Psychology, economics, and the taxi

I’ve concluded day one in Addis Abeba which, oddly but enjoyably, involved drinking a lot of schnapps with caroling Danes.

Fortunately I did, and will, get to see more of Ethiopia in the coming days.

Meanwhile, buzzing about Addis in taxis, I usefully applied my psychology and economics training. Taxis here are not metered, and the price must be negotiated before you depart. There is undoubtedly a ferengi premium (ferengi being Amharic for foreigner–though presumably the tax would apply equally to the Star Trek characters). There is certainly a naive newcomer premium as well. I like to avoid the latter, and see what I can to to reduce the first.

Strategy part 1: Figure out the “real” price beforehand. Shopkeepers, hoteliers, hosts, and the like will help you here. Ask those who actually take taxis.

Strategy part 2: Anchor the price. Humans have a tendency towards starting point bias. Get that starting point low.

Strategy part 3: Figure out the national bargaining fraction. Anchor too low and some cabbies will simply stop talking to you. Unfortunately, that fraction is hard to predict. In Ethiopia, it seems to be about 70%. He’ll counter with 130% the target, and you get to the price you want in about two rounds. Very civilized. This, of course, is based on a sample of four. But my standard error is very low.

Strategy part 4: Keep smiling. It’s a game, so try to enjoy it. Never lose your cool. And remember that you’re still probably paying the ferengi premium, so this guy is getting a good deal.

The same, in my experience, applies to marketplaces.

And yes, I am aware this is all terribly neurotic.

I especially love discovering the bargaining fraction and number of rounds in a country. Within a city it is surprisingly consistent, from taxis to markets. Cross-country variation is huge.

Based on travel this year, here is my guesstimation of starting fraction and rounds:

  • Ethiopia: 0.7 with 2 rounds
  • Argentina: no less than 0.9 and 1 round.
  • Canada: 1 and 0
  • Uganda: 0.5 and 4 rounds
  • Liberia: 0.1 and 8 rounds
  • Morocco: 0.001 and upwards of 754 rounds (including mint tea).

Theories on cross country variation?

26 thoughts on “Psychology, economics, and the taxi

  1. Fascinating. I could see studying this by getting researchers already conducting surveys in urban or peri-urban areas to add a short set of standard questions/behavioral games to their surveys, using the responses to those questions to compute the fractions and round for each country, and then correlating those fractions and rounds with either macro data or information from things like the World Values Survey where cross country information that might be relevant is already available.

    It would be interesting to see how this relates to corruption and government efficiency cross-country, too.

  2. In Jos in Nigeria I ended up with.
    Me: “I’m going to Taminos, I want to pay 50 Naire”
    Taxi: “…90 Naire…”
    Me (sighing): “No, I usually pay 50, so I’m not going to pay baturi-price. Only 50 Naire.”
    Taxi (smiling): “OK”

  3. Awesome. Just moved from Ethiopia, where I took a lot of taxis.
    – Smiling is key. Most westerners miss that.
    – Supply is on your side. So if you lowball a driver, he’ll drive off, and you can nudge your price upwards on the next one.
    – I’ve wondered what the amharic discount is. I could hack pretty decent Amharic for transactional purchases, and had gained a few key manurisms. I always thought (hoped?) this gave me a 5-10 Birr discount. (Try ‘Selamneh. #location#, Waga Sente No?’ Then follow up with increfdulous ‘eenndehh?’ – you’re kidding!))
    – Your first point is a great example of establishing reference points upon entry into a new culture. This is obvious for economic reference points like taxis, but I’ve begun to see many more non-financial cultural integration in terms of finding reference points as well.

    Nice post,
    Brendan

  4. As one of the comments shows, there is often a tendency to see the existence of bargaining as a form of corruption or at least as an indicator of something untoward in a developing country especially because as Westerners our bargaining positions tend to be shit in such circumstances. Our reactions are usually first to get pissed off and then, if we are smart or simply have to deal with it for extended periods of time (like Mr. Blattman), to (neurotically) analyse, smile, and accept.
    What I find interesting is the illogical way that taxi metering somehow relaxes the Western mind. In such metered taxis we don’t feel mildly victimized, intrigued, or prone to analysis, we just take our ride and pay the fee.
    Yet arguably metering allows for more subtle, less correctable, and more severe swindling than the bargaining process. In South Korea (where I currently live) all taxis are metered and I regularly take one between the same two points. However the variability of the route that my taxis take, and consequently the price, of each trip always amazes me. If the median price is of that trip is 1 then I have had paid anything from 0.7 to 1.4 of that price. Oh and the traffic level of each trip isn’t much of a complicating factor because I always take it at relatively the same time.
    And yet I have never head of anyone proposing to study this form of institutionalized corruption.

