The real story of the dating market

What makes people attractive to each other? Is it really male power and female beauty that are overwhelmingly important? The data suggests not:

First, people with higher status are, on average, rated more physically attractive—perhaps because they are less likely to be overweight and more likely to afford braces and nice clothes and trips to the dermatologist, etc.

Secondly, the strongest force by far in partner selection is similarity—in education, race, religion and physical attractiveness. After taking these two factors into account, McClintock’s research shows that there is not, in fact, a general tendency for women to trade beauty for money.

Read the whole thing for lots more on the dating market if you’re as much of a wannabe sociologist as most economists.

Embarrassment is a barrier to sales

Why shop online? Avoid the embarrassment of mispronouncing foreign words or being viewed as a giant fattie! Nom nom nom nom…

Abstract:

We show that social interaction reduces the diversity of products purchased by consumers in two retail settings. First, we consider a field experiment conducted by Sweden’s monopoly alcohol retailer and find that moving purchases from behind the counter to self-service disproportionately increases the sales of difficult-to-pronounce products. Second, we use individual-level panel data from a pizza delivery restaurant to show that online orders have greater complexity and more calories, which increases both consumer and producer surplus. Combined, these results suggest that social inhibitions can substantially affect market outcomes, likely due to consumers’ fear of embarrassment.

Impact of file sharing on film industry

Interesting that movie downloads haven’t had a significant impact on video rentals. That will probably change as video streaming services like Netflix become more common.

Abstract:

The music industry has struggled during the past decade due to file sharing and movie business executives fear the same fate. This paper seeks to provide measurements of the effects of peer-to-peer file sharing on the movie industry. We use a long panel of data at the country level containing information on theatrical, video rental, and video retail movie commercial performances, as well as Internet and broadband penetration. We compare the impacts of increased high-speed online connectedness replacing slow-speed Internet connectedness before and after the introduction of the second-generation file sharing technology that has made movie file sharing feasible. This empirical strategy allows us to isolate the effects of file sharing from any other possible Internet impacts on the commercial performance of movies unrelated to file sharing. Our results indicate that the effect of peer-to-peer file sharing is negative and large on video sales, but we do not have confidence regarding the impacts of file sharing on either the theatrical commercial performance of movies or video rentals.

Cigarette prices and subjective well-being

We’ve written a lot previously about cigarette taxes as a precommitment device that can increase welfare. However, while those models fit the stylised facts, it’s hard to know for sure if people are better off. For that you’d need to make a prediction about their increase in subjective wellbeing and test it. Now a couple of European researchers have done just that and the results are ‘mixed’. By which I mean that the evidence contradicts the theory!

They conclude:

…we find that smoking bans, on average, neither increase nor decrease people’s subjective well-being to a sizable and statistically significant degree. Higher cigarette prices are related to overall lower reported levels of satisfaction with life, ceteris paribus. The partial correlation is, however, measured with a large standard error. Still, the effect is economically meaningful (and corroborated by our differential analysis for people with different smoking propensities). For a fifty percent price increase, we estimate a reduction in average life satisfaction of 0.02 points (on a four point scale). This is about one tenth of the effect of being unemployed rather than employed or equivalent to the effect of a 2.4 percentage points higher rate of unemployment on the population at large. This finding does not lend support to the effectiveness of cigarette taxes as an internalization strategy. Higher cigarette prices at least have overall negative short-term effects.

Additionally, smoking bans turn out to be beneficial to smokers who would like to stop smoking (or not start again). For those smokers who are most likely to find themselves in a situation where they have recently tried to give up smoking but have relapsed, life satisfaction increases between 0.03 to 0.08 points with smoking bans (depending on the specification). This is evidence that supports the idea that smoking bans can serve as a self-control device. Interestingly, the same group of people does not benefit from higher cigarette prices. Rather to the contrary, these people seem to suffer to the same extend as other smokers do who have not recently tried to stop in response to higher prices. The negative effect of higher cigarette prices on smokers, particularly those who are likely to have self-control problems, runs counter to the prominent finding by Gruber and Mullainathan (2005) for the United States where positive effects of higher cigarette taxes on the well-being of smokers are identified.

Update: Eric comments.

Externalities and the changing nature of the internet

Cory Doctorow has written a thoughtful and interesting article for the Guardian, which argues that pricing externalities will inhibit the creation of public value.

…the infectious idea of internalising externalities turns its victims into grasping, would-be rentiers. You translate a document because you need it in two languages. I come along and use those translations to teach a computer something about context. You tell me I owe you a slice of all the revenue my software generates. That’s just crazy. It’s like saying that someone who figures out how to recycle the rubbish you set out at the kerb should give you a piece of their earnings.

If every shred needs to be accounted for and paid for, then the harvest won’t happen. Paying for every link you make, or every link you count, or every document you analyse is a losing game. Forget payment: the process of figuring out who to pay and how much is owed would totally swamp the expected return from whatever it is you’re planning on making out of all those unloved scraps.

It would be easy to nitpick at the way Doctorow uses concepts like externality rather freely, but that would miss the point of the essay. Underneath those semantics I think there’s a big idea he’s trying to get at, which isn’t really about externalities at all: it is the complaint that things previously available for free are now priced. It is about the intrusion of money into a creative community.

Think back to Dan Ariely’s discussion of social and market norms. The idea is that we act differently in situations where we perceive as market situations, relative to social situations. In particular, we are less generous towards others and less likely to feel guilty about our breaches of social etiquette when we’re in a market situation. Importantly, once a market norm is introduced into a situation it can destroy the social norms very quickly. Social norms are all about trust and once people feel taken advantage of that trust breaks down and turns into a feeling of betrayal. For example, people may enjoy sharing on Facebook but, once they feel that Facebook is trying to take advantage of their personal information for monetary gain, they feel betrayed and no longer trust it. Social and market norms don’t mix well.*

What Doctorow has identified is a social norm of generosity without expectations that previously pervaded web communities. There are companies, such as Instagram, who took advantage of that to build up a large stock of specific investment and then attempted to monetize it. Whereas we expect our bank to try taking advantage of us (market norm), we feel personally offended if Instagram attempts it (social norm). Consequently, there was a huge outcry about Instagram’s attempted change in their ToS, and that loss of trust could damage the firm permanently.

As attempts to monetize online activities continue it is likely that these conflicts between profit motives and social norms will become more common. Companies recognise how valuable it can be to create social norms in their interaction with users. However, that generates tensions with their quest for profits, which can ultimately end up destroying the social goodwill that is the backbone of their success.

* It occurs to me that this may not hold for economists who are trained to think of everything as a market. Perhaps they will just have to believe the experimental work on the matter rather than looking to their intuition!

Free driver externalities

Martin Weitzman has a new paper out that introduces the concept of a ‘free driver’ externality in the context of climate change responses:

Climate change is a global “free rider” problem because significant abatement of greenhouse gases is an expensive public good requiring international cooperation to apportion compliance among states. But it is also a global “free driver” problem because geoengineering the stratosphere with reflective particles to block incoming solar radiation is so cheap that it could essentially be undertaken unilaterally by one state perceiving itself to be in peril.

It’s a really interesting idea but can it really be described as an externality? The distinction is important because the way you frame the problem defines the solution.

He is saying that the actions of one state to combat global warming could affect other countries, imposing an externality upon them. The paper goes on to say that a governance mechanism to resolve conflicts is required and propose a particular solution. That’s all fine, but why does Weitzman refer to it as an externality? Read more