Skip to main content

Cottage holidays and social norms

For those unfamiliar with cottage holidays, the ideas is pretty simple: You rent a house, bungalow, or beach hut for a week or more, make yourself at home, relax and enjoy. What I want to explore is how different the experience feels in the UK and Denmark.
      When you arrive at a cottage in the UK you can expect ample supply of toilet rolls, kitchen towels and logs for the fire. There will almost certainly be a library of books, CDs, DVDs and local maps for you to enjoy. Bed linen is provided free of charge. At one cottage we recently went to there was a complimentary bottle of wine.
     Contrast this with Denmark. Here you have to pay for any electric, water and gas you use. Don't expect any toilet rolls or kitchen towels, let alone a complimentary bottle of wine. There's no library. Bed linen, or anything else, comes with an extra charge.
      Which system would you prefer? The economist in me says that I am supposed to prefer the Danish system. All the 'complimentary' things that are provided in a UK cottage are clearly added on to the overall bill. So you ultimately end up paying for them. Which means we are almost certainly better off in the Danish system because we use less than the average in terms of gas, electric and water, we're happy to bring our own bed linen, and we don't really like drinking cheap wine.
      There's something about the Danish system, however, that we don't like. To understand why it is necessary to think about social norms. The UK system makes you feel more at home. You feel like a welcome guest. You can relax. The Danish system puts more emphasis on money. These reminders of the fact you are paying money, e.g. reading the utility meters at the start and end of the holiday, crowd out the 'welcome' feeling. You are not a welcome guest, you are a paying customer. This makes it a bit less pleasant. I'm sure it also means guests will take a bit less care of the cottage during their stay.   
     The more general point this contrast illustrates is how social norms and money don't mix all that well. The cottage holiday system relies heavily on social norms. You are trusted to look after the cottage, to not steal anything, and to basically leave the place as you found it. The UK system with its complimentary bottle of wine lets social norms dictate. The Danish system with its itemized costs risks crowding out social norms. Which may explain why guests cannot be trusted with a library. 
      This kind of trade-off between social norms and money is very common. Consider, for example, effort in the workplace. In most jobs you inevitable have to put some trust in workers to do their best. You cannot constantly monitor performance. The more 'performance targets' and the like a worker is subjected to the more the social norms to do a good job are crowded out.
      Be careful, therefore, when mixing money with social norms. As Dan Ariely discusses in his book Predictably Irrational it is a not a good idea to mention how much the dinner cost on a first date. 

Comments

Post a Comment

Popular posts from this blog

Revealed preference, WARP, SARP and GARP

The basic idea behind revealed preference is incredibly simple: we try to infer something useful about a person's preferences by observing the choices they make. The topic, however, confuses many a student and academic alike, particularly when we get on to WARP, SARP and GARP. So, let us see if we can make some sense of it all.           In trying to explain revealed preference I want to draw on a  study  by James Andreoni and John Miller published in Econometrica . They look at people's willingness to share money with another person. Specifically subjects were given questions like:  Q1. Divide 60 tokens: Hold _____ at $1 each and Pass _____ at $1 each.  In this case there were 60 tokens to split and each token was worth $1. So, for example, if they held 40 tokens and passed 20 then they would get $40 and the other person $20. Consider another question: Q2. D...
Post a Comment
Read more

Measuring risk aversion the Holt and Laury way

Attitudes to risk are a key ingredient in most economic decision making. It is vital, therefore, that we have some understanding of the distribution of risk preferences in the population. And ideally we need a simple way of eliciting risk preferences that can be used in the lab or field. Charles Holt and Susan Laury set out one way of doing in this in their 2002 paper ' Risk aversion and incentive effects '. While plenty of other ways of measuring risk aversion have been devised over the years I think it is safe to say that the Holt and Laury approach is the most commonly used (as the near 4000 citations to their paper testifies).           The basic approach taken by Holt and Laury is to offer an individual 10 choices like those in the table below. For each of the 10 choices the individual has to go for option A or option B. Most people go for option A in choice 1. And everyone should go for option B in choice 10. At some point, therefore, we expect the...
Post a Comment
Read more

Nash bargaining solution

Following the tragic death of John Nash in May I thought it would be good to explain some of his main contributions to game theory. Where better to start than the Nash bargaining solution. This is surely one of the most beautiful results in game theory and was completely unprecedented. All the more remarkable that Nash came up with the idea at the start of his graduate studies!          The Nash solution is a 'solution' to a two-person bargaining problem . To illustrate, suppose we have Adam and Beth bargaining over how to split some surplus. If they fail to reach agreement they get payoffs €a and €b respectively. The pair (a, b) is called the disagreement point . If they agree then they can achieve any pair of payoffs within some set F of feasible payoff points . I'll give some examples later. For the problem to be interesting we need there to be some point (A, B) in F such that A > a and B > b. In...
Post a Comment
Read more