  5. Interesting. In Dakar, where I lived for 2 years, I’ve had some findings:
    – The older the driver, the greater the price;
    – Not necessarily more expensive for white people. Rural senegalese people who don’t know the Dakar prices pay more. To know the price is the most important.
    – A taxi which is stopped is more expensive than one you stop (no explanation)
    – Speaking wolof doesn’t really decrease the price but it eases the bargain since he knows you know the price.
    – Prices change during the day ad vary from one quarter to another. (more expensive around 6 pm).
    – Price vary a lot with the availability of taxis and demand and supply. Every day you have case study of monopoly, duopoly, perfect competition, oligopsone etc.
    – Price increase at the end of the month and a before religious events.

    For the parameters for Senegal I would say:
    0,5 and more than 4 rounds.

    In Abidjan the taxi have meters. You can choose when you enter a fixed price you bargain or the meter. At the beginning I always set my price but I discover after while that the meter way was less expensive (at least for me!). Most of the people choose to set the price because they fear that the meter is biased and they prefer know before how much they will pay.

  6. In india, you generally take autorickshaws, not taxis, which in some areas (Pune and Mumbai, notably) have meters which are often used and in others (Chennai especially, and Delhi as well) do not. In Pune there was never a serious question of bargaining–you say where you’re going, he’ll either quote a ridiculous price (in which case it is “fixed price”) or nods for you to get in and turns on the meter. Certain times of the day or from certain areas it’s nearly impossible to get someone to go by the meter, but for 95% of rides you go by the meter, which is always at least 2/3 of any negotiated price. Mumbai in my limited experience was much the same way.

    Chennai has no meters, at all. A three-kilometer ride from the hostel to the office cost 50 rupees (the same distance is exactly 30Rs in Mumbai, 26 in Pune and maybe 20 in Delhi). It’s universally acknowledged by folks who grew up in Chennai (speaking Tamil) and ex-pats that ricks in Chennai are insane.

    Delhi on the other hand is somewhat moderated. There are meters in every auto, but you’re unlikely to get them to use it–the rate is set at 4Rs/km, which is half of what it is in Pune, and 40% of Mumbai. I’m bad at negotiating, but usually having a conversation in Hindi making it extremely clear that I am under no circumstances paying more than the price that I said and know is fair is enough, at least within the first three or four ricks that pass. On days when I have time to wait around for just the right auto, I’ve taken them by the meter, which is usually about 70% of the “set” price.

    I’ve also noticed that everywhere I’ve lived a stopped rickshaw will almost always charge you about 40% more than one you stop. To the point that I usually don’t even bother asking the guys stopped at the paan shops across the street.

    La Paz, on the other hand, was briliant–always 8 Bolivianos anywhere in the city centre, and12 out to the suburbs, no negotiating.

  7. In Abidjan, I used to take the meter but I discovered: 1) meters often are biased – usually they run 15-20% faster than normal, 2) locals bargain, and the bargained price is lower than the one with the meter. So now I bargain for known rides, and bargain or take the meter for unknown ones, depending on my bargaining mood.
    Another interesting issue, maybe peculiar of this country, is that the meter goes up by 30 F CFA, starting from 100 F CFA (i.e. it runs 130, 160, 190 etc), so you end up with having to pay 630 or 1320 and they never have the change (of course) and usually charge you to the higher 50 or 100. My policy now is that if it’s over 25 I’ll pay to the higher 50, if it’s lower than 25 I’ll pay to the lower 100. Sometimes taxi drivers are not so happy but it’s usually considered fair enough. And smiling will always make things easier.

  8. Glad to see you had the same experience of Morocco as me. While generally one of my favourite places in the world, my pathological hatred of being hassled brought me to the brink of nervous breakdown in Marrakesh, when someone combined it with my morbid phobia of snakes by throwing a viper around my neck and asking for money.

    Fes is still in my top five places in the world though.

  9. Yes, right on about Morocco. Bought some carpets a few weeks ago in Essaouira and the bargaining took an hour!

    In my experience here, knowing Moroccan Arabic can sometimes help, but it can sometimes raise the seller’s expectations of your skills – in some ways it can put him on his guard. I usually go with Arabic, but occasionally try English just to see what will happen, and have managed to get lower prices before by doing so.

