Why do so many prices end with 99 cents?

by  Tyler Cowen in

Firms arguably price at 99-ending prices because of left-digit bias—the tendency of consumers to perceive a $4.99 as much lower than a $5.00. Analysis of retail scanner data on 3500 products sold by 25 US chains provides robust support for this explanation. I structurally estimate the magnitude of left-digit bias and find that consumers respond to a 1-cent increase from a 99-ending price as if it were more than a 20-cent increase. Next, I solve a portable model of optimal pricing given left-digit biased demand. I use this model and other pricing procedures to estimate the level of left-digit bias retailers perceive when making their pricing decisions. While all retailers respond to left-digit bias by using 99-ending prices, their behavior is consistently at odds with the demand they face. Firms price as if the bias were much smaller than it is, and their pricing is more consistent with heuristics and rule-of-thumb than with optimization given the structure of demand. I calculate that retailers forgo 1 to 4 percent of potential gross profits due to this coarse response to left-digit bias.

That is from a forthcoming paper by Avner Strulov-Shlain.  Via the excellent Kevin Lewis.

Retrospective look at rapid Covid testing

by  Tyler Cowen in

To be clear, I still favor rapid Covid tests, and I believe we were intolerably slow to get these underway.  The benefits far exceed the costs, and did earlier on in the pandemic as well.

That said, with a number of pandemic retrospectives underway, here is part of mine.  I don’t think the strong case for those tests came close to panning out.

I had raised some initial doubts in my podcasts with Paul Romer and also with Glen Weyl, mostly about the risk of an inadequate demand to take such tests.  I believe that such doubts have been validated.

Ideally what you want asymptomatic people in high-risk positions taking the tests on a frequent basis, and, if they become Covid-positive, learning they are infectious before symptoms set in (remember when the FDA basically shut down Curative for giving tests to the asymptomatic?  Criminal).  And then isolating themselves.  We had some of that.  But far more often I witnessed:

1. People with symptoms taking the tests to confirm they had Covid.  Nothing wrong with that, but it leads to a minimal gain, since in so many cases it was pretty clear without the test.

2. Various institutions requiring tests for meet-ups and the like.  These tests would catch some but not all cases, and the event still would turn into a spreader event, albeit at a probably lower level than otherwise would have been the case.

3. Nervous Nellies taking the test in low-risk situations mainly to reassure themselves and others.  Again, no problems there but not the highest value use either.

So the prospects for mass rapid testing — done in the most efficacious manner — were I think overrated.

I recall the summer of 2022 in Ireland, which by the way is when I caught Covid (I was fine, though decided to spend an extra week in Ireland rather than risk infecting my plane mates).  Rapid tests were available everywhere, and at much lower prices than in the United States.  Better than not!  But what really seemed to make the difference was vaccines.  The availability of all those tests did not do so much to prevent Covid from spreading like a wildfire during that Irish summer.  Fortunately, deaths rose but did not skyrocket.

The well-known Society for Healthcare Epidemiology just recommended that hospitals stop testing asymptomatic patients for Covid.  You may or may not agree, but that is a sign of how much status testing has lost.

Some commentators argue there are more false negatives on the rapid tests with Omicron than with earlier strains.  I haven’t seen proof of this claim, but it is itself noteworthy that we still are not sure how good the tests are currently.  That too reflects a lower status for testing.

Again, on a cost-benefit basis I’m all for such testing!  But I’ve been lowering my estimate of its efficacy.

Wealth across the generations

by  Tyler Cowen in

“The main takeaways:

  • Millennials are roughly equal in wealth per capita to Baby Boomers and Gen X at the same age.
  • Gen X is currently much wealthier than Boomers were at the same age: about $100,000 per capita or 18% greater
  • Wealth has declined significantly in 2022, but the hasn’t affected Millennials very much since they have very little wealth in the stock market (real estate is by far their largest wealth category)”

That is from Jeremy Horpendahl (no double indent performed by me), via Rich Dewey.

Monday assorted links

by  Tyler Cowen

1. Predictions about China.

2. The smartest person that Garett Jones has ever met (short video).

3. “Because increasing the capital-intensity of R&D accelerates the investments that make scientists and engineers more productive, our work suggests that AI-augmented R&D has the potential to speed up technological change and economic growth.”  Link here.

