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50 KNOWLEDGE
ECONOMICS:
MAKING SENSE
OF THE DISMAL
SCIENCE
Most people have a pretty hazy grasp of the
fundamentals of economics. Even when they have
studied it, few regard it with much affection.
Robert Frank argues there is another way.
When I began teaching economics in the 1970s, I noticed that
people I met at cocktail parties almost always seemed disappointed
when I told them what I did for a living. Often they said something like
this: “I took Economics years ago, and there were all those horrible
equations and graphs.”
Their unpleasant memories were apparently justified. Studies have
shown that when students are tested about their knowledge of basic
economic principles six months after completing an introductory
economics course, they score no better, on average, than those who
must buy an extra ticket in order to strap your child into a safety seat,
never took the course.
which might cost you £500.
The form in which ideas are conveyed is important. Perhaps because
People may feel uncomfortable saying that it is too expensive to
our species evolved as storytellers, the human brain is innately
provide the extra safety for their children when travelling by air, but that
receptive to information in narrative form. Years ago, I stumbled upon
is essentially what it boils down to. So they hold tight to their children
an assignment that plays directly to this strength.
and hope for the best, rather than pay for an extra seat.
Twice during the term, I asked students to pose an interesting question
Another student applied the cost-benefit principle to a product-design
based on something they have personally observed or experienced.
decision. Why, he asked, does a light come on when you open your
In no more than 500 words, they then had to use basic economic
refrigerator, but not when you open your freezer? In both
principles to answer it.
compartments of the appliance, he reasoned, the cost of installing a
A high proportion of my students’ papers invoked the cost-benefit
light that comes on automatically when you open the door is
principle, which says that a rational person should take only those
essentially the same. It is also what economists call a fixed cost, which
actions whose benefits exceed their costs. This simple principle helps
in this context means it does not vary with the number of times you
explain otherwise mysterious patterns of behavior in a host of domains,
open the door. It is thus unlikely, he concluded, that the explanation for
from a manufacturer’s decision about whether to adopt a specific
the difference lies on the cost side.
product design feature to a government’s decision about whether to
On the benefit side, having a light inside either compartment makes it
adopt a particular regulation.
easier to find things. Since most people open the refrigerator far more
One student asked, for example, why parents are required to strap
often than the freezer, the benefit of having a light in the refrigerator is
toddlers into a safety seat for even a short drive to the shops, yet are
considerably larger. So with the cost of adding a light the same in both
permitted to fly from New York to Los Angeles with toddlers on their
cases, the cost-benefit test for whether to add a light is more likely to
laps. Some responded that if a plane crashes, the child is going to die
be satisfied for the refrigerator than for the freezer.
anyway, strapped in or not. That may be true, but many other things
Of course, not all consumers place the same value on the
can happen short of a crash - severe air turbulence, for example - for
convenience afforded by a light in the freezer. In general, the benefit
which being in a safety seat would help a lot. Thus, he concluded, the
of such features, as measured by what people are willing to pay for
explanation for the absence of a safety seat requirement on planes
them, tends to increase as income increases. The cost-benefit
must not lie on the benefit side of the equation.
principle thus predicts that consumers with extremely high incomes
might find a light in the freezer well worth the extra cost. And indeed,
A more plausible explanation, he argued, begins with the observation
the £7,000 Sub-Zero Pro 48 refrigerator has a light not only in its freezer,
that, once you have a child safety seat, it costs nothing to strap your
but also in its separate ice drawer.
child into it in the back seat of your car, because there is almost
always enough room for it. Since the marginal cost is zero and the
Source: Robert H. Frank, Cornell University.
marginal benefit is improved safety for your child, it makes perfect
“The Economic Naturalist: Why Economics Explains Almost
sense. If you are on a full flight from London to New York, however, you
Everything” (Virgin Books, £7.99).
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