Tatyana Deryugina (Twitter: @TDeryugina)

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Posted 27 May 15 by arbelos in Musings on Economics

I am an avid Amazon shopper. We currently buy most (non-perishable) household necessities from them, as well as many non-necessities. My overall impression of Amazon is that it is extremely well thought-out. So when I encounter strange phenomena on the website, I assume they are deliberate. However, in some cases it is really hard to see how something is not a mistake.

For example, basic household products like paper towels and diapers are often available in different-sized packages. You would think that a package with, say, three times as many diaper wipe packs, would be at most three times as expensive. However, that is often not the case. For example, as of this writing, a 7-pack of diaper wipes was $10.99, while a 21-pack was $89.99. One jar of diaper cream was $12.80, while a 2-pack of the same diaper cream was $35.75. A 4-pack of OxiClean spray was $20.18, while an 8-pack was a whopping $104.92! It’s very easy to find other examples, so this isn’t some rarity. And this is not like comparing a 2-liter bottle of soda to two 1-liter bottles of soda - the package units are identical, so you can replicate the larger set exactly by buying multiples of the smaller set.

Normally, we expect some price dispersion because there are search costs – you wouldn’t drive to another store to see if something is cheaper there unless you expect it to be much cheaper. But in this case, the prices for both sets are easily visible (you don’t even have to click on the other set to see what the price is). In all the examples above, shipping is free for both sets (though in some cases only for Prime members or orders over $35). And while it may not be easy to recognize that, say, that $43 is bigger than $13.85*3, it’s very obvious that $10.99 times 3 is less than $89.99.

As far as I can tell, only two explanations are possible. One is that consumers are so inattentive that they don’t notice these pricing discrepancies. However, given the size of the discrepancies and the ease with which you can see them, I would be surprised if that were the case (if you work for Amazon and can tell me how often people buy the more expensive version, please do!). The alternative explanation is that sellers are not paying attention to how their pricing compares to Amazon. In all the examples above, the more expensive product is sold by someone other than Amazon (though sometimes Amazon is the one shipping the orders). Perhaps their pricing algorithms are not working as well as they should. Or maybe there’s another, less boring, explanation, but I can’t think of it. Please let me know if you can and watch out for this strange pricing!

Posted 18 Feb 15 by arbelos in General

Matthew Yglesias was kind enough to write about my research on Vox this week. Here is the link.

Posted 22 Jun 11 by Tatyana in Musings on Economics
Last month’s Journal of Economic Behavior & Organization has an interesting article titled "Hayekian anarchism”. I’m reposting the abstract below, but here’s the punchline: "Hayek should have been an anarchist.”

Posted 21 May 11 by Tatyana in Books
I just finished reading "Poor Economics” by Abhijit Banerjee and Esther Duflo, both MIT economics professors. The book was amazing and I highly recommend it. In summary, it is an excellent, evidence-based discourse about the behavior of the poor and the policies that work and don’t work to improve their lives. Abhijit and Esther cover how the poor make decision about how much to save, eat, and spend on their children’s education, why so many poor households run businesses but don’t become rich, and how political institutions can be improved.

Posted 10 May 11 by Tatyana in Movies

Following a friend’s recommendation, I sat down and watched "Inside Job”, a 2010 documentary by Charles Ferguson about the role of the financial sector in the recession. At least that’s the neutral way of putting it. It would be more accurate to say that "Inside Job” is about how the financial sector (plus some academic and government helpers) caused the recession. The interviewer was impressive in that he seemed to succeed in annoying many of the people who disagreed with his views. I expected the movie to be more neutral, but it definitely felt more like a Michael Moore documentary than like a Discovery Channel one. That said, the line-up of people that Charles Ferguson interviewed (I assume it was him) was impressive, from John Campbell and Dominique Strauss-Kahnto Glenn Hubbard, Elliot Spitzer, and Paul Volcker.

Posted 02 Apr 11 by Tatyana in Musings on Economics
Someone forwarded me an article about a controlled study that found that people who went up escalators were more charitable than those who went down escalators. I am amazed at how easily psychologists find statistically significant effects from trivial-seeming things while economists struggle to get them for big picture things, like the effect of job training on earnings or the effect of tutoring programs on grades. The psychology studies I’ve seen typically have fairly small sample sizes (50 people in the control and 50 people in the treatment is not uncommon) and don’t do anything extreme to the treatments. Yet the effects are often large and statistically significant.

Posted 04 Mar 11 by Tatyana in Musings on Economics

I was watching an economic analyst a couple of days ago giving predictions and describing most pressing concerns for today’s economy. She was particularly concerned about rising gas prices and referred to it as "inflation” several times. At first, I cringed. I was taught to think that inflation was an overall increase in prices. If only oil prices go up, that’s a real price increase, not "inflation”.
  Of course, we do know that oil prices affect transportation costs. And given how global our economy is, that might cause the price of many goods to increase. Inflation is defined as "a general and progressive increase in prices”. Well, "general” is in the eye of the beholder. We’re certainly not going to measure the price of every good and come up with an inflation index based on that. Because inflation is computed using a particular basket of goods, a rise in oil prices might (and probably will) lead to an increase in the inflation index.

But I do wonder about those goods left out of the computation of the inflation index. If we included every good, would the inflation rate over the past 30 years be vastly different?

Posted 02 Mar 11 by Tatyana in Musings on Economics

I recently had a debate about unions with someone who knew slightly more about the state of the economic literature on the topic than I did. I know close to nothing about union economics specifically. Nevertheless, I hope that I am qualified to use general economics to shed light on what’s going on in Wisconsin and with public sector unions elsewhere.

The simplest way to think about unions is as having some market (monopoly) power. In other words, they are able to negotiate higher salaries/benefits than if each individual bargained for him or herself. Putting aside the benefits to the unionized and employed workers (which are clearly positive), what can be said about social welfare as a whole?

Posted 24 Feb 11 by Tatyana in Musings on Economics

…me! I have officially confirmed that I will be starting as Assistant Professor at the University of Illinois at Urbana-Champaign next year. The job market was a truly unique and surprisingly fun experience, but I am glad it’s over for many reasons:

  1. I have a great job with great colleagues!
  2. I get to catch up with my classmates and others I haven’t seen in months.
  3. I started running regressions again this week, for the first time since December or so.
  4. Yesterday, I went to the gym for the first time in about a month. It hurt.
  5. I get to eat my own food in my own home. I never thought I’d say this, but by the end of it all, eating out was no longer exciting.
  6. I can focus on this whole graduation business now.

Good luck to everyone who’s still in the process of figuring out where they’ll be next year!

Posted 20 Feb 11 by Tatyana in Musings on Economics

A recent NBER working paper by Morck and Yeung outlines the perils of instrumental variables. In addition to the standard "weak instruments” and "lack of exogeneity” problems, the authors describe a third problem that received much less attention – that of latent variables. Others have written about this issue too, but this happened to be the first paper where I encountered it.

Suppose you use an instrument to identify the causal effect of education on earnings and someone else uses the same instrument to identify the causal effect of education on health. You both get amazing results and submit to the top journal of your choice. What should the journal think?

Well, if there’s no fundamental relationship between health and earnings, you’re both ok. It just happened that education affects both. However, if there is a causal relationship between the two, as there is likely to be, then neither of your analyses is valid. Healthier people probably have higher potential earnings because they are more productive and those who earn more may be healthier because they spend more on their health.  You could try to control for health in the regression of education on earnings or for earnings in the regression of education on health, but then you need another instrument, which may have the same issues. How’s that for dismal?

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