The Price of Pink

As I'm sure many of you have been over the last few weeks, I have been costume shopping. Upon finally settling on an appropriately cute and coupley costume (Lola and Bugs Bunny in case you were wondering), I stumbled across a colour which would cost me money, at least relative to my boyfriend, something that as a student looking for part time employment, struck a chord.

My error of searching for colours in accordance with societal norms aside, this price difference made me laugh. Upon discovering that I was not, in fact, the first person to discover this trend, my amusement morphed into something more like tired irritation.
A study carried out by the New York City Department of Consumer Affairs in 2015, found that upon comparison of a number of products for which 'gendered' differentiations were available, women paid more than men for products 42% of the time. Another 40% of the time men and women paid an equal amount, whilst 18% of cases resulted in men paying more than women.
'Pink tax' has been estimated to cost a woman on average $1351 per year, which is considerable when it is also considered that a gap exists between male and female wages.
(As these images attached to a congressional committee briefing show, this price discrimination starts from a young age)
How can this be explained within competitive markets, particularly alongside an increasing public awareness of disparities, however minor, in pricing?
Several factors can be considered when attempting to explain these patterns.
  1. Size of the Market: The decision to use colours traditionally seen as 'feminine' or 'girly' may effectively reduce the number of units sold, whilst the 'gender neutral' colouring of blues and reds are likely to be bought by both men and women particularly if there is a pricing difference (and a persistently strong social association of certain colours with certain groupings of humans...)
  2. Marketing: Women are more susceptible to advertising and product differentiation. The extent to which this holds true is dubious as seen in this market research.
  3. Price Discrimination: Firms lower prices to attract more consumers. If however, a group of consumers tends to be more willing to pay higher prices for the same, albeit slightly differentiated (read pink), there is no incentive for the firm to drop their prices. If a firm finds that women are less price sensitive, there is a greater chance that the firm will decide to keep their prices higher.
  4. Product Differentiation: In certain products, tailoring to differences for a female target market can increase the costs of production. This may be the case with pricing differences in clothing, although the differences are unlikely to be high.
It thus appears unlikely that market forces will seek to eradicate pink tax without public pressure or legislative correction. Indeed it is profitable and makes rational sense for firms to retain price differences if people continue to pay these prices. However economic justification of actions is difficult to equate with the externalities of social costs, individual financial strain or notions of a (granted) subjective 'fairness'.  As written by the  Democratic staff of the Joint Economic Committee:

"Many possible explanations for higher prices on women’s products and services may be valid. However, the overall impact is that it costs women more than men to meet cultural expectations about gender. This is particularly true for products and services for which their use is easily noticed. For example, the money saved by purchasing a musky-scented body wash rather than a floral version or by wearing a loose, non-formfitting shirt may not be worth the social cost for many women."

It is indeed difficult to know the extent of helpful intervention, or whether this issue is at all worth legislative focus. However when considered alongside further costs such as the persistence of a 'tampon tax', pricing differences within services and aforementioned pay gaps, a picture of economic inequality along gendered lines does begin to appear. In my eyes, any appearance of economic inequality at least deserves recognition and serious debate. 
I don't see why price differences systematically affecting a considerable proportion of the population should be any different.

Do you think there is a place for intervention and legislation surrounding 'pink tax' ? 

Game Theory and Drag Queens

→ and how to become Drag Superstar of the World

This is basically a story about how I heard about game theory and then started seeing it everywhere, most notably while watching RuPaul’s drag race.

RuPaul’s Drag Race is the most popular reality show involving drag queens and offers a way for the queens to share their art, but also win a lot of money. To do both of this, the queens have to play smart. This is where game theory enters the stage.

There is probably a name for this effect when you read about something and start seeing it everywhere. This happened to me while watching the second season of RuPaul’s Drag Race All Stars. Game theory only caught my attention marginally during my first year of studying economics, but it made me instantly excited. It analyzes strategic interaction between human beings; how we should act considering what others do. This is not only an important question for economists but everyone engaging with other people, and as it turns out an eminent question for drag queens on All-Stars 2. For those who have not (yet) been amazed by the show, let me lay out the general concept.

