Like all the other behavior economics books you’ve read, this one has a long title too: “The Economic Naturalist: In Search of Explanations for Everyday Enigmas
As I said, Frank is a professor. Having access to students can be the most valuable learning exercise for anyone. He challenges his students to ask questions they do not know the answer to, and then answer it. Sounds confusing, so let’s pull a few examples from the book:
Why do we rent movies, but not books?
Why do lawyers spend more money on cars and clothes than professors with the same income?
Why does a $20,000 car rent for $40 a day, but a $500 tuxedo rents for $100?
These are all questions we might think of ourselves on a random basis, or perhaps drawing upon an event that happened to you during the day. As a reference, I looked at tuxedos last weekend, and had the exact question as #3. Of course I’ve read the book so I knew the answer. You can logically draw out the answers of these questions by applying the lessons taught in economics courses.
A basic lesson of economics is that there is a finite amount of money in any environment, so you want to maximize the benefit of each dollar spent. This is especially true with governments. Since budgets are public knowledge, there is little room for frivolous spending. Public libraries exist to encourage the local population to take advantage of free educational resources. Whether it’s a Star Wars novel or internet access, the libraries offer many different ways for people to learn. Even if you just read for fun, the mind learns about sentence structure, vocabulary, and how to read faster. Movies don’t offer the same educational experience as books. There are exceptions of course, but on the whole movies are strictly for entertainment purposes. Libraries also offer a limited selection of movies, but the selection is very limited. But that still doesn’t answer directly why we don’t rent books. The presence of libraries offering most books for free keeps most people from launching a successful book rental store. There’s your answer.
You didn’t know lawyers made the same money as professors did you? There are many exceptions, but a typical lawyer and typical business professor will have comparable salaries. Again apply some economics. I am more likely to go to Starbucks for a frappachino than to a Dunkin Doughnuts for whatever they have, despite the products being identical. The shear fact that I don’t know what Dunkin calls their product is a testament to this. I go to Starbucks because of the upscale atmosphere, this helps contribute to the enjoyment of the beverage. A lawyer is like Starbucks. The upscale appearance presented by a lawyer signals a certain level of ability to the client. A professor does not need to project this image. Most of their reputation is not built on first impressions but instead by their academic achievements.
Cars are expensive, tuxedos are not by comparison. Why then do we pay more per day for the tuxedo? There are a number of answers to this question – the prep needed on tuxedos to make them fit, they can’t be rented out every day, and competition is not as intense – just to name a few. But we’ll focus on the life cycle of an asset in possession of a company. Car rental companies are very large. They buy cars from manufacturers directly, and in bulk. They are able to get them for much cheaper than you and I can. This saves quite a bit of money. But the rental companies don’t keep the cars 5 years and then crush them. The average rental is only around for a couple of years, and then it is sold. By comparison, tuxes are usually around for a season or two at best, and cannot be sold “used” the way a car can. They are often donated or sold at pennies on the dollar. Because of this, each “use” of a suit costs the tuxedo shop more money than each day’s “use” of a vehicle to a rental company.
You see? Applying economic lessons to every day questions helps us find the answers.
Admittedly, I read this book almost a year ago. It was a Christmas 2007 gift. ”Freakonomics” was the first book I read that really got me excited about the written word again, then “The Millionaire Next Door” got me excited about writing personal finance myself. ”The Economic Naturalist” is credited with opening up my world up to a new way of learning. I think about this book all the time. When I don’t know something I try and phrase it as a question, and then I can focus my energy on finding the answer. This is one of those books that made me sad to finish. I wanted more questions. I you’re looking for more, here a few. Go pick up a copy of the book to get the answers, or apply some economics to them and figure it out for yourself:
Why are there braille markings on drive-up ATMs?
Why do brown eggs cost more than white, when they are identical in every way?
Why are newspapers, but not sodas, sold in vending machines that allow the customer to take more units than they paid for?
Why do American men do so poorly in international soccer but American women do so well?
Why are you promised a free meal if the fast food cashier doesn’t give you a receipt?
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
