Why don't you recycle?

Let's be honest. Many of us don't do all what is in our hands to help the environment. Why? It is just another 5 minutes? We just need to separate paper and glass from the trash and put it in different containers, and then take the trash to the trash disposal, and the recyclable items downstairs to the entrance of the building... pffff... that sounds like a lot of work if you are in a hurry...

The building I live in asks its residents to recycle. However, we have trash disposals in every floor in the building... but look at the message that its written there:

Ok, so where should I take my recyclabels? Then here is the map of the complex:

Mmmh... alright. So, actually recycling involves some work and some time. But of course, it is worth of doing so, since we will save the environment for us, and the next generations.

But... if everybody is recycling but me, nothing bad is going to happen... My actions, either if I recycle or I don't, are not going to change anything. Well, that is exactly what I believe is the cause of this equilibrium of the majority of the world not recycling. Allow me to explain myself. The marginal contribution of one individual to the environment when he/she do environmental activities such as recycling tends to zero. We can save the environment if ALL of us work together, and the aggregate contribution is quite large.

So, if you are clear that if you recycle you could save the world, maybe you'll do it... but maybe not. Why not? Well, again, this will take you an extra 10 minutes of your day, maybe in average. You'll have to take down the recyclables, and maybe deviate from your routine walk from the elevator to your car or to the exit of the building. But maybe if you are in a hurry one day you won't do it... why? Because your time is valuable!

So let's put together all the components of the equation. First, your marginal contribution - as an individual - from recycling is zero (or almost zero) because you by yourself are not contributing. Moreover, the marginal utility you gain from recycling is almost zero, because the fruits of your work will be enjoyed by the future generations, and probably not by you, so unless you care too much for the future generations (which is not a bad assumption sometimes) you don't have any direct gains from recycling. But even if you care, in some countries you have uncertainty that even if you bring all your recyclables to the right place, they are not going to be recycled, so you just lost your efforts.

On the other hand, the cost of recycling is not zero, you have to invest some time in it, which has costs involved.

Consumer theory explains that you will keep consuming one good every time that the marginal utility from consuming it will be higher than the price that you are paying for it. So if recycling is not bringing you any utility, then there is no sense in recycling, and put your efforts in doing this.

Ok, at this point you are thinking that I am a inhumane person, that don't care about the environment. Not true. I care. The bottom line of my post is not that you don't recycle, but is that there are ways that could increase the rate of recycling among people. How? Incentives!

What can be done so that people will recycle more? Two things: either you increase their marginal utility from recycling, or you reduce the price of recycling. Both can be done.

• The goal of publicity and concientization campaigns are intended to make you understand two things: (1) that your marginal contribution to the environment is more than zero, and (2) that you can have marginal utility from recycling. They argue that things can be done now, and that you will enjoy from a better Earth if you recycle, or put it in another way: you won't suffer from a deteriorated Planet Earth in 30 years time. This is what Al Gore is doing.
• The other posibility is to reduce the cost of recycling. For example, putting in every floor recycle bins, and not ask people to go behind their buildings with 3 bags in the morning when they are in a hurry because they are late for work. Reclycling has to be MORE comfortable than non-recycling. The incentives has to be in place so that people will choose to recycle because is more convenient for them. Otherwise they will waste time.
  

So, for all of you out there, seriously, things are pretty tough, so start recycling!

Happy holidays!

Online Dating and Search Costs

So, what is it about online dating that is sometimes controversial or awkward? Well, I don't know. But sometimes one thinks about online dating as something associated with people for whom is difficult to find a partner through "conventional" methods. And this is sometimes associated with people who is ugly or non-friendly or any combination of both. I will try in this post to convince you that this perception of online dating can be explained through economic theory.

The economic concept of "search costs" relates to the cost of transaction for buying a good. From my loyal source Wikipedia we have that "Rational consumers will continue to search for a better product or service until the marginal cost of searching exceeds the marginal benefit".

Well, dating - or looking for a partner - has an associated search costs with it. You may think about it as the time you have to invest in going to places where there are people you could date, or investing the energy in thinking in strategies to approach the other person, or even you could think about the drinks and food you'll have to pay in dating until you find the person that you are looking for. All this involves time and money. These are "search costs".

However, we should think in this case - as opposed of the search cost associated with the "good" you want to consume - as a cost that it is associated to the consumer: the person that is looking for a partner. We could assume that search costs are the same for each individual (independently on which girl/boy he or she is searching for), but search costs are not the same across individuals. For instance, Pablito (a fictitious name) always has a hard time trying to invite a girl out - independently of which girl - he is very shy and he is not that handsome. So his search costs are constant. He has to ask 20 girls to go out with 1. He has high search costs. However, Juancito, is very handsome. He doesn't even need to ask a girl out - because they come after him. His search costs are very low.

