for my large denomination bill. BTW as any frequent traveler knows, getting change and breaking big bills is quite a problem in the developing world.

Happy New Years.

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68 Sam Haysom January 1, 2017 at 2:21 pm

Not only is Ray the type of guy who would try and kiss a hooker- he’d believe him/her if they said they didn’t have VD.

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69 whatever January 1, 2017 at 2:33 pm

+1

In fact, I think Tyler was a bit misleading and provocative. I guess he wanted to teach a lesson (Straussian, yadda-yadda).

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70 Matthew Ernest January 1, 2017 at 3:46 pm

“the young man is known to the airport”

Commercial airports in particular are full of people not known to the establishment.

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71 Careless January 1, 2017 at 7:31 pm

In the baggage claim in an international terminal? IOW, before clearing customs?

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72 The Lunatic January 1, 2017 at 6:21 pm

Um, yeah, we didn’t “all” miss it; a post made ten hours before yours points it out.

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73 Harun January 1, 2017 at 2:41 pm

The exchanger may have a lot of repeat customers. Not everyone is a one off visitor.

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74 Careless January 1, 2017 at 7:32 pm

Not really sure how, if he’s one of many. Are you really going to look and wait for him instead of just going to the actual money changing booth?

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75 Floccina January 1, 2017 at 9:28 pm

Or perhaps marginalrevolution.com has been hacked by Nigerians looking to make some money at the airport.

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76 Ted F January 1, 2017 at 9:40 pm
77 prior_test2 January 2, 2017 at 2:27 am

Did you even read the first sentence of your link? ‘This is a great warning toeveryone both foreign tourists and business visitors to Lagos, please under no circumstance should you change money from those who hang around the front of Lagos Airport Hotel, Ikeja.’

Prof. Cowen was in the baggage area of the airport, and not in front of a hotel.

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78 mkt42 January 2, 2017 at 2:38 am

The economic value of trust: unknown, but very high. Consider how many hundreds of billions of dollars Americans spend on even just private security (locks, fancy credit card chips, alarm systems, malware protection, password systems, background checks, security personnel and police, etc. etc.).
http://www.samefacts.com/2016/12/woolgathering/the-economic-value-of-trust/

It could be worse though. If post-contractual opportunism became rampant, markets would barely be able to function. And forget about the money-changing example, there are examples closer to home: if I lost a wallet containing $200 there’s a chance (not a big chance, but still a non-trivial one) that someone would find it and return it to me. I suspect that most of us have had experiences along those lines — and have probably also been the finders and returners of lost items.

Most of us of course have also experienced the opposite — not only failing to recover lost items, but having them stolen from us. But it’s not an 100% untrustworthy world out there.

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79 Nigerianhere January 9, 2017 at 5:50 am

It happens. If Tyler did this 10 times, he would get his money back every time. The system in Nigeria is that good. I often pay in market places before I get my goods and not once have I thought twice about it… . Neither have I been “scammed”.

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