Saturday, August 10, 2013

NY City taxis

The LA Times reports "New York's biggest financial winners -- cabdrivers."  The value of a NYC taxi medallion (permit to operate in closed market) has risen to $1.3 million and has recently outpaced the S&P 500. This has occurred in spite of competition from Uber and similar services.

The story is wrong to suggest that the asset price gains all go to the drivers. Most drivers are not the medallion owners.

The Times story does mention the installation of credit card readers enabling customers to pay and tip with plastic. The lazy customer can simply put a check by one of three suggested tip amounts, 15% or 20% or 25%. Most people choose the middle 20%. When the choices were 10% or 15% or 20%, most lazy customers checked the middle 15%.  So push up the middle option. Behavioral economists would have predicted that most people will take the middle choice -- and these people are unlikely to do the math to fill in an amount of their own choosing.

People that print menus and wine lists have known about such strategies for years. But now the science of behavioral economics corroborates what has long been suspected. But this is what social science is supposed to do. How good are the hunches we have developed over many years?  Usually quite good.