So the assumption for my "model" is that search costs are a function of your characteristics that are relevant for dating (how good looking and friendly you are, how funny you are, etc).

At this point, let me bring another ingredient. Online shopping (not dating!). What is the good thing about online shopping? Well, it decreases the search costs for each good. If you wanted to buy a computer in the early 90s, you had to go to 5 stores, and spend some time in each one, probably buy some magazines, in order to decide which is the best computer for you. The time and money you spent in doing all this - before you buy the computer - are search costs. So now, Google shopping and Amazon.com do all this for you. Also, online product reviews from buyers also help you with all this. You can fairly do all the 2-weeks research you would have done in the 90s for buying a computer in roughly one day through the internet. Search costs has been reduced sharply.

So, online dating is the same concept. What online dating is doing is that is reducing at some extent the search costs of people who want to date. Why? Well, you go into a website in which everybody else is looking the same as you, and you have all the "options" so that you can "see what suits you better" in only one place. You don't have to go to 10 parties, and 5 social events in two weeks to see if you find one single person that is willing to date you. The search costs has been reduced.

So now, what is left is to understand who has the incentive then to do online dating. Clearly, people who want to reduce their search costs. It can be people who are less likely to find someone to date in their day to day life at the moment. But here I will add other components that affect the outcome of your search costs. Before I only included phisical characteristics and how friendly and nice you are. But there is information involved as well. People who lack of information on where to find other single people with the same interests also have search costs, either because they are new in town, or they are no longer in an enviroment where it is likely to meet new people every day (such as in college or graduate school). These are the people that are likely to join online dating.

People who have already low search cost don't have too much of an incentive to join such a network. Going back to the definition at the top of the post, their marginal cost (the membership fee) exceeds the marginal benefit that they can get from online dating. But it doesn't mean that "pretty" people will not join. Maybe "pretty" people are having a hard time looking for an specific kind of person that they are not able to find in their local environment.

So it might be that in the future, as almost everybody in developed countries have bought at least something over the internet, maybe more and more people will say that they have dated at least one person thanks to the internet. We'll see...

Miami's I-95 Highway

Some of the readers of my previous post about tolls efficiency have commented about a new policy in the I-95 Highway in Miami area that have more or less some similarities with my ideas about efficiency in tolls.

My loyal reader with the nickname "Anonymous" (I still don't know if he choose that nickname or he just lack of nicknames), have commented about this. I publish his comments:

Your main point, if I understand correctly, is that there should be programs that permit people to pay MORE and get through traffic quicker. There are, however, programs that allow people to pay LESS...and get through traffic quicker. E-Z Pass (in NY, NJ, PA)..Sunpass in Florida, among others. There is a time incentive and an economic incentive (not to mention an environmental incentive since)

Another new program, recently implemented in Florida, does precisely what you describe. The 95 Express Program provides 2 lanes over a 7 mile, highly congested are of the freeway, where motorists are guaranteed an average speed of at least 50 MPH. To use these lanes, drivers can either pay a toll (which varies depending on traffic), buy and register a hybrid vehicle, or register a 3+ person carpool. While the details of this program are worth discussing (there are certain incentives to cheat) in general this does what you describe...while also encouraging people to carpool more or buy more eco-friendly cars.

So, first of all, thank you Anonymous for your comments and for your being such a loyal reader. I actually looked at some of the details of this project right at the 95 Express Website and it certainly looks interesting. However, there are some important questions to raise. For instance, the policy guarantees for those who get into the 95 express lanes that their average speed will be at least 50 MPH, and that those who are exempt of paying after registering: hybrids and 3+ car pools (motorcycles and public transportation are exempt from paying but don't have to register), should take out their Sunpass (so that they won't be charged automatically) and they should have a sticker given by the authorities to identify their car as "exempted from pay". However, as soon as they enter the 95 Express the system won't detect the Sunpass and will send an alert to the police or - as they describe in the website: "Drivers without transponders will have their license plates photographed and receive an Unpaid Toll Notice (UTN) for failing to pay a toll. Failure to resolve the UTN will result in a Uniform Traffic Citation (UTC)".

So the question that arises is, is the police able to see every car that didn't pay if (1) they have a sticker? and (2) if they are hybrid and/or they are a carpool of 3+ individuals? All these at 50 MPH. It sounds a bit difficult, doesn't it? If they stop every car that goes by without paying, and it happens that everything is OK with that car, so he wasted 5 or 10 minutes of his time because of this. It doesn't sound terrible. But how many policemen you need in the roads? Or maybe they will stop cars randomly and do an aleatory check?

