Framing the Contraception Coverage Debate with Behavioral Econmics

Greg Mankiw and many other economists are puzzled by the Obama administration's change in policy from A to B on contraception coverage for employer health care programs. (from Mankiw's blog here is his version of A and B)


A. An employer is required to provide its employees health insurance that covers birth control.

B. An employer is required to provide its employees health insurance. The health insurance company is required to cover birth control.

Rationally we would expect A & B to be the same. It does remind me of a classic behavioral economics problem created by Tversky and Kahneman. Suppose you need to purchase a new suit and a fancy pen. The suite cost $500 and the pen $25 in your local store.

A. Would you travel 15 minutes to go to a store where the suit cost $500 and the pen $18?

B. Would you travel 15 minutes to go to a store where the suit cost $493 and the pen $25?

More people would travel for  A than B even though both save you $7. This is because we often use the percentage of savings to figure out if something is worth it. Or as Dan Ariely puts it in his book Predictability Irrational we may pay $200 to add a soup course on a $5,000 catering bill, but still clip coupons for 25 cents on canned soup from the supermarket.

I wonder if this is all a framing issue and by including contraception in a larger bill for health care it becomes more like the catering bill than condensed soup.

Price Check at Restaurants

The Washington Post's Food Critic's weekly chat included a question from an irate diner at Proof (a fancy DC place) who along with his dinner companion ordered 2 beers off the menu. Not realizing they had ordered $100 beers (when most beers there are in the $10-$15 range). Related the Haggler at the NY Times addresses a diner who ordered the White Truffle Pasta only to find out when the bill arrived that the dish cost $250 (roughly 5 times more than any other entree).

On the Post chat it does put the wait staff in a tough position (at least in the beer situation where the price was on the menu). Questioning a patron who wanted it might be seen as rude. Seems that prices should be stated for specials. I tend to think think if there is a deviation from a standard expectation (like say more than twice the normal cost) that a waiter should point this out. I'm not sure it is optimal to mandate that special prices always be announced once enforcement costs are taken into consideration. I did once ask for the special price at an economic conference while dinning with a more senior colleague, and I felt a little bit embarrassed. Luckily he said we are economists knowing the price is essential to our decision making. Of course then he paid for dinner, which I'm wondering if he did because he thought I went a restaurant out of my price range (which I didn't). Which reminds me I should return the favor to that economist.

So perhaps the solution if you don't hear the price for the specials is to announce you like economics and need to know the prices before figuring out your utility.

Dishwasher Wanted Spanish Required

In the last couple of weeks I have seen two local Silver Spring restaurants put help wanted signs up in Spanish only (no English) looking for someone to wash dishes. Despite the many Salvadorian places in my neighborhood, these two places serve Japanese and Moroccan food, respectively. What could be the potential cause of the sign only posted in Spanish?

1. There are no English speaking dishwashers who would want to work
2. Spanish speaking workers have higher productivity per dollar of wage than English speaking workers
3. The Japanese and Moroccan restaurants have a preference for Latin workers other than based on things other than 1 or 2.

Montgomery county's unemployment rate is roughly 5, but neighboring Prince George's County is above 7%. I'm sure unemployment rates are much higher for those with education credentials that would have people looking for a dishwasher, so I'm doubting 1 is the potential answer. The obvious answer seems to be 2, but I'm wondering if 3 could also be a possibility. If other kitchen staff are also Spanish speaking (not uncommon in non-Latin ethnic restaurants in Silver Spring based on my observation). A common language could help productivity and morale as I have heard Spanish jokes sometimes between restaurant staff.

Totally unrelated (I hope) one of those restaurants had a fire

Picking Brains for Free?

A contributor to Forbes says she is done with allowing people to pick her brain for free. She suggests if people want to take you to coffee to pick your brain you should show them a fee schedule.

