How to Be an Economic Naturalist

Economist Robert Frank of Cornell University asked his students to write about puzzles from their own lives and explain them using economics. He called this being an economic naturalist, like a naturalist who explains why birds or plants behave as they do. His book The Economic Naturalist collected many of these puzzles.

The core toolkit

Most everyday puzzles can be solved with a few ideas:

• Cost-benefit principle: people and firms act when benefits exceed costs.
• Incentives: people respond to rewards and penalties.
• Opportunity cost: the value of the next best alternative.
• Price discrimination: firms try to charge more to those willing to pay more.
• Market power: fewer competitors mean higher prices.
• Behavioural biases: people are not always perfectly rational.
• Fairness norms: people care about fairness, which limits firms’ actions.

The puzzles in this module

• Popcorn prices: price discrimination and revenue sharing.
• First mangoes of the season: scarcity and willingness to pay.
• Airport prices: rent and market power.
• Sachets: liquidity constraints.
• Milk at the back: store design and behavioural nudges.
• Gym memberships: overconfidence and present bias.
• Taxis in the rain: fixed prices and labour supply.
• Jewellery clusters: Hotelling’s model and search costs.
• Umbrella prices: fairness norms.
• Third-class carriages: damaged goods.
• Coupons: self-selection.

Your turn

Try explaining puzzles like these:

• Why do some restaurants offer free water refills but charge a lot for soft drinks?
• Why are wedding season prices so high?
• Why do many phone plans include “unlimited” calls?
• Why do shops give free samples?

Ask: who benefits? What are the costs and incentives? What alternatives exist? Are people behaving rationally or with biases?

Why it matters

Being an economic naturalist makes you a smarter shopper, worker and citizen. You start to see the hidden logic behind prices, rules and choices all around you.