So, my question is, why instead of using those cameras that they describe in the website to picture the plates, they don't use the cameras to photograph the plate of every car and use another technology to determine how many people are in the car (maybe x-rays or another camera), and then send them the bill by mail. Through the plate they can now if the car was registered as a car pool, if it is hybrid or otherwise he will have to pay the toll... and forget about the Sunpass for this 95 Express Lane.

Thank you Anonymous for your insights!

Traffic Jams and Maximizing Tolls Profits

Thanksgiving weekend is one of the most (if not the one) busiest travel weekend in the year in the United States. This is the main lesson I learned during the first Thanksgiving ever I spent in this country.

Together with my friend MR we drove from Providence to Philadelphia Wednesday night, before thanksgiving began. We hardly found any traffic in our way down there, and we made very good time: around 5 hours. We supposed that if we drive back on Sunday afternoon, we would make at least 10 hours because of the traffic. So Saturday was the best option. Since I wanted to get in time to catch the last train from Providence to Boston at 10pm we decided to leave around 3:30pm.

Everything was fine during the first hour. We went through New Jersey, and even made a stop to grab something to eat. However, after that stop, there was a huge traffic jam waiting for us around New York City. The traffic was because of the George Washington Bridge Toll.

Saturday Nights in New Jersey Turnpike

The toll costs $8. This is very costly for a toll. Of course, the high price should be correlated with the incentive the authorities want to create to reduce traffic in that area. That is the main idea of the expensive tolls to get into Manhattan as well.

However, they can do much better. We spent almost two hours in traffic. Two hours. I would have pay more than $8 to skip the traffic. I guess that the vast majority of the people on the road were willing to do the same. My friend told me (even before I talked about the cost of time in economic models) that his hourly wage is much more than the cost of the toll, and that he was willing to pay more to skip the traffic - even $50!

People's time cost money - either for unemployed people (say, the minimum wage). And this is the main variable that makes people decide between many factors that have to do with time: such as the decision between labor and leisure, or fertility decisions (children cost time and money).

So, the toll system there was totally inefficient - mainly because of two reasons:
1) People were willing to pay more than $8 to avoid the traffic.
2) The excess of carbon dioxide that the cars in the traffic were emitting could have been minimized in the absence of that toll, minimizing as well the costs of the externalities of pollution.

Now, how can this be done? Israel has an interesting system of tolls in Itzhak Rabin Highway (Highway 6). There are cameras located at the entrances and exits to the highway which take pictures of the license plate of your car. Then the pictures are processed and they send you the bill by mail with the cost depending on how long was your ride in the highway, what kind of car you have (sedan or truck) and how many individuals were inside the car. The cost can be around $10 for one ride in average.

People decide to go into the highway depending on factors such as how much time they will save (the highway crosses Israel in a straight line, as opposed to other highways), the price of gasoline (you may save gasoline by using that highway), and of course the traffic.

As opposed to Highway 6 in Israel, in the George Washington Birdge toll you have to pay not only cash, but with your wasted time as well, instead of having a more intelligent system. It is a shame that the State of NY could have triplicated the money they did in tolls during this weekend if they would have send bills by mail asking for even $15.

Think about the time you spend in traffic, and how much money will you be willing to pay not to be in traffic during your whole lifetime. I assure you that your answer will depend on your (expected) hourly wage multiplied by the amount of time you expect to be in traffic. I guess that in a city such as Caracas, people would pay thousands of dollars for assuring themselves a traffic-free city. This money could be used to create more efficient roads, and probably people would be better-off... But yes, I know, this is a crazy idea.

By the way, I didn't catch the last train on time, and I spent the night in Providence. We should have gone back the day after.

Maybe one day...

This is a commercial of the 013 Barak Telecommunications company in Israel. I hope you will enjoy it as I did.

PS: The subtitles at the very end mean: "In real life, this is still not possible. But over the internet, links like these are created on a daily basis".

The opposite...

I was talking the other day over the phone with my good friend "A", and he told me how he saw the convoy of the President of the United States passing through the streets around his office. All the streets were closed, and of course, traffic jams were all around.

So, I told him about the story I am about to tell you now, which is related to some interesting concept of how expectations can change themselves and also change behavior, as economic science suggests.

