Thursday, June 28, 2007


The Apple iPhone is this summer's must-have gadget, and lines began forming across the country four days early for the chance to grab one of the first available. iPhones sell for about $500, and if you hope to get one early, you may have to queue up for days just for the privilege.

Paradoxically, the type of people who are willing and able to spend $500 on the iPhone are also likely to have high-paying jobs that make it difficult to take an entire week off to wait in line. Fortunately for gainfully employed iPhone seekers, summer has brought with it a surplus of young people looking to earn a bit of extra money.

Ads are popping up all over Craigslist for so-called "professional waiters" who, for a fee, will line up to buy you an iPhone. The going wait rate is currently around $250 in New York and $200 in San Francisco. Lines are now full of people donning "iWait" shirts to show off their newfound occupation.

While the iPhone scene is replete with interesting economics, perhaps the most interesting phenomenon is the group of people who choose to bear the cold nights themselves rather than pay an iWaiter. With an ample supply of "low-skilled" workers fit for the job, many still choose to do the waiting themselves. Why would someone prefer to spend his or her own valuable time waiting in line when they could pay someone else who, by virtue of their offer, almost certainly has a lower opportunity cost?

Discussion Questions

1. What factors determine a person’s opportunity cost of waiting in line to buy an iPhone?

2. What benefits might people reap from waiting in line? (Maybe they enjoy the camaraderie? Perhaps they are "purchasing" a good story to tell at parties?)

3. All transactions involve an element of risk. Contracts, social norms, property rights, insurance, and consumer protection laws can help to mitigate transaction risks and facilitate trade, but waiting in line to buy an iPhone is a fairly informal transaction. What risks do line waiters assume? What risks do the people paying line waiters assume? Search for some iPhone line waiting listings on the Craigslist site for the San Francisco area. In what ways do iWaiters attempt to mitigate transactions risks?

4. If people are willing to pay upwards of $700 ($500 cash, $200 for a waiter) for an iPhone, why doesn't Apple raise the price?

Financial Times economics reporter Tim Harford addressed a similar question about the Xbox 360 shortage of 2005 here and here.


Wednesday, June 20, 2007

Something to Remember

Every once in a great while, I read something that seems so simple and profound that I have to stop and think about it for a while. Such a moment occurred for me today, while reading Margaret Wertheim's excellent piece "The Shadow Goes," which appeared on the op-ed page of yesterday's New York Times.

The central paradox of the article is that while nothing can go faster than the speed of light, shadows—being nothing themselves—can. All the laws of physics were designed to describe the behavior of things that are, not things that aren't. I'm paraphrasing. Read the article.

Economics, like physics, is full of shadows. The idea of opportunity cost—the value of the path not chosen—is probably the most important "shadow concept" in economics. What is the value of the job not accepted, or the passed-over pair of shoes? What path would the economy have taken if interest rates had been raised rather than lowered? What laws govern the behavior of worlds that remain unrealized because we chose a different alternative?

Does it matter? Probably not. Economics probably isn't missing a theory of non-phenomena, just as physics isn't really missing a theory of shadows. But as summer begins, and we are able to remove ourselves from the fits and starts of the academic year, it's a good time to take a step back and look at the wider picture, to filter out the noise of the myriad economic models we surround ourselves with every day, and think for a moment about the really important things we've learned and done in the past school year.

There's a concrete way to do this. Once, when I was around eleven years old, I stood in a field in New Hampshire at the camp where I had spent the last three summers. It was a beautiful evening, warm even for a New England July. At the time, I made a conscious effort to try to record in my memory the panorama before me: the shadows of the giant trees as they fell on the lodge, the playing fields, the tennis courts, the shack where the counselors hung out, the gravel road leading to the main gate. I remember little else about that summer, but I can still remember that one scene.

Just as I have forgotten most of that summer, so too will most of us forget a great deal of what we have learned in this past academic year. Now—before it is too late—take a few moments to pick one thing, one detail, that you feel is worth remembering. Then go somewhere and think about it for a few hours. Talk to a friend about it. Write about it. Then get ready for next year—there's a lot more to learn!

Note: Aplia Econ Blog will return in the fall with the new academic year. (Of course, if we see something we feel we just must write about, there might be a post or two in the upcoming months.) Until then, have a great summer!


Thursday, June 07, 2007

Paying It Forward—The Economics of Altruism

I was deep in conversation with my 14-year-old son regarding the relative costs and benefits of wearing a helmet while skateboarding. Guess which side I was on? We were driving from the Bay Area to Davis, California, for Memorial Day weekend. Deep into the task of convincing my son that the various monetary, emotional, and intellectual costs of brain surgery far outweighed the relatively minuscule cost of looking slightly uncool when wearing a helmet, I stopped to pay the toll at the Carcinas Bridge. I reached out to hand the toll taker my $4, but to my astonishment, he waved me off, saying, “The car in front of you paid.” Have you ever had that sinking feeling in your stomach when you’ve done something wrong? I was feeling exactly the opposite! I felt like I had just won some mini-lottery. It changed my whole perspective on the day. I even ignored my son's wisecracks about my having ruined his social life by imposing the helmet “law” on him.

Now, I could have attributed this event to some random act of kindness: certainly commendable, but anomalous nonetheless—except that this was the third time it had happened to me in the last 12 months. In economic terms, this doesn’t seem to add up. Why would so many people pay the toll for complete strangers with no hope of a return on their investment? How did it start? What was the incentive? Who was philanthropist zero? And what of the positive repercussions this created for the rest of the community? What other acts of kindness did this generate?

If economics is about people acting in their own self-interest, does this make sense? Maybe it makes complete sense. Perhaps people are motivated by the personal gratification they derive from their own generosity rather than the desire to make others feel good. In fact, anonymous acts of kindness allow us to imagine that we've done some amount of good that might be far in excess of reality. In that sense, $4 is a small price to pay for a momentary feeling of supreme virtue.

Thus, to some degree, acts of kindness are reciprocal—we aren't giving something for nothing. When we pick up someone else's toll or leave extra money in the parking meter, we magnanimously give up a small amount, but we potentially receive a powerful feeling of satisfaction in return. None of this is to say that the effects of this type of behavior are undeniably positive, simply that the motives involved may have more to do with self-interest than with pure altruism.

Economist Steven Landsburg offered his take on the economics of altruism a few years back in an interesting article in Reason magazine. Check it out here.

Discussion Questions

1. What happens in Vernon Smith's envelope experiment when participants are told that their actions are anonymous? What happens in the experiment when participants are told that researchers will track individual decisions?

2. In the James Cox version of Smith's envelope experiment, donated sums are automatically tripled. How does the behavior of participants change under this scenario? Why, according to Landsburg, is this evidence of something dark and disturbing about human nature?

3. What could the Cox experiment teach charitable organizations about techniques for raising money?

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