Why thinking like an economist doesn't always work

Junk food was banned in CA.
All it creates is more distractions from us doing core job.

Max calories per serving? The local pizzerias have a "school-cut", twice an many slices = "less" calories per slice.

Plus, the black market for candy, we caught a kid with a football gear bag, but not on the football team...
He has cases of candy and $250 cash. He was getting $3-5 per bar. (Bought at Costco or Food-for-less, think about the profit mark-up + no legal problems like dealing pot.)

All of the school's near fast-food restaurants have truancy problems near lunch time.

Parenting is more effective than a nanny state.

What I like about the approach in the studies is that it doesn't ban certain foods, or compell the purchase of others.  If I fill up on apples and salad, I will eat fewer candy bars.  I simply am already full from the other foods.

I don't see it as a "nanny state" issue.  Especially when we are talking about minors at a school setting.  Being monitored and guided in their choices is essentially the whole POINT of school.  Unless you propose that parents come to the school, and sit with their kids during lunch, making them eat what the PARENTS want them to eat. (And then we could devolve into a discussion of the limitations of autonomy placed on kids)

I find this extremely interesting becaasue we commisioned a study with another group early this year about why 96% of Americans think that organ donation is a good thing and only 36% actually sign up to be donors. 
In our state, the default way to become an organ donor is to answer the question when renewing your driver's license.  This is how it currently works:
All of the other red tape stuff is taken care of and the DOT personal ask you four final questions -
1) Have you ever had your license revoked or suspended - No
2) Have you ever been diagnosed with a mental disorder that would keep you from safely operating a motor vehicle - No
3) Do you have a Medical Alert  - No (for about 88% of the citizens)
4) Do you want to be an Organ Donor - NO
The series of questions asked are all, until the last one, questions that most people will answer no to because it does not apply to them or answering yes is going to make this a much more difficult problem.  It is no wonder why most people answer no.
Duck season, Rabbit Season, Duck Season, Rabbit Season........
We changed the way the process was done.  While the driver awaited being called up to the desk to be processed they were given a brochure with a piece of paper inside.  The brochure explained organ donation.  The paper was the place to write your name and sign your name and then hand it to the DOT agent when your name was called to get your license. 
This study was done for 4 weeks at one station (Cedar Rapids).  84% of the people filled out the paper to become a donor. 
It was all in the presentation, much like the fruit/salad example by the OP.
First rule of sales is:  You have to know who you are selling to. 
McDonald's certainly does. 

BTW - Our state governement wants to debate whether or not this change will represent the state ina positive light.  Politicians. 

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OK, I'm not at all sure the point you're trying to make as it applies to the discussions we have in CoJ... marketing works?

Sorry, referring to the CA method.

Actually this is economics.  One of the fundamentals of economics is the study of incentives.  While price is one of the incentives (in this case was not the major one) presentation is another.  They presented one option in a favorable light and incentivized the students to choose that option.

Really, go read Freakeconomics & Superfreakeconomics.  A wonderful book.

^^^this

If you do not know a good exists or only know periperally (poor presentation or "hidden away") how can you be expected to make a rational decision about the purchase of said good.  All they did in this study is put the two goods on equal footing to allow consumers to make rational decisions.

I have read them.  Both of  the them. They discuss more unexpected consequences, and the differences between perception and reality (as in the chapter on why do drug dealers live with their mothers).

 I don't believe that presentation is economics, unless economics is choosing to define itself as all fields.  Presentation is a combination of psychology and marketing (which arguable encompasses a practical application of psychology).

ETA a response to trinnas - it's not as though the fruits and salads were "hidden" in any fashion.  They just weren't presented in an appealing way.  Rather than re-reading Freakonomics, try reading the book on Mindless Eating to learn about the science of why we eat the way we do. My personal preference in these types of readings is to see where people aren't just collecting information and organizing it to fit a theory of how things work, but designing actual experiments to study the effects of manipulating environment, and seeing if predicted outcomes occur.  It is in fact the basis of the scientific method.  (There is a whole other discussion I could cleave off to in the area of memory that illustrates the point of theory versus experimentation and which has more practical utility).

Edited by gearboy 2010-06-09 8:22 AM

Then, with all due respect, I do not think you really understood the books.  This is not at all what they focus on.

From the first chapter: "Economics, at it's root, is the study of incentives."  They show that almost all these correlations can be proven by economic theory.


