The undercover economist

I love reading. And I read a bit of everything. I even go through my kids teen books when I am really desperate - and I enjoy it. I read the whole collection of the Princess Diaries.

Now I have just finished reading the undercover economist. Tim Harford replies to general public's questions, using economic theories. People ask him questions about the most unusual subjects. 

Should I have a biquini wax?

Should I divorce my partner?

May I pay for my gf's holidays?

And he answers them all. Just to give you a taste for his style and witty collums ( from where he got the material for his book, I share two Q&As with you.  Enjoy:

 

Dear Economist: Why is a bag of weed always $10 (man)?

By Tim Harford
Published: September 4 2010

I have been a client of weed dealers in North America since the mid-1980s and no matter who the vendor, the price has remained $10 a gramme. I don’t think anything in 25 years has stayed fixed in price like weed has.

Dealers might have some power to increase prices, as it’s illegal, and there are some significant barriers to entry, such as getting arrested. But if I don’t like the prices, it’s pretty easy to grow some on my own, because it “grows like a weed”, even if it might not be as good as the dealer’s Cannabis sativa.

 

So how did we end up at $10 a gramme?

Sebastian

P.S. I meant to email this sooner, but was pretty baked and forgot to hit send …

Dear Sebastian,

The nominal price rigidity you describe is remarkable and unusual. If the price of weed had increased in line with US consumer price inflation, you’d be paying $20–$25 a gramme now. So I agree, it is a puzzle.

My guess is that the illegality of the market gives a push towards the price stickiness you have encountered. Buying and selling cannabis is hazardous and there must be a benefit to a situation where nobody haggles over the price.

Still, the nominal price wouldn’t stick like that unless supply and demand were at least roughly in balance at $10 a gramme. And I confess, I am perplexed. My own research, which has been purely academic, suggests that prices vary between £20 and £250 an ounce in the UK, roughly £1 to £10 a gramme. Since the price stability you describe is not matched in other markets, could it be purely fortuitous?

Whatever the reason, this could be a handy discovery. In hyperinflationary times, people turn to tobacco or coffee as more stable currencies. If quantitative easing gets out of hand, you have found a stable currency for the 21st century.

Dear Economist: What’s your approach to picking toilet stalls?

By Tim Harford
Published: August 28 2010

When I travel I am faced with a difficult choice: which of the toilet booths to use in offices or hotels. I always try to guess which one is the least used. Probability theory should tell me that all the booths should be equally used, but perhaps human psychology plays a part in this. My boyfriend believes the last one is the least used – contrarily, I believe the opposite. Perhaps this proves that, on average, all are equally used. Which one do you use?

Jan Lucan, Prague

 

Dear Jan,

The efficient market hypothesis says that stock and bond traders will swoop on underpriced assets, driving their prices up. If so, an ignorant investor may pick and choose at random, knowing that her selections will be priced as keenly as any others.

Let us assume that everyone, like you, wishes to use the stall less travelled. Can we apply the hypothesis to public lavatories? If so, you may pick any stall you wish.

But the efficient market hypothesis is not universally accepted even in financial markets, and in public toilets it is less convincing. After all, there are no highly paid “toilet traders” engaging in arbitrage – or if there are, the term conventionally applies to a different profession altogether. So perhaps there are systematic errors to exploit.

Internet research uncovers one poll that suggests that many people, like your boyfriend, head to the farthest cubicle. Another site claims that the nearest stall is the least used.

But all this is a little puzzling. Your stall-picking strategy reminds me of Warren Buffett’s comment that “diversification is a protection against ignorance”. Presumably you just want a clean toilet with some paper. Would it kill you to do a little research and check a couple of stalls? That’s what I do.

Well, I totally recommend the book. Tim is funny, witty and a great writer!