Ask Ariely: On Free Bags and Free Markets

Here’s my Q&A column from the WSJ this week  and if you have any questions for me, you can tweet them to @danariely with the hashtag #askariely, post a comment on my Ask Ariely Facebook page, or email them to AskAriely@wsj.com.

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Dear Dan,

I live in California, which recently passed a law that lets supermarkets charge 10 cents or more for each paper grocery bag. (The law is now on hold, awaiting a referendum next year.) Though the 10-cent fee isn’t a lot of money, I now find myself regularly bringing canvas bags from home when I go shopping. Am I really so stingy that a dime makes such a difference to me?

—Stacy

I wouldn’t jump to any conclusions about your stinginess. I suspect that this has much more to do with how the supermarket charges for the paper bags than with the amount itself.

Not long after California’s law passed, I happened to be in Palo Alto, and out of curiosity, I went to observe the locals in their natural environment—Whole Foods. I purchased an expensive cup of coffee, positioned myself near the cashiers and watched. Much like you, many of the shoppers either brought their own canvas bags or purchased new ones as they checked out.

I estimated that the average grocery bill was more than $150. Assuming five bags for a load of this size, that is just an additional 50 cents—a small enough amount that no one would be likely to notice if it were simply added to their total. But that isn’t how the process works. Instead, buying bags is set apart as a separate transaction that takes place only after the cashier has finished ringing up the groceries. This separation causes shoppers to pay more attention to the bags’ cost. It makes getting the bags seem more like a tax than a purchase, and it also makes buying bags feel morally wrong, wasteful and environmentally damaging.

That is why the procedure for purchasing the bags is so important: It can take someone who wouldn’t normally pay attention to a small price increase and get them to change their behavior over a few cents.

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Dear Dan,

How could anyone who has observed the world economy over the past few decades doubt that free markets are the only path to growth and success? Isn’t it time to learn this lesson and eliminate all anticompetitive regulation?

—Nick

I’m not sure that I agree. Consider the case of an industry regulated in the following very extreme way to limit competition:

1. There is a minimum and a maximum amount of money that an employee can earn each year and a maximum length of employment. Employees’ bonuses are also limited to certain sizes and types.

2. A company can only spend a certain amount in salary each year, across all their employees. Pay too much, and you pay a fine.

3. New employees can’t pick the company they want to work for. They’re recruited and assigned to a company by a centralized administration. Better employees are more likely to be assigned to firms that did poorly the previous year.

4. If a company’s owners want to sell it, the new buyer must be approved by the owners of the industry’s other companies.

5. About half of each company’s revenues goes into a central tax pot, which is redistributed among all the companies in the market.

6. Employees are subject to random drug testing.

7. While employees are under contract, they can’t negotiate with any other company.

8. Employees can be sold to other companies without their consent.

By now, you’ve probably realized that if you replaced “company” with “team” and “employee” with “player,” you’d get many of the rules that regulate the NBA—a very successful commercial enterprise and, to my mind, an important example of some of the benefits of regulation.

See the original article in the Wall Street Journal here.