RuPaul’s Drag Race is a reality show in the US, where RuPaul Charles (a VERY famous drag queen) hosts a competition between drag queens, and the winner takes home - apart from the title of “Drag Superstar of the World” - the sum of $100.000. Every episode the queens have to master a challenge as well as a runway, and at the end of each episode, the bottom two queens of the week have to “Lip Sync for their life” against each other and RuPaul himself decides which one has to “sashay away” (=go home). All-Stars is a spin-off of the main show, where the audience’s favorite, funniest or most controversial queens who didn’t win their original season compete for the title of All-Star (and again, money).

Now all this sounds like a pretty basic competition, so why not choose Topmodel or The Voice but drag queens? The answer is that drag queens are not only more fabulous and funnier to watch, but All-Stars 2 added a little twist. Every episode, not the bottom, but the best two queens of the week “Lip Sync for their Legacy” and the weeks’ winner receives $10,000 plus the power to eliminate one of the bottom queens. So, in this case, the candidates eliminate each other. This happens every week, and since all the contestants are pretty awesome, it is quite the challenge to not end up in the bottom two. So, what is the best strategy for a queen to maximize her payoff?

First, we have to determine what that payoff actually is. There are two sides to the story. The monetary side which includes the weekly payoffs of $10,000 plus the big prize of $100,000 for the winner of All-Stars. But there is more to the story than that. The show offers a platform for the queens to not only showcase their talents but to gain new fans for their private shows - their source of income after the TV show has ended. So, a second payoff includes potential future income, which can be secured through means of general likeability. The maximum monetary payoff during the show would be $70,000 for the weekly challenge plus $100,000 for winning the show, which would require the player to win every episode - a highly unlikely outcome. For the queens, it is very important to balance these payoffs; of course, they want to win some money, but probably not at the cost of their fanbase. There isn’t necessarily a trade-off between winning money and being liked, they are probably even related (because winning queens win for a reason). But winning money at all cost - like manipulating the competition and not playing fairly - will lead to disrespect from the fans and fellow queens, which can be the final destination in this game.

In Game Theory we try to look for a dominant strategy. That is - in this case - the best way to compete in the show no matter how the other queens behave. It is difficult to find a dominant strategy for our drag race contestants because the queens might have different preferred outcomes. The most obvious goal is winning the show, but considering the many twists, it’s a bit more complicated. A queen might want to maximize her monetary payoff, which would mean wanting to win as many challenges and possibly also win the show. But what about a queen who - given the fierce competition - doesn’t think she can win the show?

When queens join the show, they observe their competitors and estimate their chances of beating them. Although not all of them do this consciously, they still might have a feeling about their general position amongst the queens; those who placed 2nd or 3rd in their season might figure they will be more successful than others who placed 7th or 8th. The queens who think they have good chances at winning will have different preferences and incentives than those who can only try to get as far as possible. The latter will try to receive recognition and maximize likeability to increase their chances of fame once the TV show has ended, which is somewhat their dominant strategy. Once a queen has recognized she has little to no chances at winning she should try to promote herself rather than eliminate competition. She should follow this strategy no matter what the other queens do.

For example, assume Queen 1 has been in the bottom twice now and hasn’t won any challenges, making her likely to be eliminated soon. This queen should follow the outlined strategy despite what the others might do. If Queen 2 starts playing dirty and manipulating the competition, Queen 1 could do the same - which the fans will see and potentially dislike - or be unbothered and continue to compete fair. This “dominant strategy” is more a strategy of adaptability because different situations will require different actions for a queen to increase their fanbase.

Now, what about our queens with chances of winning? They will do everything to be in the top two of the week as often as possible and avoid being in the bottom at all cost. The latter is of higher importance because in that case, her fate would be in the hands of someone else since the winner of the week gets to decide who goes home. But no one can completely eliminate their chances of being in the bottom two, especially as the competition proceeds and those unlikely to be winning in the first place are already gone. There are two questions to consider:

How should a queen play to avoid being kicked off in case of a bad week (bottom 2)?

How should a queen decide to send someone home in case of a good week (week’s winner)?

These are very difficult questions to answer. First, it is important to recognize that the players (the queens) play multiple rounds in this game (drag race), which might change their behavior if they are smart and look ahead. A one-shot game of drag race would be a single episode, which wouldn’t air (as to not change the audience's opinions about the queens) after which the winner takes home a price. But our game - the lip sync and following elimination - is repeated weekly with the same (minus the one eliminated queen) players but increasing stakes so the actions in the first game will influence later games and once we get closer to the finale a queen might even want to change her behavior.

