A class apart

Have you ever wondered why most tourists travel economy class while corporate employees with much less salary fly in a higher class on airlines? Well you’re not alone. You say that’s because their companies pay for their tickets, I respond why do the companies buy “business class” tickets while “economy class” tickets would come at a cheaper price-tag.  You are smarter and you retort, “That’s because the company is in a non-price competition for employees with other corporates”. Well done, but why can’t the company just pay higher wages? What’s so special about flying your employees in style?

The answer is employees like comfort. And when they’re comfortable, they work better. Giving them a permanent source of comfort such as a nice cabin would incentive them to work harder and be more loyal as they are unlikely to find a better job with similar comfort elsewhere. But temporary comfort provided by a class upgrade on a flight has a similar albeit more immediate effect. My mom was always given “economy class” tickets for domestic flights but “business class” for international ones by her employer. This might seem bizarre, as domestic flights are cheaper. But first-class travel/business class travel on international routes with several hours of flight time tends to be more comfortable. But what does her employer gain? Well her company gets an employee who lands fresh after a long flight for a meeting. But my mom too now has greater incentives to want to attend such meetings for they entitle her to business class travel. While a good cabin would have made my mom more loyal on the long run, business class travel makes my mom more willing to go on foreign trips to attend meetings. Since travelling for ten hours or more is a real discomfort, my mom’s company effectively compensates her by offering a better service class on the airline. Unlike other benefits a company offers, business class travel has immediate effects on an employee’s productivity because the employee can now travel more comfortably and arrive fresh for a meeting. The employee also has an incentive to travel and be away from his/her family.

Instead of having disgruntled and/or tired employees attending your meetings at a foreign location, it is better to buy them a “business class” ticket. An employee is more likely to look forward to a meeting when he is flown in and out in style! Business class is the “efficiency wage” model of our times. Now, surprise yourself. Next up, why do you study right before exams and not earlier despite several self-promising resolutions made to the contrary? 

The cost of getting married

I have wondered, oft times, why on earth are Indian marriages so extravagant and why they are so expensive. It seems that there are several lay-man explanations for it. The most common one is that expensive marriages are not a choice but a duty prescribed by tradition. I however tend to disregard such arguments for they don't offer a reasonably sound explanation for expensive marriages. The next popular one is that marriage is an opportunity for rich people to show off their wealth, but that doesn't answer the question at all for there are many ways to be ostentatious. For example, why not just have a super-extravagant house party or drive around in a limousine?


Marriages are a way for parents to fulfill their parental obligations is an argument that is at least understandable but it still fails to explain why a bequest of the same amount would be any worse. In fact most sons and daughters would prefer bequest to an expensive marriage. One other reasonable argument is that marriages confer many benefits packaged into one-marraiges bring families together, help rich people show off their wealth and fulfill religious obligations as well. The only problem with this argument is that all these benefits can be enjoyed in any religious function or a family gathering, why bother spending it all on a marriage?


My explanation for expensive marriages is that it acts as an insurance against divorce and/or family break up. To see why, say suppose a family spends 100,000$ (a huge amount for indians) on a marriage. The longer the marriage survives, the lesser the cost-per-succesful-year-of-marriage. Say this particular marriage survives for 40 years, the average cost is 2,500$. On the contrary, if the marriage survives only a year, the average cost is 100,000$. Any heir who cares about his family wealth will want to reap the benefit of marriage for as long as possible, so as to keep the average cost down. If this explanation is hard to stomach, consider the allegory of the train pass. When you a purchase a year-long   train pass and travel only for a day, you lose. You're better off using the train service more frequently or not buying the pass at all! Marriage is a one-time investment, to make the most of it, you need to be married longer. Couples will then only consider divorce if the benefits of marriage are out-weighed by the benefits of living alone and the cost of marriage is less than what it would cost to keep the family together. Some might consider marriage itself expensive if all marriages become expensive and decide to remain single, which might be less costlier than a huge extravagant marriage with thousands of people.


Dowries have a similar rationale. I don't think dowry is a good idea, for unlike voluntary splurges on marriages, parents who have to pay the dowry don't think about the longitivtiy of the marriage. They only think of it is a due that must be paid. But in any case, dowries act in a similar fashion. A girl whose parents have paid a huge dowry to get her married will be more careful with her marriage. However there is also a catch. Dowries incentivize the boy's family to harass the girl since they know that the girl would stick on despite being harassed. To prevent this asymmetry, I am totally against either the boy's or girl's family taking up all the cost of the marriage. An even spread would ensure that the costs of marriage weigh upon the decisions of the respective families when they decide to severe ties! Also, dowries when shared equally are better than just marriages for if they are in the form of money or investments, they can be re-used for other important expenses. I don't like the word ''dowry", "mutual pre-marital colletaral" sounds better. Next up, why do employees "on-duty" fly business class more often than tourists? 

We are all rational?

I don't claim to pioneer a tradition of applying rational choice models- I have far more successful, serious and older economists as models to look up to- Levitt, Landsburg, Becker and many others.  Yet, I was inspired by them to consider blogging about what I see around me. While they may offer better explanations to the events I observe, they cannot possibly theorize what I see around me in my cultural context and everyday life. Therefore, I have attempted to do just that and I encourage the readers of my blog to do the same. 

It seems impossibly absurd, never mind controversial to suggest that we are all rational. Some among us spend millions on marriages, smoke cigarettes, drive recklessly and all of us take risks we're not supposed to take like traveling without a ticket on a train or skipping a traffic signal while driving, all fully aware of the consequences. In all of the above cases, we're perfectly rational creatures balancing risks and returns, comparing costs and benefits and doing things only if they are worth the risk. We sometimes do it badly, I admit. We sometimes think the benefit of an extra cigarette is greater than the cost of cancer (seemingly an irrational choice), yet this is not an example of how irrational we are but how rational we are that we at least did the calculation. We don't always do this calculation on calculators (in fact, it would be hilariously stupid of us to calculate the probability of meeting with an accident using calculators while driving), but rather we do it in our heads, just like tennis players anticipate where their opponents are going to hit without ever using game theory (maybe their coaches do use it!).  We being rational is natural to us humans (and also animals who successfully hunt and dodge hunters). What makes us irrational (if that's even possible) is that we fail to apply this rationalism to everything we do and everything others do. 

Paraphrasing an old saying that everything happens for a reason, I'll sum up my first post this way- We believe that everything we do has a reason behind it, a rationale, or else we simply wouldn't do it or we would do something else or do the same thing differently! Apply it to every creature you see around and you will realize that those creatures are doing what they're doing because they know its rational! Let me start with why people spend fortunes on marriages and why the system of dowries is more than just an old tradition!