Edited by TriRSquared 2010-06-09 8:26 AM

Yes but you are trying to use a perfect competition model on monopolistic competion type decisions.

So are you saying that the issue is monopolies or your previous point that it was incentives and presentation?

As eabeam pointed out, kids may well find a way to introduce a competitor to the "monopoly" of the school (like buying a giant bag of candy and selling it at inflated prices), or to escape the monopoly (via truancy at lunch).  The article looked at ways to increase sales (and presumably consumption) of fruits and vegetables by kids in the school.  For the most part, I would believe that if they did not buy the apples and salads, they were probably buying something else, presumably less healthy types of snacks.  It's not like they followed the model of Henry Ford and the limits of choice ("You can get your Model T in any color so long as it is black"). they were looking at ways to get kids to eat healthier, and it turns out the quickest way is not to adjust price point, but to change the way food is presented.

Not monopoly but monopolistic competition which is characterized by differentiated but similar products. Think clothes, running shoes, bikes (monopolistic competition) and green beans or soy beans (perfect competition)

OK, I am not following this then.  Maybe you should give me smaller words and examples to explain the point you are trying to make here.

My point is there are different models that express the behaviors of rational consumers and producers in differing markets.  Perfect competition is where one producers good is perfectly substitutable for anothers.  If you want to buy some soy beans are you going to buy them from me If I I charge you $1 a bushel or from TriR^2 if he wants to charge you $1.25.  This is a perfect competition model of your behavior because the my and TriR^2's soy beans are perfectly substitutable.  In monopolistic competition you have a differentiated product.  Will you buy Kate's running shoes if they are more expensive than TriR^2's running shoes.  The shoes are not perfectly substitutable so you may pay more for my shoes than TriR^2 shoes if you like mine more.  Then price is an incentive but not the only driving factor behind your purchase, the model becomes more complex because now I have to take into account your entire budget and your specific utlity function ( the satisfaction you derive from the basket of good you chose to purchase). 

Is that better?

No, that is entirely the OPPOSITE of what I said. The point was that the "pure economics" of reducing price to improve demand was completely unnessary.  That in fact, the results of the simple modifications (better lighting, position in the cafeteria, etc) made very rapid and dramatic changes, without any modification in pricing, or restricitions (a la "nanny state") in the offerings. The people who were looking to reduce the price were the officials in the NY Department of Health.

I'm just curious about the continued sales...  It was up a huge amount the first week [54%??]  did it stay up? 

and I'm not thinking it has to stay at the same volume as that first week to be a sucess,,  even after 4-5 months if it was up the 5% they wanted would be great. I'm thinking once they changed their lunch ordering habits did they keep them,

Much clearer- thank you.  If my assumption was correct that the kids were buying other things in the cafeteria prior to the changes that made them buy healthier foods, then I see the point you are trying to make. 

Since we seem to be agreeing that price is not the only (or in this case, even primary) arbitrator of choices, what happens to the "rational man" of economic theory, who makes his choices based on minimal cost to acquire desired items?

Maybe the thread title should change to... Thinking like a bad economist...

The reality is that a real good economist would understand and account for the complexity.

I am really interested in the concept of Behavioral Economist.

I have a friend who is a Silicon Valley exec who blogs on incentives.
Very concise --- Cliff Notes Version on everything you need to know to be a Silicon Valley exec.

http://www.boydsays.com

He was topics that range from the weight loss bet that we were in.
Joy as the ultimate incentive.
How not to blow a presentation.
And the business lessons learned from his time on the MIT Black Jack Team.

Edited by eabeam 2010-06-09 9:20 AM

A rational man maximizes his utility in exonomic theory.  You can incentivize through prices but you can rarely force decision.  That is why most of economics looks at markets as a whole and not individuals seperatly.  You may make what to me is an "irrational" choice but you are maximizing your utility.  Will that make a difference to the market on the whole?

My objection to the thinking like an economist thing is that you were using only the simplest form, perfect competition, and disregarding what economics takes into account as the models become more complex. 

Because economics is about much more than price.  It is about incentives (of which price is one).

In my business I pay Vendor A more for the exact same product than Vendor B becuase vendor A provides so many more unmeasurable advantages (service, ease of ordering, she's cute etc..).  I am incentivized to use this vendor despite the slightly higher cost.

Edited by TriRSquared 2010-06-09 9:35 AM

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