4. Predictions from 1923 about 2023.

5. GPT takes the bar exam.  And how well do GPTs write scientific abstracts?

6 “The fact that we failed to notice 99.999% of life on Earth until a few years ago is unsettling and has implications for Mars.”  The article has other interesting points about the political economy of funding a Mars program.  Recommended, and it will make you a space skeptic.

7. Hydropower problems in Zambia.

Lead and violence: all the evidence

by  Tyler Cowen in

Kevin Drum offers a response to a recent meta-study on the link between lead and violence, blogged by me here.

I’ll take this moment to explain why the lead-violence connection never has sat that well with me.

Let’s say we are trying to explain why 2022 America is richer than the Stone Age.  We could cite “incentives, policy, and culture,” noting that any accumulated stock of wealth also came from these (and possibly other) factors.  You might disagree about which policies, or which cultural features of modernity, and so on, but the answer to the question pretty clearly lies in that direction.

Now let us say we are trying to explain why America today is richer than Albania today.  You would do just fine to start with “incentives, policy, and culture.”  You could add in some additional factors, such as superior natural resources, but you would be on the same track as with the Stone Age comparison.  You would not have to summon up an entirely new theory.

Why is Nashville richer than Chattanooga?  Again, start with “incentives, policy, and culture,” noting you might need again supplementary factors.

Broadly the same theory is applying to all of these different comparisons.  Across time, across space, across countries, and across cities.  There is something about this broad unity that is methodologically satisfying, and it helps confirm our view that we are on the right track in our inquiries.

Now consider the lead-crime connection.  Insofar as you elevate the connection as very strong, you are tossing out the chance of achieving that kind of unity.

Why was violent crime so often more frequent in earlier periods of human history?  It wasn’t lead, at least not for most periods, perhaps not for any of the much earlier periods.

Why was there more peace in Ethiopia five years ago than in the last few years?  Again, whatever the reasons it wasn’t a change in lead exposure.

Why is the murder rate in Haiti today much higher than during the Duvaliers?  Again, no one thinks the answer has much to do with changes in lead exposure.  Mainly it is because political order has collapsed, and the country is ruled by gangs rather than by an autocratic tyranny.

How about the violence rate in the very peaceful parts of Africa compared to the very violent parts?  Again, lead is rarely if ever going to be the answer to that one.

So we know in the true, overall model big changes in violence can happen without lead exposure being the driving force.  Very big changes.  In fact those big changes in violence rates, without lead being a major factor, happen all the time.

And many of those big changes are mysterious in their causes.  It really isn’t so simple to explain why different parts of Africa have different murder rates, often by very significant amounts.  You can hack away at the problem (e.g, Kenya and Tanzania have very different histories), but there is no simple “go to” theory.  Furthermore, since both violence and peace often feed upon themselves, in a “broken windows” increasing returns sort of way, the initial causes behind big differences in violence outcomes might sometimes be fairly slight and hard to find.

That to my mind makes “the true model” somewhat biased against lead being a major factor in changes in violence rates.  In the broader scheme of things, lead exposure seems to be a supplementary factor rather than a major factor.  It doesn’t rule out lead as a major factor, either logically or statistically, if you wish to explain why U.S. violence fell from the 1960s to today.  But the true model has a lot of non-lead, major shifts in violence, often unexplained or hard to explain.

Addendum: I am also surprised by Kevin’s comment that there isn’t likely to be much publication bias in lead-violence studies.  I take publication bias to be a default assumption, namely the desire to show a positive result to get published.  That hardly seems unlikely to me at all.  And in this particular case there is even a particular political reason to wish to pin a lot of the blame on lead exposure.  Correctly or not, people on the Left are much more likely to elevate lead exposure as a cause of social problems.

And to repeat myself, just to be perfectly clear, it strikes me as unlikely that the effect of lead exposure on violence in zero is the last seventy years of the United States.

A new paper on the Industrial Revolution

by  Tyler Cowen in

I have not yet read it, but surely it seems of importance:

Although there are many competing explanations for the Industrial Revolution, there has been no effort to evaluate them econometrically. This paper analyzes how the very different patterns of growth across the counties of England between the 1760s and 1830s can be explained by a wide range of potential variables. We find that industrialization occurred in areas that began with low wages but high mechanical skills, whereas other variables, such as literacy, banks, and proximity to coal, have little explanatory power. Against the view that living standards were stagnant during the Industrial Revolution, we find that real wages rose sharply in the industrializing north and declined in the previously prosperous south.