After reading Predictably Irrational I wonder if there isn't a problem from a behavioral economics perspective. One of the lessons of the book is that once money enter an exchange the feeling changes. The author Dan Ariely provides an example. If you need help changing your tire I might help you as a good person or your friend. However, if you offer me $5 to help you I might think you place no value on my time.

I think the key to building relationships and social capital is keeping the relationship like changing a tire for free. Sure at some point if people keep taking to much your time or they are using what you tell them to make lots of money you might consider charging.

Until then feel free to pick my brain, although you will probably get what you pay for.

via Twitter @justinwolfers who funny enough once picked my brain

School or Work from Modern India to 1900s Chicago

"Of course when CCTs [conditional cash transfers] force children back into school the children might not learn to read and might not learn to divide, but they will learn an important, if tragic, life lesson: when you are poor the state has power and you do not." from Lant Pritchett posting at the World Bank's Development Blog

The post is a good read. In short he talks about some survey data that early 1900s kids working in factories preferred the factory over the school by a 4 to 1 margin. In short school was not a desirable place to be. Pritchett goes on to talk about how in modern India many schools lack the ability to actually improve math or reading outcome. Despite this the poorest countries adopt a solution conditional cash transfers that pay money to families but only if their children to go to school. As I have blogged previously I'm not sure CCTs can work in all countries. In short countries where CCTs have increased schooling substantially (Mexico and Brazil) are relatively well off, while Pritchett contrasts this with the poorest regions in India, which lack the schooling infrastructure or political capacity to run such programs. Most of the research I'm aware of though suggests that unconditional cash transfer can also lead to increases in schooling, when programs are stated to be intended for children's development and money is given to the mother. For example in Malawi one of the poorest countries in the world conditional and unconditional cash transfer payment to girls have been about as equally effective.

I wonder returning to the child in early 20th century factor, if they prefer the factory because they have some autonomy over their wages. That is when they collect their payment from the factory they get to spend some portion of it. One difference between the Malawi programs and most of the others I have seen is the payment were made directly to the girls as opposed to their mothers.
 

When Can I Retire to Portlandia

I have been watching the series Portlandia (watch the video above) which satirizes people my age living the dream of the 1990s of working less, doing more weird stuff, and generally just hangin'. It has gotten me thinking as I take a break from working on a grant application that if it goes well will give me more work, why aren't there more people moving to Portland the city where young people go to retire (as Portlandia quips). A paper by Angus Deaton and Daniel Kahneman show that after about $75,000 a year extra money doesn't make you happier, but it makes you feel you have a better life. So perhaps I'm working to feel better about my life? At the Portlandia end of the spectrum people work a few odd jobs to maintain a minimum level of consumption. I have heard from friends of ours that move to Portland, that these part time barista, bike mechanic, and bar tender jobs are getting harder to find. Our friend said finding a full time job wasn't as hard since fewer people wanted them. Of course this is all anecdotal, but what do expect from a post about Portlandia?

An Economist's Dreidel

Happy first night of Hannukah day fellow economics lovers. If you have enjoyed my previous Hannukah posts like the miracle PPF or the Economics Hannukah Song with musical arrangement by Jodi Beggs here is a little treat for you.

The economist's dreidel.

Like the regular dreidel it has four sides. But instead of the hebrew letters symbolizing the four words a Great Miracle Happened There, we have Consumption, Investment, Government Spending and Net Exports or C, I, G and NX the four parts of GDP.

The rules.

1.At the start of each round each player must put one penny into the pot.
2. If C is spun then like gimmel the player gets to consume all of the pot, except unlike regular dreidel there is a government that takes 10% of all earnings. Start a new round.
3. If I is spun then the player must invest 1 penny in the pot
4. If G is spun then the player gets all the money in the government pot. Unless that player currently has the most pennies in which case the money goes to the poorest player.
5. If NX is spun all players must give the spinner 1 penny.
6. Unlike regular dreidel at the start of each turn the spinner can elect to auction off his or her spin to the highest bidder.