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    Why Disney Might Charge Us Less

    Oct 6 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Entertainment, Households, Innovation, Lifestyle, Thinking Economically • 52 Views

    Sometimes record attendance can be a problem.

    When too many people show up at Disneyland, they endure “gruelingly long lines” and gate closures. After all, everyone likes to visit during good weather, holidays and three day weekends.

    Where are we going? To how price makers can control demand.

    Disney’s Problem

    Visiting for a day at Disneyland, an adult will not pay more than $105 and at Walt Disney World, that top price is $99. Add the children and a spouse and you still have an affordable vacation for a middle class family. Those low prices though create traffic peaks that could make a visit somewhat unpleasant.

    How to spread attendance? Disney is considering dynamic pricing.

    A Dynamic Pricing Example

    At the top rated Chicago restaurant Alinea and its sister, Next Restaurant, what you pay (a prepaid ticket) depends on the day and the hour. So yes, as you can see below, the same meal on Saturday will cost more than Wednesday and a 5:30 table is cheaper than 7:00.

    Next Restaurant online reservation prepaid tickets for Saturday, October 10, 2015:

    dynamic pricing and pricing power

    Next Restaurant online reservation prepaid tickets for Wednesday, October 14, 2015:

    dynamic pricing and next restaurant

    We could say that like Disney, Next Restaurant, hopes to spread attendance. Whereas Next makes Wednesdays and 5:30s cheaper, Disney could charge us less for rainy winter weekdays.

    Our Bottom Line: Monopoly Power

    Whenever they have some monopoly power, business firms act more as price makers than price takers. Price makers have the power to shift their own supply curve to a new position. As a result, they help to decide where supply will cross demand to determine price. By charging different prices for the same product, they can cater to different consumers with different demand curves and make less desirable alternatives more attractive.

    Price takers have much less control. Their price is determined by the intersection of a supply curve that many similar firms create and a demand curve shaped by many consumers.

    While Disney knows it has monopoly pricing power, it still is concerned about our response to dynamic pricing.

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    The Connection Between Your Credit Score and Your Love Life

    Oct 5 • Behavioral Economics, Demand, Supply, and Markets, Economic History, Economic Thinkers, Education, Financial Markets, Gender Issues, Households, Labor, Lifestyle, Money and Monetary Policy, Thinking Economically • 32 Views

    Marriage rates are down and the number of never-married adults is up.

    In 2012, one in five individuals who were 25 or older had never been married while in 1960, that ratio was one in ten. In 1960, the typical woman got married when she was 20 and her new husband was 23. Now 27 is the median age for a woman’s first marriage and 29 for a man.

    Being “never married” though does not mean you are single. Close to one quarter of young adults, age 24 to 35, have a partner with whom they are living.

    Where are we going? To the impact of a credit score on a relationship.

    What We Want in a Mate

    Still though, marriage remains a goal for a majority of non-married individuals. The Pew survey that is the source of our data tells us that 53 percent of all never-married adults hope to tie the knot and another 32 percent are not sure.

    Asked what they are looking for in a potential spouse, the men and women are pretty similar except in the “steady job” category:

    credit card scores and forming couples


    However, a new Fed paper says if you want a suitable mate, you need not share how you feel about children, jobs, religion and education. Instead, just ask the person’s credit card score.

    The Meaning of a Credit Card Score

    Looking at data from millions of adults during a fifteen year period, research in a Federal Reserve paper indicates that a credit card score is a lot more than a number.

    Two adults who co-habit (who may or may not be married but are in a committed relationship) are more likely to form a long lasting tie if their credit card scores are both high. Because getting a mortgage or an auto loan will be easier, the hassles that divide couples are minimized. Even smaller credit related commitments like cell phone contracts will not loom as large. Consequently, pairs who both have better credit tend to stay together.

    By contrast, when cohabiting adults have different or low credit scores, the financial stress accelerates. Divergent scores mean the higher one is dragged down by the lower number or the person with better credit has to take on the loan. When both have poor credit, everyday life has extra tension. The result? More of these couples separate.

    Interestingly, the Fed’s researchers suggest that your credit card score reflects your trustworthiness. As the key to non-financial relationships, trustworthiness is an attribute that spills over in almost all that we do. If you have a high credit score, you are probably trustworthy…and if you are more trustworthy, then your interpersonal connections will be more successful.

    Our Bottom Line: Income Inequality

    Called assortative mating, couples with similar attributes form pairs. When those attributes are high credit card scores, elevated earning power and more years of college, the income gap widens because of the extra earning power these couples generate.

    So, if a date asks for your number–that person might not mean your cell phone.

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  • everyday economics and airline boarding

    Getting Bumped Off Your Flight

    Oct 4 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Lifestyle, Regulation, Thinking Economically • 74 Views

    Already in their seats on a flight from Denver, Colorado to an economics conference in Aspen, Nobel laureate Robert Shiller and his wife were asked to leave the plane. Overbooking appears to have been the reason. Why the Shillers? They had booked a low online fare–something Mrs. Shiller said she would never do again.

