I Heart Econ! (And despite that, this is still interesting)

I can trace the start of my economics obsession to a single day in 1993 in my microeconomics class at Washington University in St. Louis.

Our professor always assigned homework questions infamous for forcing us to look at the world around us a little differently through the lens of economics.  We would write up our answers, turn them in, then discuss the answers in class so our hopes for a good grade could be crushed immediately. 

On this particular day we faced the following question: Convenience stores are presumably in the business of providing their customers with convenience.  But one of the most popular convenience items – sodas – is always stored in refrigerators at the back of the store (this was true in 1993).  This forces customers to walk all the way to the furthest point in the store and then walk all the way back.  Why do they keep the drinks at the back of the store? 

How would you answer?

Chaos Erupts

We turned in our homework and began our discussion.  Our class quickly united around a common answer: stores wanted their customers to walk through the entire store so they would pass other items on the way to their soda and make impulse purchases, thus improving their bottom line.  Our professor unapologetically pushed back saying despite popular belief to the contrary, convenience stores had to compete on convenience and would not voluntarily make shopping tougher for its customers.  He said the refrigerators were in the rear of the store because they were hot, noisy and loaded from the back.

Something approaching a classroom riot ensued, with most students loudly accusing our teacher of being some sort of naive corporate shill.  After a couple minutes of revolt, one kid in the front row sheepishly raised his hand and was called on.  He said, “I didn’t know the answer, so I went to a convenience store and asked them why the sodas were in the back of the store.”  Our professor – quite confidently – asked, “And what did they say?”  He said, “They told me it was because the refrigerators were hot, noisy and loaded from the back.”

Intellectual Iron Man

Two things about the exchange continue to captivate me after 25 years.  First, almost everybody in the class… smart, well-educated people, could not or would not see the reality of the situation.  Something in their thinking was systematically off or biased.  (An excellent topic for another time!)  But looking at the world through a lens of economics yielded an answer that matched reality.

Second, over time the answer in class that day let you predict the future… as refrigerator technology improved making them quieter and cooler, stores added refrigerators to check-out aisles, enhancing customer convenience, just as proper application of microeconomic theory suggested they would!

A way of thinking that allowed those who applied it to see things others couldn’t and to accurately predict the future struck me as about as close to a superpower as I would ever come.  (Again… yes, I am super-fun at parties).  Since the day of that class, the same principles proved their worth again and again in my life.  I really want more people to know them and see the world a little differently.