Monday, September 22, 2008

Economics vs. The Real World

I am sometimes skeptical of how broadly economics can be used as a tool for predicting human behavior. One reason is that I think it is hard to model stupidity.

I was reminded of that when I read a story of a recent run on gas in Nashville. According to, around 75% of Nashville gas stations ran out on Friday thanks to a rumor that the city was running out of gas. Kinda hard to predict that kind of behavior.


  1. Yes, but keep in mind that laws against "price gouging" -- i.e., letting the price rise when the demand curve shifts to the right -- make vendors afraid to raise prices. As lines began to form at gas stations, retailers had little choice but to let people buy as much as they wanted until the gas ran out. The President, of course, was quick to take to the airwaves to threaten sanctions against retailer nationwide who increased fuel prices. Ignorance and stupidity is the problem, yes -- but it's not the general public I'm worried about!

  2. It gets even worse. The TN Attorney general was investigating stations for price gouging a couple of days before our pipeline stopped sending out new supplies of gas.

    When stations got gas, they were selling it below $4 per gallon because they were afraid of customer complaints and prosecution.

    I was cursing out the TN attorney general as I was driving around Franklin on fumes looking for a station with gas. I would have been happy to pay $8 a gallon to get home.

  3. Failing to allow prices to equilibrate following a shock is not the only government misstep here. Expectations management (or lack thereof) was a big part of the Nashville problem: