In 1997 a collection of the great and the good on the behavioral side of economics investigated a seemingly minor question. What getting a cab in the rain tells us. Cleverly they used this minor question to consider the assumptions 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 make an interesting setting to investigate. This is because the cab drivers largely control their own working hours. Furthermore, the drivers keep excellent records in the form of “trip sheets” and meters. These records are good partly because they are kept for reasons other than to help the researcher. This argues that the quality of the data will be reasonable. If the records were poor not just academics would be put out.
The Labor Supply And The Price Of Labor
The economic assumption tested is seemingly reasonable. A pretty basic assumption is that people work harder the more they are paid. Is this true? For the cab drivers, it would seem not to be (at least not reliably). One might expect that drivers would want to work more when demand is higher. For example, when it is raining one would expect more cabs to be offered. High demand means that the driver can make more money per hour. When it rains the driver will waste less time waiting for fares and so earn more per hour.
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. Rainy (high-demand days) means the target is achieved more quickly. Then 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.
What Getting A Cab In The Rain Tells Us
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.
For more on behavioral economics see here, here, and here.
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