What We Do Not Always What We Want

Customers hate Spirit airlines. Passengers routinely swear they will never fly it again; it ranks dead last in airline consumer satisfaction. Everything costs extra--the seats don't even recline. Planet Money's Zoe Chase and Jacob Goldstein took a trip recently and discovered a new category of customer, what that call hate fliers: "the guy who knows what he's getting into, doesn't like it, but flies Spirit anyway because it's so cheap."  And business is booming.

What gives? People say they hate the airline, that they won't use it again, and then they do, over and over.  Of course, what we say is not always what we do. We have a whole range of aphorisms and admonitions privileging the later over the former, and economists distinguish between stated preferences (the things we say we want) and revealed preferences (what we actually do, taken to be our true preferences).

A conventional economic analysis would say that folks really do want what Spirit Airlines offers; their protestations to the contrary are cheap talk. This is true, but only to an extent.  I argue in my forthcoming book that in some contexts we need to value what people say they want as well as what they do. When our stated preferences are in conflict with our revealed preferences, the stated preferences often contribute more to a common good. But we we head to the checkout lane or click the mouse to buy an airline ticket, the lure of saving a few dollars is too much to resist--even if we think we would all be better off with the alternative in the long run.

Along these lines, the NY Times reports that while the French say they love their local shops and are leery of behemoths like Amazon, they flock to the large online retailers when the discounts are compelling ("Principles are no match for Europe's love of American web titans").  Indeed, France just passed what is called the "Anti-Amazon Law" that promotes small bookstores by limiting discounts, nudging (or forcing) folks to do what they say they prefer.

Five One-Handed Economists, Paying German to Hold Your Money

Planet Money, consistently producing the best economics journalism around, have a couple of recent stories of interest.  (Hey, Adam Davidson: still waiting on you to broadcast the interview with me and Bob Frank that you recorded last year!):

Six policies economists love (and politicians hate),  including eliminating the mortgage deduction on personal income taxes and the health insurance deduction for companies, legalizing marijuana, introducing a carbon tax, and replacing income taxes with consumption taxes (the later two eloquently promoted by Bob Frank in The Darwin Economy). 

Investors pay Germany to hold their cash: as a sign of the topsy-turvy economic times in which we live, Germany's latest bond offering sold at a negative yield: investors are actually paying Germany to hold onto their money for them.  I wonder if I can get a deal like that from my bank.