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The Economic Naturalist

In Search of Explanations for Everyday Enigmas

Robert H. Frank

Basic Books, 2007

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According to professor Robert H. Frank, economics pedagogy is a scandal. A basic economics course at a university costs thousands of dollars, yet when students are tested six months after their final exams they do little better than those who never took the class. Often they do worse. One study asked students a simple multiple-choice question about opportunity costs. Answering randomly gave the students a 25% chance of being right, yet only 7.4% answered correctly. The students shouldn’t be too embarrassed, though. Out of a sample of economists at a professional gathering, only 21.6% knew the right answer. Fed up with these dismal results, Frank tried something new. He told his students to write short essays applying economic principles to puzzling social phenomena. (“Why do women’s blouses cost more to launder than men’s?” “Why are milk cartons square while soda cans are round?”) The result was engaged students, real learning and this marvelous, popular little book. getAbstract recommends it enthusiastically.

Summary

The Benefit of Cost-Benefit Thinking

Suppose your alarm clock just broke and you need a replacement. You trot down to the local drugstore, grab a $20 digital clock and get in the checkout line. As you are waiting, the fellow behind you strikes up a conversation and mentions that the same clock is on sale at a nearby shopping center for $10. Would you go to the shopping center? Most people say they would. “Pay double? Do I look like an idiot?” Okay, now suppose you are about to buy a $2,510 laptop computer in an electronics store. As with the clock, you are about to pay when another shopper says the same computer is on sale at the shopping center for $2,500. Would you go to the shopping center? Most people say they wouldn’t. “Drive all that way for a measly ten bucks? Do I look like an idiot?”

And yet, as you have undoubtedly noticed, in each case the amount you could save is the same: $10. That’s the benefit you stand to gain. The cost of going to the shopping center is the same in each case, too, whether you get a new clock or a new computer. It’s whatever it costs to get in your car, drive there, and select and pay for your new item. Does this mean everyone is stupid...

About the Author

Robert H. Frank is the Henrietta Louis Johnson Professor of Management and Professor of Economics at Cornell University’s Johnson Graduate School of Management.

The Economic Naturalist

In Search of Explanations for Everyday Enigmas

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The Benefit of Cost-Benefit Thinking

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