    When the news hit Twitter, this was the response:

    overbooked flights, time and money


    overbook flights, time and money

    Where are we going? To how an economist would manage an overbooked airplane.

    Overbooking History

    Airlines have been overbooking for decades because of the no-show problem. Originally they minimized the number of grounded passengers on too full flights by limiting the extra tickets that were sold. But then everyone was unhappy. The airlines still had too many empty seats and the bumped fliers were furious.

    In 1976, the Supreme Court gave its okay to overbooking and bumping. The one requirement was a compensation offer to volunteers. As a result, gate agents began to ask passengers to give up their seats for free tickets or vouchers.

    Today, because lost revenue from no-shows remains a problem, airlines try to predict the flights that will have the empty seats. They know that a business person is more likely to skip a flight than a couple returning from a long weekend. They also look at when you bought your ticket and the no-show rate for your take off time and place. And yes, they do know that when the change fee is more than the ticket price, fliers won’t call to switch if they can’t make the flight.

    Our Bottom Line: Economic Solutions

    During the 1960s, economist Julian Simon suggested a market based solution where supply and demand create a price. Ticket holders just had to indicate the price they would accept for flying on a later flight. Called a reverse auction because the sellers were offering bids, his idea made overbooking more attractive.

    The solution from United Express was command and control. Telling Dr. Shiller and his wife they had to deplane, the airline offered an amount that was mandated by the Department of Transportation.

    At this point, implementing a third economic solution from economist Robert Coase, United Express could have permitted Dr. and Mrs. Shiller to offer some, all, or more of what they were promised to the other passengers. Then the Shillers, the people who took the money, and the airline could have been happy (unless it delayed the flight).

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    Weekly Roundup: From Blockbuster Movies to Student Debt

    Oct 3 • Behavioral Economics, Education, Entertainment, Government, Health Care, Households, Lifestyle, Regulation, Thinking Economically • 55 Views

    Posts Roundup

    Wacky Malady Billing Codes Sunday 9.27.15

    Why your medical exam just got longer…more

    Economic news summary and nudge squad Monday 9.28.15

    How government uses psychology …more

    economic news summary and blockbuster movies Tuesday 9.29.15

    What we like in a blockbuster movie…more

    student debt crisis and economic news summary Wednesday 9.30.15

    The size of the student debt crisis…more

    student debt crisis and economic news summary Thursday 10.01.15

    When tuition involves more than education…more


    Economic news summary and retirement savings Friday 10.02.15

    Having enough to retire…more

    Ideas Roundup

    • transaction costs
    • healthcare
    • behavioral economics,
    • market failure
    • regulation
    • inflation
    • externalities
    • human capital
    • federal budget
    • unintended consequences
    • incentives
    • savings
    • Social Security,

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  • Economic news summary and retirement savings

    The Importance of Accurately Estimating When We Will Die

    Oct 2 • Behavioral Economics, Economic History, Financial Markets, fiscal policy, Government, Health Care, Households, Labor, Lifestyle • 77 Views

    In 1992, a group of people in their late 50s were asked what chance they had of living to 75. Researchers then followed the study’s participants to see how many accurately predicted their demise.

    Where are we going? To the problem of retirement saving.

    The Guesses

    Almost half of the people who thought they had no chance of seeing age 75 were wrong. Forty-nine percent of them made it. At the other end, among the individuals who were pretty sure they would be alive at 75, close to 80 percent were correct.

    Retirement savings and longevity

    The Answers

    We are living longer. Below, you can see that for individuals who were 60 in 2010, the median (middle value, not the average) is 81 for a man and 84 for a woman. But a hefty number will live longer, and perhaps much longer. Living to age 86 would not be unusual for a man as well as 92 and beyond for a woman.

    retirement savings and longevity projections


    Retirement Planning

    How we save:

    You can see below how retirement savings vary by income quartile. While the bottom 50 percent depends primarily on Social Security, for higher income individuals, Social Security represents 18.1 percent of their income.

    Retirement saving and income

    From: “Retirement Security in an Aging Population”

    Are we saving enough?

    According to the National Retirement Risk Index, 51 percent of all households have not saved enough to equal their pre-retirement standard of living after they retire. However, a Boston College group of researchers concluded that by working until they are 70 instead of 65, over 85 percent of all households will be prepared to retire with satisfactory income.

    Retirement savings and working long for sufficient income

    From: “National Retirement Risk Index. How Long Do We Need to Work?”

    Our Bottom Line: Micro and Macro Implications

    A growing proportion of the population will be 65 and older. In 2000, the aged, totaling 35 million people, was 12.4 percent of the U.S. population population (35 million). Now, estimates take us to 47.7 million people or 14.8 percent of the U.S. population who are 65 or older. And, at 72.8 million individuals, that proportion will touch 20.3 percent in 2030.

    So, we have a major demographic shift that takes us to individual and macro life cycle planning.

    On the individual level, a study from MIT suggests we think of the elderly population as three groups. The lowest income group is Social Security dependent; the middle group might require additional retirement savings vehicles and incentives and the most affluent group that has more opportunities to save.

    On the national level Social Security, Medicare and Medicaid will be increasingly fiscally challenged as the elderly population expands.

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