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How an Economist Thinks
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.
Posted by Alex Tabarrok on August 5, 2008 at 07:05 AM in Economics | Permalink
Comments
Not a Smithian economist!
Posted by: Daniel Klein at Aug 5, 2008 7:28:21 AM
Brilliant.
Posted by: J.Lo at Aug 5, 2008 7:36:37 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".
Posted by: a student of economics at Aug 5, 2008 7:38:41 AM
Student, think some more about it... your ability to influence the group's welfare is small but your ability to influence your own expenditure and welfare is large (relatively speaking), so even with *some* altruism, you might still decide not to do it.
It's also not clear to me that for everyone to get their number is the efficient way to go. (Or the SWF-maximizing way to go, if you'd like). I think that having only odd numbers painted (for example) Pareto-dominates all-painted.
Posted by: Angry at the Margin at Aug 5, 2008 7:51:57 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.
Posted by: Phd in Economics at Aug 5, 2008 7:52:36 AM
Sorry to come down a bit hard on you Alex, but the meme that caring about your neighbors or contributing equally to a community good is not "economic thinking" is one that some readers might mistakenly get from your post. Such an assumption seems to be pervasive among certain ideologies, and in my judgment, is incorrect.
Here's on example of the evidence that we humans are hard wired to care about other people's outcomes, not just our own. Our brains react not only to how much we get, but also whether the rewards were shared equitably. In other words, it may be abnormal (or at least atypical) for a person to only care about his own personal payoff without regard to how much other people are contributing or getting.
http://www.scienceblog.com/cms/brain-reacts-fairness-it-does-money-and-chocolate-16024.html
Caring about fairness is apparently a basic part of human nature, hence part of utility maximizing, hence part of "thinking like an economist".
Posted by: a student of economics at Aug 5, 2008 7:54:39 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
Posted by: chug at Aug 5, 2008 7:59:16 AM
Angry at the Margin,
I think you think like an economist.
I hope this is the kind of reasoning Alex had in mind, although I fear most casual readers will simply infer "clever free-riding = good economics" from his post.
Posted by: a student of economics at Aug 5, 2008 7:59:42 AM
A classic example of the Free Rider....
Posted by: Dave Richardson at Aug 5, 2008 8:00:25 AM
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.
So the number-painters should add that to their sales pitch: "If you don't paint numbers on your curb, you are being selfish and inconsiderate."
Ai yi yi. Yi yi.
Posted by: chug at Aug 5, 2008 8:04:19 AM
You actually needed to hire someone to paint a number? Jeesh!
Posted by: RUBBA at Aug 5, 2008 8:16:11 AM
Yes, this is about free riding. Economics gives an insight into it. But what is the moral problem that people seem to have with Alex's choice? Given that all your neighbours have already paid for it, you're not harming their present welfare in any way that I can see, and if fairness is so integral to human behaviour, surely a refusal to paint your house number won't lead to the collapse of co-operative social norms.
Posted by: Millian at Aug 5, 2008 8:25:06 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).
Posted by: Timothy at Aug 5, 2008 8:28:34 AM
Side comment: am I the only one that is loving the fact that there's a heated discussion bright and early in the a.m. regarding paint by numbers?
Someone pass the popcorn as I'm about to hit refresh.
Posted by: Anittah Patrick at Aug 5, 2008 8:36:37 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.
Posted by: Daran at Aug 5, 2008 8:36:41 AM
Seems to me that "thinking like an economist" would determine what level of social benefit would result from an expenditure of $20 (or whatever), considering all the externalities -- a perception of neighborliness, encouraging entrepreneurial activity by the painters (often, students on summer break?), etc.
This sounds more like "thinking like a miser," who is prone to underestimate the utility of purchases.
Not that "think globally; act locally" requires you to get your street number painted on the curb -- whatever the number's intended use, it's in the least reliable possible place, especially for emergencies. Might not do much more good than a magnet bracelet in terms of extending your, or anybody else's life.
Posted by: Walt French at Aug 5, 2008 8:37:32 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.
Posted by: Matt at Aug 5, 2008 8:41:57 AM
Side comment: am I the only one that is loving the fact that there's a heated discussion bright and early in the a.m. regarding paint by numbers?
Someone pass the popcorn as I'm about to hit refresh.
Why no emoticons?
This also seems much more like a prankster post by Tyler....
Posted by: chug at Aug 5, 2008 8:47:33 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!
Posted by: indiana jim at Aug 5, 2008 8:48:19 AM
Seems to me that "thinking like an economist" would determine what level of social benefit would result from an expenditure of $20 (or whatever), considering all the externalities -- a perception of neighborliness, encouraging entrepreneurial activity by the painters (often, students on summer break?), etc.
But the neighbors paid $20 for all that and the actual utility of easy identification of houses, which I'm assuming is worth more than all those externalities combined. (If the externalities were worth more, then the neighbors should have just spent their money on Girl Scout cookies from other neighbors.) Alex already got the most valuable thing for free. Why would he pay the same amount for the less valuable ones?
Posted by: Hei Lun Chan at Aug 5, 2008 9:39:42 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
Posted by: john turnbull at Aug 5, 2008 9:48:40 AM
Were they young people trying to earn college money?
There is a thin line between shrewd and cheap/selfish.
Posted by: save_the_rustbelt at Aug 5, 2008 9:51:02 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.
Posted by: meter at Aug 5, 2008 9:51:12 AM
Hey folks, it is no big deal! Nothing much going on here.
Posted by: macquechoux at Aug 5, 2008 10:01:52 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.
Posted by: Andrew at Aug 5, 2008 10:05:15 AM
