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 two installments in this series (here and here), I described some of my students' most interesting responses to this assignment. In 2007, I published a collection of my all-time favorites, which included a variant of this question posed by Karen Hittle:
Why are round-trip airfares from Cedar Rapids to Honolulu lower than round-trip fares from Honolulu to Cedar Rapids?
The round-trip distance between Cedar Rapids, Iowa, and Honolulu, Hawaii, is, of course, exactly the same no matter city you start from. Also, the airlines that serve travelers originating in Cedar Rapids are the same ones that serve those originating in Honolulu. Neither city is a net exporter of population to the other, meaning that one-way travelers should be roughly equally numerous in each direction. All things considered, then, you might expect the round-trip fares to be the same no matter where your trip begins.
If so, you'd be wrong. For flights leaving on September 25, 2015, and returning a week later, for example, the cheapest one-stop itinerary you'll find on Expedia.com will cost you about 10 percent less if your trip originates in Cedar Rapids. Itineraries originating in both cities feature the same cramped seating and lack of in-flight amenities, so why must travelers originating in Honolulu pay more?
When carriers don't think you're shopping for a destination, they're under much less pressure to offer you a low fare
Karen's proposed answer began with the observation that if you're traveling from Cedar Rapids to Honolulu, you're likely to be going on vacation. And if you're a vacation traveler, there's an almost endless list of destinations you could choose. You could go to Disney World in Orlando, or to Costa Rica, or Cancun. Because you have so many attractive options, airlines must compete more aggressively for your business. If they don't offer an attractive fare to Honolulu, you'll just go somewhere else on a rival carrier.
By contrast, she reasoned, few people travel from Honolulu to Cedar Rapids on vacation. Much more likely, such trips are for business or to visit relatives. In general, buyers with fewer alternatives tend to be less sensitive to price, and when carriers don't think you're shopping for a destination, they're under much less pressure to offer you a low fare.
Before turning to the next example, consider this multiple-choice question: on average, which of the following is the best predictor of your health?
A) Whether you smoke
B) Whether you have health insurance
C) Whether you are wealthy
D) What you eat
E) How often you exercise
As the public health scientist Nancy Adler and her co-authors document in this report, the correct answer for almost every society is "C." In the United States, for example, premature death is more than twice as likely for middle-income people as for those at the top of the income ladder, and more than three times as likely for those at the bottom than those at the top. The same pattern holds across countries, with richer ones having higher average life expectancies. But there are also some unexpected patterns in the data, which brings us to today's second question, one that I first heard posed by the distinguished demographer James Vaupel:
Why do the elderly in Costa Rica have one of the highest life expectancies in the world?
Although the per-capita income in Costa Rica is only about one-tenth that of the US, the two countries have roughly equal life expectancies. Even more striking is the low probability of death among the extremely elderly in Costa Rica. There, 90-year-olds are at least 14 percent less likely to die in the next year than their counterparts in an average of 13 high-income countries. The life expectancy of a 90-year-old Costa Rican male, for example, is 4.4 years, about six months more than in any other country. What makes Costa Ricans so durable?
Among the many factors that may contribute to the difference, Vaupel stressed an interesting effect related to the timing of the country's economic development. In the early 20th century, when older Costa Ricans were children, malaria, tuberculosis, and various serious intestinal illnesses were rampant. The country's infant mortality rates at that time were upward of 250 deaths per thousand, among the highest in the world.
The life expectancy of a 90-year-old Costa Rican male is 4.4 years, about six months more than in any other country
Those who survived those threats, according to Vaupel, were not a random sample from life's genetic lottery. They had to have been unusually robust, or else they wouldn't have made it through. Their high survival rates are thus a consequence of their tough constitutions bolstered by Costa Rica's current well-developed public health system. If Vaupel's proposed explanation is right, children growing up in Costa Rica today won't be quite as long-lived as their grandparents.
Keep your eyes peeled and you'll notice many behavioral patterns and product design features 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 (firstname.lastname@example.org), and I'll try to answer it in an upcoming column.