In 1997 a collection of the great and the good on the behavioural side of economics investigated a seemingly minor question which allowed them to consider the assumptons of traditional economics. The four authors, Colin Camerer, Linda Babcock, George Loewenstein, and Richard Thaler, wanted to know why it is sometimes hard to hail a cab. Taxis makes an interesting setting to investigate because the cab drivers largely control their own working hours. Furthermore records are kept in the form of “trip sheets” and meters. These records are kept for reasons other than to help the researcher which argues that the quality of the data will be reasonable.
The economic assumption tested is seemingly reasonable. That people work harder the more they are paid. Is this true? For the cab drivers it would seem not to be. One might expect that drivers would want to work more when demand is higher, for example, when it is raining. High demand means that the driver can make more money per hour as he or she wastes less time waiting for fares.
But we do not see drivers working longer on good days. Instead we see, “drivers tend to quit early on high wage days and to drive longer hours on low wage days.” (Camerer, Babcock, Lowenstein and Thaler, 1997, page 408). This is especially true for inexperienced drivers. What seems to be happening is that the cab drivers have daily earnings targets and go home when they reach the target. The target is achieved more quickly on high demand days and so the drivers go home earlier. Interestingly this leaves fewer cabs running on high demand days. You can’t get a cab on a rainy, high demand, day because drivers don’t behave as traditional economic assumptions would predict.
If you can’t get a cab on a rainy day take comfort in the fact that we can learn a lot from your misery.
Read: Colin Camerer, Linda Babcock, George Loewenstein, and Richard Thaler, 1997, Labor Supply of New York City Cabdrivers: One Day at a Time, 112, 2, The Quarterly Journal of Economics, pages 407-441