Well, it was around April 2008, and the US President - George W. Bush - came to Jerusalem in an official visit. I was living in Jerusalem then, and along to all the residents in the city, we were "warned" by the police department that a number of streets will be closed during the official visit. The recommendation was to avoid using any kind of transportation, because heavy traffic jams were expected during those days. Well, when the day came, I called my boss and told him I will work from home (lucky I of having that possibility). My office was in Kiriat Gat, a city located some 80 km distance from Jerusalem, and I thought that on my way back - around 6 or 7 pm - all the streets will collapse in traffic jams.

The day came, and what happened? Well, apparently I was not the only one with the same expectations, and the equilibrium around most of the residents of the city was the same - staying home for the day. The streets were EMPTY... It was more than perfect for those who used their cars that day.

Well, this is not the end of the story. A month later, Bush came back to celebrate the 60th Israel's Independence anniversary in May 2008. Again, all of us, Jerusalem residents, were warned: because of security reasons, most of the streets in downtown Jerusalem (where I used to live) were going to be closed during those days. So, what was the outcome? People, thought that the previous equilibrium was stable, and everybody used their cars that day (including me...). It took me about 3 hours to get from the University to my place at 6pm, when the ride usually takes about 15 minutes. It was really crazy. Everybody was in the same situation. The equilibrium was the opposite of the previous one. People expected all the other people to stay home, and take advantage of an "empty" Jerusalem, free of traffic. Expectations were adjusted to the previous outcome, and people behaved according to those expectations.

So, what is the lesson from all of this? I don't know. But what I do know is that this whole story reminds me of George Constanza when he realized that everything he decides to do is wrong, so Jerry advises him to do the following: "If every instinct you have is wrong, then the opposite would have to be right". And indeed, he goes for it, and everything seems to improve for him. Here is a scene from that episode: "The opposite". Enjoy it!

Relationships and Dominant Strategies…

Well, yes, I know what your first thoughts are. There is no way we can explain relationships with economic science. But let me tell you what I think. As in my first post, everybody acts on a rational way, seeing his own set of information, and having their own incentives to achieve a better utility… And so do men and women in relationships.

So, first of all, I want to introduce you the prisoners’ dilemma. This is a classic game theory example, in which we can see that, sometimes, when one’s outcomes are also determined by other individuals, our strategy as individuals won’t necessarily be the ones that will lead us to the highest outcome or utility.

Consider the following situation (Source: Wikipedia):

“Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one testifies ("defects") for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?”

What do you think? The most ‘rational’ thing to do is that both of them remain silent, and they will serve 6 months each, and we are done. However, if prisoner A stays silent, then prisoner B can testify, and he will go free, while A will be sentenced to 10 years in jail. So A cannot take that risk, he will prefer to betray B, even though he will be better off if both A and B remain silent. So the dominant strategy will be ‘mutual betrayal’, and each of them receiving a five-years sentence, which is clearly not the best outcome they could have achieved if they would have agreed beforehand.

This is similar to women and men behaviors in relationships. When a man starts dating a woman, and they happen to like each other, they will probably want, at least at the beginning, to talk over the phone all the time, or see each other all the time. In many cases this indeed happens, and they are a happy couple – the happiest they can be.

However, this is probably not the common case. Why? Well, if the girl starts calling the guy too much, or vice-versa, then they will be giving a signal to the other that they are “easy to catch”. But usually, in relationships you don’t want this to happen. Girls want to be seduced, and see the man working hard to achieve that. Similarly, men don’t want girls to think that they are too crazy about her or that they don’t have other girls that they can invite as well. Both men and women choose a strategy, the "hard to get" strategy, in which they don’t pay too much attention to the other one…

So what does this have to do with game theory? Well, this is a game. Both the man and the woman will be better-off by avoiding all these “hard to get” games. They will be able to save some time, and avoid uncomfortable situations. But in any case, the equilibrium is to play it the hard way.

Why? Imagine player one stops playing the “hard to get” strategy – and say starts calling more or caring more than usual for the other. Then player two can play two strategies. He/She can respond in the same way, and if they both keep playing that strategy without deviating, they might reach a better outcome. However, if player two decides to play back the “cooperative” strategy, but player one in response starts playing the “hard to get” strategy, then player two will look like an idiot… Player two will be calling and inviting player one, while player one will be indifferent and rejecting some of the invitations at a certain rate. Player two will feel bad about it, and will understand that player one is playing “hard to get”. What is the only response to that? Choosing as your optimal strategy the “hard to get” one.

We finally reach an equilibrium in which men and women choose to play a “hard-to-get” strategy being this one the dominant strategy. And sometimes, even though this can have a positive outcome, it won’t be as high as the other equilibrium (both playing the “cooperative” strategy)… at least in terms of time and avoiding uncomfortable moments.

So, you see... people are rational...