So, let’s assume a Queen A wins the first episode and gets to decide whether to send home Queen B or Queen C. A considers B to be a somewhat strong competition who just had a bad week and C to deservingly be in the bottom two. Two scenarios might happen:

A eliminates B
→ A will have kicked one fierce competitor off the show, that’s great for her. But if A considered B to be strong competition, other will have made the same calculation and now see directly through A’s strategy. Other strong players might feel at risk of being eliminated if their fate was ever in A’s hands. Now if A finds herself in the bottom two of the week she can be sure to be sent home, and possibly at no repercussions for the queen eliminating her, calling out A on her vicious and unfair elimination of Queen B in the first week. (This actually happened on All-Stars 3, one of the queens bragged the entire first episode about how she will always eliminate the strongest competition. She found herself in the bottom two that week and got eliminated with the explanation of wanting a fair competition in which the weakest of the week gets eliminated.)

2. A eliminates C
→ Now if A has judged C to deservingly be in the bottom two of the week (based on the judges' critiques for example) others will have made the same calculations, considering A’s decision of the week as fair and continuing with this approach.

In the second scenario, the queen is appealing to a sense of fairness, which can be tacit (just assumed but never actually agreed upon) or explicit (outspokenly agreed upon). If there was an explicit definition of fairness - which would probably be some guidelines or rulebook defined by the competing queens -  there’d be no fun in watching the show, because every week we’d know what would happen. Luckily enough for us viewers, even if there was an agreed upon concept of fairness, there’d be no real way of enforcing it. If a queen broke the agreement the only way to punish her would be by eliminating her the next time she’s in the bottom, but by then the system will most likely have already been fallen apart.

In the early stages of the competition, where there is a somewhat clear loser of the week we have two different strategies.
Always eliminating the strongest competition.
→ What I have described in the first scenario above might end up in a vicious circle of continuous elimination of the best queens because no one feels safe (I have only watched the first episode of All-Star 3 so I don’t know if this is what happens after).
2. Appealing to a sense of fairness
→ Eliminating the queen who received the worst reviews of the week and “deserves” to go home (very few queens actually “deserve” to go home because they are all fabulous).

I am not too sure about the first one, but the second is what we call a “Nash equilibrium” - a situation in which none of the players have an incentive to unilaterally change their behavior. Or in drag race terms: as long as all the other queens seem to eliminate the least best candidate of the week you should follow this same strategy. It’s like driving a car; when everybody drives on the left, I should drive on the left as well (although this makes no sense, what’s wrong with you England?).

This beautiful equilibrium (the economists' favorite word) will only hold as long as it’s clear who deserves to go home. But as the competition proceeds, this gets increasingly difficult to determine, because as I have mentioned before, presumably there is no explicit rule book for deciding who should go home. While the tacit assumption of fairness during the first weeks might be to send home the queen who has been in the bottom the most or got the harshest criticisms, opinions will diverge later in the show. Should we send home the queen that got very harsh comments from the judges this week but has been great throughout the competition, or the one who got an only mild objection, but has already been in the bottom before?

At that point, a queen might consider secretly switching to eliminating her personal fiercest competition but hiding her intentions as not to be considered unfair or be disliked by the fans. Close to the goal of winning, all the queens will have already achieved recognition and build a solid fanbase, making the final queens wanting to win even more. The stakes will be higher and competition fiercer, so that behavior and outcome will become even less predictable, leaving queens less room to act and more to react to what happens each week.

During the competition on All-Stars, 2 queens with a fair chance of winning should follow a strategy of fair play as long as one can observe the weakest link of the show. As the competition proceeds, this process gets increasingly harder demanding adaptability to a new situation each week.
I regard it very unlikely that the queens (or anyone else for that matter) overthink this as much as I do, but it’s fun to see how economic theories can be adapted to a world as different as that of drag queens.

To conclude, drag race is awesome and so is game theory.
The end

Side note: The whole concept of All-Stars also offers an incentive for new contestants on the main show to distinguish themselves as a character desirable to come back for another season of All-Stars. That way even if the queen doesn’t end up winning her own show she might get a second chance.

