Economists Do It With Models

Warning: “graphic” content…

Bookmark and Share
From The Vault: Why I *Heart* Honest Tea…

May 4th, 2010 · 11 Comments
From The Vault

The original post is from 2008, and it still makes me smile.

——————–

Most people that know me know that I like dorky econ jokes. I think I also like products that feature dorky econ jokes on their labels. Behold the label from my beverage of choice:

I swear that this was not on purpose- this label is from Honest Tea’s Green Dragon Tea, which is a lightly sweetened green tea with passion fruit flavor, and I picked it up without examining the text on the label. (The label is different on other flavors.) I do, however, appreciate the sugar optimization analogy, though the more picky among you will notice that their optimal point is technically not quite at the top of the curve. Maybe their sugar choice is the result of some sort of cost-benefit analysis that is not fully shown here. 🙂 (Sugar isn’t free, after all…)

If you are curious, the Barry of Seth and Barry is Barry Nalebuff, a professor at the Yale School of Management, and Seth was one of his MBA students.

Tags: From The Vault

11 responses so far ↓

  • 1 Dan Hirschman // May 4, 2010 at 9:34 am

    I believe the trade-off is taste vs. calories. The first two tsp are worth it, as there is a large increase in taste. After that, the small increase in taste may not be worth the calories!

  • 2 Trent Rock // May 4, 2010 at 12:45 pm

    Hahhahaha….you’re right…the very FIRST thing I noticed it was not at the optimal peak of curve.
    I’ll have to try Green Dragon. I currently consume Arizona Diet Green Tea w/Ginseng.

  • 3 econgirl // May 4, 2010 at 1:13 pm

    You should…as long as you’re not boycotting your former option because it has Arizona in the name. 🙂

    http://consumerist.com/2010/04/arizona-iced-tea-dont-hate-us-were-made-in-new-york.html

  • 4 Dave Jones // May 4, 2010 at 2:58 pm

    Of course, if they’d learn to brew their tea properly, it wouldn’t be bitter, and they wouldn’t have to add any sugar at all. So, in that sense, this tea is a waste of valuable resources. That sugar could have been put to better use.

  • 5 econgirl // May 4, 2010 at 3:38 pm

    Or it could be the case that the cost of learning is greater than the (present-value) cost of the sugar they use. 🙂

  • 6 altereggo // May 4, 2010 at 4:33 pm

    And you know it’s an econ graph because they NEVER label the FREAKING UNITS *\math-rage*

  • 7 steve // May 5, 2010 at 12:12 am

    Well they are not optimising for taste alone, they are probably optimising for multiple factors mostly likely including calories. tho drawing the 3d graph might be a little difficult.

    but dam I want some now. this would be great on an afternoon at the office, I wouldn’t even need to call the time to drink it a break.

  • 8 Charles Dolci // May 5, 2010 at 12:31 am

    Let’s see – Barry has a Ph.D. in econ but he brews tea for a living. Is this typical of the job prospects for people with Ph.D.s in economics?
    Econgirl – is this the kind of career path you envision?

  • 9 econgirl // May 5, 2010 at 2:54 am

    Well, I am pretty sure that Barry still works at Yale, so tea does not seem to be his full-time vocation. Also, I sell t-shirts on the Internet and want to be a writer for the Daily Show, so I’m pretty sure I am not the ideal person to ask.

  • 10 Barry // May 10, 2010 at 10:02 am

    Dear Teaconomics fans,

    I’m delighted that you noticed the dot isn’t at the top of the curve. That was intentional. Here’s what I was thinking — that doesn’t mean I’m right, but allow me to weigh in.

    Dan was spot on. People care about features other than taste. Consumer care about calories and manufacturers care about cost of ingredients. By the envelope theorem it follows that cutting back the sugar from the level that would have maximized taste only leads to a second-order loss in taste. But there’s a first-order gain in terms of calorie reduction and a first-order savings in terms of ingredient cost. Indeed, we would not be able to afford organic honey, agave, maple syrup if we put in twice as much.

    It always struck me as peculiar that beverage companies designed products to win in a blind taste test. That leads to a search for the optimal taste and ignores all other dimensions. It also leads to beverages that are all too sweet.

    As for my day job, I’m a professor at Yale where I teach game theory, strategy, innovation, and negotiation. You can check out some of my books at whynot.netartofstrategy.net, and lifecycleinvesting.net.

  • 11 econgirl // May 10, 2010 at 7:25 pm

    Thanks Barry! =D Personally, Co-opetition is my favorite- one of my professors even put a few chapters of it on the reading list for my qualifying exam in strategy.

Leave a Comment