Economics can help explain all sorts of things in life, from what we eat to our choice of romantic partners to where we live. To encourage my Cornell students to consider how economics applies to their everyday lives, I challenge them to "pose an interesting question based on something you've seen or experienced personally, and then use basic economic principles to craft a plausible answer to it." I call it the Economic Naturalist writing assignment.
In my first installment in this series, I described some of my students' most interesting responses to this assignment. For this installment, I'll share one more from a 2007 collection of my all-time favorites and two new ones submitted this year. In future pieces, I'll describe more examples from the past and also respond to questions that you submit. You can send me questions via Twitter (@econnaturalist) or email (firstname.lastname@example.org).
Why are child safety seats required in cars but not in airplanes?
Greg began with the observation that government regulations require strapping your toddler into a safety seat for even a two-block drive to the grocery store, yet permit your child to sit on your lap untethered when you fly from Miami to Seattle. Why this difference?
Many people are quick to respond that if a plane crashes, all passengers usually perish, whether they're strapped in or not. It's true, but then why were seat belts required in airplanes long before they were required in cars? The answer is that being tethered is actually far more important in airplanes than in cars, because severe air turbulence happens far more frequently than serious auto accidents. But then why do regulators permit toddlers to fly untethered?
Using standard cost-benefit reasoning, Greg argued that the real reason for the difference in regulations is rooted in the cost side of the equation rather than the benefit side. Once you have a safety seat set up in your car, there is no additional charge for strapping your child into it. Since the marginal cost is zero and the marginal benefit is improved safety for your child, strapping your child in while traveling in your car makes perfect economic sense.
But if you're flying across the country on a full flight, you must buy an extra ticket in order to put your child in a safety seat. And that might cost you $1,000 or more.
Some people object that taking monetary costs into account is improper when dealing with issues of life and safety. By that logic, however, people should get the brakes checked on their cars each time they go anywhere. Like it or not, costs matter, even for decisions involving safety.
Why do Nigerian email scammers still use the same tired cover stories?
Shortly after Erin moved to Nigeria several years ago, her PayPal account stopped working. When she reported the problem to customer service, she was told that the company blocks accounts on Nigerian IP addresses because of the ubiquitous "Nigerian prince" or "419" email scams. In these scams, someone posing as a former member of the Nigerian royal family promises to send millions of dollars to the email recipient in exchange for a relatively small investment that is urgently needed to release those millions from some sort of legal purgatory.
Since she had received those same emails while living in the US more than 15 years earlier, Erin was shocked to see that scammers were still using the same tired story lines. Why, she wondered, weren't enterprising young cybercriminals able to come up with more convincing cover stories?
Only an inordinately gullible person could entertain the possibility that the Nigerian prince story is true
On reflection, she realized that the scams are actually more likely to succeed the less convincing their narratives are. In order for the target of a scam to cooperate, she wrote, he must believe that the value of a stranger's promise of a fortune is greater than the thousands of dollars he is being asked to front. This requires an extremely naive buyer who is just greedy enough to forget that there's no such thing as a free lunch. How do scammers find these people? They are careful to use storylines that are unconvincing enough to weed out anyone too savvy to be scammed.
The Nigerian prince stories fit this requirement perfectly. Only an inordinately gullible person could entertain even the possibility that they might be true. Erin went on to note that Nigeria has become so closely associated with this specific type of email scam that fraudsters from all over the world actually claim to be writing from Nigeria in their emails. They know full well that once a normal person sees a Nigerian prince email, it will go immediately into the trash folder.
So as awareness of the Nigerian prince scams diffuses throughout the population, the same unconvincing storyline actually becomes a more effective tool for weeding out unprofitable targets, enabling scammers to focus their efforts on those naive or uninformed enough to consider the requests seriously.
Why do older cars in Japan so often travel in packs?
"When I lived in Japan," she wrote, "I noticed that most of the cars on the road were very new, even in relatively low-income areas. The one exception was that once in a while something like a 1995 Toyota Corolla would drive by ... followed by 10 to 12 other Toyota Corollas from the same year."
To explain why such caravans were a common sight, she invoked "shaken," Japan's mandatory vehicle inspection program. Under this program, every car must go through a comprehensive re-certification process every two years. The inspection fee, administrative fee, and relevant repair costs total about $2,000 for newer vehicles, an amount that usually escalates sharply as cars get older. So long before cars are 20 years old, the cost of re-certifying them exceeds their value, and at that point they are usually scrapped or exported. Erin's conclusion:
The only logical reason to continue driving your 1995 Corolla past this stage is if you are emotionally attached and really, really love driving that car. So, if you chose to continue driving that 1995 Corolla, it's no longer a mere preference, it is a full blown passion. And when you have a passion, it's only natural to seek out other people who share it. So, what do you do? You put together a 1995 Corolla Enthusiasts Club. And what do you do at club meetings? You put together a convoy and drive through the countryside in your 1995 Toyota Corollas!
Keep your eyes peeled and you'll notice many product design features and behavioral patterns that pique your curiosity. Basic economic principles can help explain many of them. If you have a question about economics and the world around you, please contact me on Twitter (@econnaturalist) or email (email@example.com), and I'll try to answer it in an upcoming column.