Educational Inequality Gaps and Returns to Early Investment

Perhaps it is an obvious statement: investing in early education holds considerable potential for
improving the development of children from disadvantaged households. The extent of difference
such targeted payments can make may prove more shocking.

A policy brief published by the Economic and Social Research Council found that, by the age of 11
only 75% of children from the poorest fifth of British society reach their ‘expected level’ of
development in KS2 compared to 97% of children from the richest quintile.
A more stark figure shows that only 21% of children from the poorest fifth achieve 5 good GCSEs,
whereas 75% of their richer counterparts manage this benchmark.

Even more enlightening are the statistics published by the Department of Education in 2017 which
found that 40% of the development gap has emerged by the age of 5 whilst 40% of disadvantaged 5
year olds fail to meet their expected development standards.
The repercussions of initial developmental setbacks can be difficult to overcome, particularly in the
face of increasing difficulty and demands as children progress through the education system, as well
as the mental barrier that can exist as children struggle to keep up with peers. The described result
is particularly evident in the persistent income gap of those attending university, illustrating a marked
Related image
Apart from the social benefits of creating a society increasingly defined through equalities of opportunity, the Department of Education note that just in the North West of England, improving the development and education of those from disadvantaged backgrounds could provide an extra £3.5 billion in income for Britain.

Certainly the brief outlined a number of targets coupled with budgets assigned to fulfill these, mindful of the difficulties in incentivising good teachers to stay in schools requiring improvement. In spite of this, it appeared a glaring omission was made, with little reference to the pay of teachers employed by state schools.
The above graph illustrates that teachers are increasingly exiting the teaching profession within a state-funded role, with retention rates declining rapidly. With OECD revelations that teacher’s salaries have declined by 12%, it’s little wonder why this phenomenon is occurring. Whether teachers are leaving to seek employment in the private sector or choosing to exit the profession entirely, the issue remains that there is increasingly less to attract both the new and experienced teachers needed to address development gaps. Certainly a migration of teachers from the public sector to the private sector underlines and perpetuates a gap in education delivery as only the more advantaged households will be able to afford quality teaching promised through private institutions.

Thus a certain insincerity has to be noted in government outlines which fail to address the needs of its teachers, whilst claiming commitment to closing a development gap which require significant investment.
Perhaps the following statement is also obvious: increased investment into the incentivization of teachers within public schools and more disadvantaged educational institutions will initiate improvements in development and educational needs.

Do you think the UK government is taking the right approach towards closing the development gap?

Sources used:

The Female Undercover Economist

Why different perspectives in economics are important

Summer means vacation, sun and ice cream, but for me, it also means reading books that I truly want to read. While at university, students are busy reading journals, articles and other course-related material, so after a long day at uni, I'd rather watch Netflix or listen to some music than pick up one of the books that have been stacking up on my table.
So, during summer vacation, I finally have the time (and the right mindset) to relieve my guilt and read all those amazing books that I just had to buy.

After I devoured "Thinking Strategically" - a great introduction to Game Theory - my brain demanded something more chill, but still exciting.
When I first started getting interested in economics I began reading Tim Harford's Blog "The Undercover Economist" and I liked his stories and anecdotes, and enjoyed his writing style generally. So, over a decade after its original publication, I decided to read the book that inspired the blog.

"The Undercover Economist" provides an easy and accessible introduction to the “dismal science” and it was a great summary of my first year of studying economics. Every time he mentioned something I recognized from my studies, the song "celebrations" went off in my head and I felt like a full on expert in economics. Of course, at uni we discuss these topics in much greater detail so - naturally - my brain started nitpicking at some of the simplifications. But as I proceeded to read, I wondered if the easy way was truly the right way in some parts of the book.

In a later chapter, when Harford talks about globalization and its effects, the simplifications made me suspicious. As he outlines the advantages of globalization he also briefly discusses sweatshops, the factories in developing countries that are producing (among others) our Nike products. Sweatshops have been criticised for their harsh working conditions and low pay, and Harford does clarify how horrible these conditions are but explains why people still choose to work there: because their alternatives are even worse.
This kind of argument irritates me generally, because "choosing" between being desperately poor in Chinas countryside or working under conditions leading several people to attempt suicide does not really strike me as much of a "choice". Apparently, this is the kind of simplification you have to undertake when writing an introduction about economics, but what really bothered me was the omission of gender.