That is by Morgan Kelly, Joel Mokyr, and Cormac Ó Gráda, forthcoming in the JPE.  Here are earlier versions of the paper.

What I’ve been reading

by  Tyler Cowen

1. Greg Berman and Aubrey Fox, Gradual: The Case for Incremental Change in a Radical Era.  A good book for sane centrists, and they claim to have been partly inspired by our subheading “Small Steps Toward a Much Better World.”  Did you know that putting in the “much” was Alex’s idea?  At first I resisted but clearly he was correct.

2. Jerry Saltz, Art is Life: Icons and Iconoclasts, Visionaries and Vigilantes, and Flashes of Hope in the Night.  Art reviews from the New York magazine guy.  Fun to read, mostly sane, and helps the reader understand the ascent of Wokeism in the art world.  It is not that so many art buyers or curators are racist.  Rather, art is super-hierarchical in the first place (try telling the market that a great textile should go for as much as a famous painting), and that, in unintended cross-cutting fashion, that tends to produce apparent biases across both gender and race.  Black and women artists really have been undervalued, and many still are, though this is changing (yes Kara Walker sketches are overpriced right now).  A lot of people are just blind on this one, sorry people but I mean you.  As a side note, Saltz enjoys Rauschenberg more than I do, though I would not dispute the historical importance of his work.

3. Geoff Emerick, Here, There, and Everywhere: My Life Spent Recording the Music of the Beatles.  If you want a book sympathizing with Paul McCartney as the guy who made the Beatles tick, and portraying George Harrison as a suspicious, less than grateful whiner, this is for you.  And so it is.  By the way, contrary to some very recent accounts, Emerick affirms that “Yellow Submarine” is basically a McCartney composition.  He even notes that Lennon cut some demos of it, which has led some recent commentators to conclude it was Lennon’s composition.  The demos are quite raw, so maybe the song is joint?

4. Deborah E. Harkness, The Jewel House: Elizabethan London and the Scientific Revolution.  A big and neglected piece of the puzzle for the breakthrough of the West, focusing on Elizabethan times, skill in symbolic manipulation, and the origins of the scientific revolution.  Recommended.

Philip Kitcher, On John Stuart Mill, is a nice short introduction.

And John T. Cunningham, This is New Jersey, from High Point to Cape May, dates from 1953 and thus is intrinsically interesting.  Hudson County really is remarkably densely populated, and back then it was a big deal that baseball was invented in Hoboken.

I appear on the Jolly Swagman podcast

by  Tyler Cowen

From the Jolly Swagman himself:

“Hey Tyler – we’ve just published our podcast on Talent – thanks again for a fun chat.

Link here in case you want to share it on Marginal Revolution:

https://josephnoelwalker.com/142-talent-is-that-which-is-scarce-tyler-cowen/

Topics / questions we discussed include:

  • whether you would have backed a 20-something year old John Keats
  • why putting ellipses in emails signals high status
  • your most irrational belief
  • what biographers can teach us about talent identification
  • what made the Henry George seminar you ran with Peter Thiel so good
  • how Sarah Ruden furnishes herself with massive context to gain an edge over other translators
  • What should Obi-Wan have told Anakin Skywalker before he became Darth Vader
  • the Sumerian bar joke
  • whether countries can be both highly capable of solving collective action problems and extremely innovative
  • your view of Australian talent and what makes it unique

Thanks and happy new year!”

Happy New Year everyone!

Saturday assorted links

by  Tyler Cowen

1. “Looking for work, they stumbled upon an audition call at Dive Bar, and emerged into the world of professional mermaidhood.”  Those new (old?) service sector jobs…

2. Timeline of the Sober Curious movement.

3. Various short essays on Adam Smith.

4. Andrew Batson best music of 2022.

5. The Economist on The Repugnant Conclusion.

6. Okie-Dokie.

7. “For much of her career, Mary Waisanen, a 43-year-old structural engineering technician in Virginia Beach, Va., would say yes when asked to work overtime to meet deadlines. The extra hours brought her a pay bump. But after watching TikToks about how to reach a healthy work-life balance, she says, she realized that she shouldn’t need to work extra hours to make ends meet.”  WSJ link.

8. Agentic simulation for GPT?