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On Economists Giving Thanks, And The Avoidance Of Arms Races…

November 28th, 2013 · 3 Comments
Behavioral Econ · Buyer Beware · Game Theory · Policy

First off, HAPPY THANKSGIVING! I am very thankful that you all read my online ramblings 🙂

Once you get drowsy from eating too much Thanksgiving dinner (and no, it’s not the turkey, that’s mostly an urban legend, unless of course you ate the entire turkey), you should feast on what Dan Ariely has to say about giving:

Also, it’s a bit late for dietary advice, but in case you are curious how behavioral economists think about planning a Thanksgiving meal, this is totally for you. Actually, it should probably be for everyone, given that the average Thanksgiving dinner contains about 4,500 calories, or, for context, the recommended caloric intake for at least two days. If you feel like this excessive smorgasbord of calories has been getting more extreme as of late, it’s likely at least in part because the stuff that goes into making Thanksgiving dinner has gotten much cheaper in real terms over time.

Soooo…you may have noticed that I am writing rather than eating turkey and making awkward small talk with family members on this fine Thanksgiving day…that is largely by design, and the photos of the airports and train stations that have been floating around on the Internet suggest that my strategy is in fact optimal on a number of levels. (I suppose it also helps that I am not alone in choosing this strategy and that restaurants in Boston are more than happy to exchange money for turkey and stuffing…and cocktails.) Even so, I am quite pleased that Massachusetts is one of (I think) three states that has blue laws that prevent most retail establishments from opening on Thanksgiving. (Since Massachusetts is a small state, it’s probably helpful to know that the other two states with such laws are Rhode Island and Maine.)

But wait- shouldn’t I be against seemingly arbitrary regulation? Yes, and I am more than happy to explain myself…but let me give you some more Massachusetts fun facts first:

Until a few years ago, blue laws in Massachusetts stipulated that liquor stores in Massachusetts couldn’t be open on Sunday unless one of two conditions was met- either the store was located within 3 miles of the New Hampshire border (since liquor stores in New Hampshire were open on Sundays and it was easy for customers near the border to take their dollars out of state) or it was between Thanksgiving and New Year’s Day (I have no idea what the reason was for that one). Once discussions about repealing said laws began, many were surprised to find out that many liquor store owners were vehemently opposed to repealing the law. Their (likely correct) reasoning was that people knew that the liquor stores weren’t open on Sunday and, in most cases, planned accordingly, so opening on Sunday wouldn’t add a while lot to overall demand. It would, however, add to the store’s cost, so it would lower the store’s profits. (In other words, the store owners didn’t think that the incremental demand would cover the variable costs associated with being open on Sunday.) Furthermore, it wouldn’t make sense for a single store to refuse to open on Sunday, since customers could easily find one that is open and therefore don’t have an incentive to plan ahead. Overall, repealing the law was probably good for consumers but probably not good for producers.

Most of the same logic holds for stores being open on Thanksgiving, since both scenarios have the characteristics of a prisoners’ dilemma, or, more specifically, an arms race. Each store believes that it has to do what all the other stores are doing (or even more) or their customers will go elsewhere, so we end up in situations where stores are opening on Thanksgiving and trying to get people to shop rather than enjoy their Thanksgiving dinner. Consumers, for their part, see many deals that are either for a limited time or that will run out of stock quickly, so they (perhaps rationally) are compelled to forgo the turkey for the shopping sprees even though most of them would prefer to have a nice meal with family and do the shopping later.

The thing about both the prisoners’ dilemma and the arms race is that all parties are better off if their actions are constrained. In the same vein, Massachusetts is (probably unwittingly) being mostly helpful by constraining the actions of retailers- people can have their Thanksgiving dinner and still make it to the stores when they open, no one is cajoled into working on Thanksgiving (I get that this reduces labor hours, but the general consensus appears to be that retail workers don’t want to work on turkey day), and the stores aren’t likely to see their sales suffer, since it’s unlikely that the Thanksgiving shopping is actually incremental spending. (There’s not even really an incentive to go shop out of state, since customers will have the same deals available in Massachusetts on Friday morning.)

Or, in short, both Massholes and the businesses that they frequent should give thanks to their state government for helping to nip a coordination failure in the bud. Regulation that turns out to be useful- looks like a Christmas miracle came early this year. =P

Tags: Behavioral Econ · Buyer Beware · Game Theory · Policy

3 responses so far ↓

  • 1 Jeff // Nov 30, 2013 at 10:48 pm

    Thanks for the read. This is a good explanation of a topic I wish more economic pundits understood.

    For similar reasons pro-union policies will help economies where higher wages encourage growth and will hurt economies where higher wages discourage growth (or alternatively pro-union policies will help economies that rely on small businesses for growth and will hinder economies where economic growth is helped by favoring large businesses over their smaller competitors).

  • 2 Michael Guthrie // Dec 2, 2013 at 8:34 pm

    I’m wondering how closely open stores on Thanksgiving matches an arms race. Isn’t it equally plausible that the stores are a) matching preferences with a subset of customers who would rather be out shopping rather than, say, arguing with family members, and b) allowing employees access to extra hours/increased wages? If this is the case, wouldn’t blue laws work (arbitrarily) against these preferences, which let’s be frank, aren’t all that problematic in the grand scheme?

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