The International Labor Rights Forum estimates that 80% of workers in the garment industry are women, so why didn’t Harford mention the gender dimension of globalization?

Globalization is usually associated with economic growth, which in turn relates to better living standards and also - more equality. These desirable (long-term) improvements stand in stark contrast to the current state of the globalization in many developing countries.

Sweatshops attract foreign direct investment, which could be companies investing in the region by building a factory and locating their production there. People are employed and the presence of the firm can lead to improved infrastructure in the area. All this is great because it leads to an accumulation of capital and hopefully serves as an engine for sustained economic growth. This is great for women because as they are included in the workforce they are able to accumulate their own capital, become more independent and - like in the very optimistic epilogue story to Harford's book - start their own business. What hopefully follows is a cycle of continuing improvements in equality.

This narrative of “it has to get worse before it gets better” doesn’t necessarily turn out that way, especially when it comes to the long-term effects on gender equality.  

We know that most of the workers in sweatshops are women and working conditions in most sweatshops are horrible, so, therefore, boycott those companies exploiting women? Not quite. While the companies taking advantage of loopholes in the international system are part of the problem, we rather ought to rethink the process of globalization generally. There is no secret group of men in suits orchestrating the great project of globalization, but a historical process of increasingly close ties between everything and everyone. The problem is not globalization itself but how women are included in the current process. While we cannot change if globalization is happening, we can work on how it is happening, because including women in mostly exploitative labor relations perpetuates bias and leads to reinforcing inequalities.

“Perpetuating bias and reinforcing inequalities” - What is that supposed to mean?

Suppose there is a country where a majority of the workforce is made up of men. A firm sets up a sweatshop and exploits the fact that up until now women have not been included in the workforce at all and probably have few alternatives to make a living. This goes along perfectly with stereotypes of women having "innate skills" for manufacturing work, for example, I mean what woman doesn't have "nimble fingers" that are just born to work on a sewing machine? Our firm hires mostly women simply out of convenience. In this sweatshop the working conditions are very harsh, workers are paid very little and the employees face sexual harassment. These are viable assumptions for sweatshops that try to maximize profits, are based in countries with lax labor laws and live in a world of gender stereotypes. Now, in this country, the men work the "normal" jobs and the women work in "low-skilled" jobs with horrible conditions, which (1) creates an inequality between the genders and (2) perpetuates the bias against women as being suited only for low-skilled labor.

The truth is, that things like bias and stereotypes are difficult to explain and even harder to measure, which is why it is easier for economists to omit them at points. Economic debate is based (or should be based) on carefully researched facts and economic models. If little research is available, that complicates the debate because arguments are mainly built on assumptions that are difficult to verify.

A smart Undercover Economist might ask why there is so little mention of gender in the mainstream debate. One reason might be that the majority of economists are men. Fortunately, there is an increasing awareness that there are fewer women than men in economics and the implications this has.
Living in the world as a woman offers a contrasting perspective to those of men. If there are fewer women in economics, diverse angles and issues outside a man's usual range get lost. This is not men's fault but a result of the society we live in; one in which women and men still face different hurdles and experiences.

I don't think Tim Harford intentionally left out gender issues - on the contrary - after being asked about why the Undercover Economist in his book is male he engaged with the current debate and even changed the character to female, which is great! What Harford did in his book was summarize the main findings and the current atmosphere of economics and the current state of economics is not Tim Harford's fault. The founders of economics such as Adam Smith and David Ricardo were all men and even today at university, most of the models we study and articles we read are written and composed by men and so are most of the professors that teach us. I have not had a single female professor teach me in one of my eight (!!!) economics modules during the first year (Update: I have four more modules in economics this semester and still no females professor).  

So maybe this is why my brain was nitpicking, not only did it tried to connect everything I learned at uni with what I was reading, but it was missing a gendered perspective.

Tim Harford wrote a great book, and even better he realized his gender blindness and did something about it. This is a great example of how economics too can become more inclusive and increase diversity in the process. In the future, it would be great to see many more female undercover economists but also a female perspective in economics.