  10. Blaise:

    “A taxi which is stopped is more expensive than one you stop (no explanation)”

    I would imagine that the drivers of stopped taxis are trapped in a sunk cost fallacy.

    My top taxi tip: When you arrive at an airport, go by foot from the Arrivals concourse to the Departures concourse. Collect a (very happy) taxi there, save yourself roughly 50% of the price of a waiting taxi. (Plus you know they are a real taxi, you just saw their last Westerner fare arrive unmolested)

  11. I notice Ross advice here. In Egypt, the taxi price of waiting taxis at the airport was more extortion than just a normal rip-off, and even trying to bargain as much as I could, I could only lower by 10% the price that was twice the normal ferengi premium price I had been told before.

    After a while I understood the rules :
    – coming from the airport. You have to take a taxi, there’s not a lot of them, and you won’t spend hours negotiating. Extortion level price.
    – going to the airport. They are many, many taxis, but they know at the end you have no choice and won’t pass taking a taxi to go take your plane. Rip-off level price.
    – strolling the town : Here at least you have the power. Many, many taxis, and they know it’s quite optional for you to take them. Dirt cheap level price *if* you bargain properly.

  12. Justin Kraus wrote: “As one of the comments shows, there is often a tendency to see the existence of bargaining as a form of corruption or at least as an indicator of something untoward in a developing country especially because as Westerners our bargaining positions tend to be shit in such circumstances. Our reactions are usually first to get pissed off and then, if we are smart or simply have to deal with it for extended periods of time (like Mr. Blattman), to (neurotically) analyse, smile, and accept.”

    I think he was referring to my comment, so I thought I should comment.

    First of all: I was smart. I found the fast and cheap way to get around it, and the smart way was not to follow the local customs. And then it somehow was. In the Hausa community it is somehow the norm to seem annoyed about bargaining. My Nigerian friends were very impressed with my way of dealing with the questions. I even got lower prices than them, and much faster! It was 3 months of experience at work.

    I was taking the motorbike-taxis, and they are known to be a little dangerous. At the end of the trip, I gave a small bonus If the driver was driving safe (or at least less crazy than the rest). They seemed happy about that.

    There are no white tourists in the Jos-area in Nigeria, and white people are in general treated like rock-stars. At the roadblocks where the police charge a fee (corruption), they are just waving you through if they see a white man in the car. My minibus (8-seater with 15 persons) was once stopped by an angry-sounding policeman waving his AK47 and demanding money. After maybe a minute discussing with our chauffeur, the policeman suddenly saw my white face among the passengers. He started behaving like a little teenagegirl that have just met Justin Timberlake. Kind of funny.

    Being a white guy, it was apparently possible to cut corners in the bargaining proces, just by saying: “This is not a bargaining – I know what I want to pay, and I know it’s enough for you to take me there.”

  13. We need to combine Blaise’s and Justin’s observations. If drivers have a pre-arranged amount, they have an incentive to get you there as fast as possible. If you’re going by meter, there are incentives to take a longer route and yet not too long (for fear of losing business). There have been a few taxis where I tried to convince the guy to let me out early because even _I_ realized he had gone the wrong way to pick up a one-way street and would have to go around a few more blocks to approach the hotel from the right direction… in DC.

  14. Actually I was referring to “J”‘s comment about how it would be interesting to try and relate taxi bargaining practices to corruption or government efficiency across countries. I hope my comment didn’t come across as some sort of attack.
    My point was just that Westerners tend to ignore institutional corruption (metered taxis that purposefully take longer routes) while making a big deal of, or at least being neurotically fascinated by, non-institutionalized bargaining practices (non-metered taxis) that feel, or seem (to us at least) to indicate some sort of corruption.

  15. Justin – I think what bothers Westerners more about the non-institutionalised “corruption” is the DWL from time spent bargaining. I think many of us would gladly pay a premium for the sake of just not having to argue.

    Case in point:

  16. The Morocco taxi bargaining fraction and rounds estimate made me laugh – I lived there for two years and took taxis quite often. It’s so true; the infinite rounds of bargaining – I found that we would often continue to haggle about the end price as we were rocketing down the road. A sense of humor is key – as is a good understanding of the context – I think you can often decrease the rounds and even the starting price by speaking in the local language and using as many colloquialisms as possible. Sharing a cab with a local is always a good idea as they cannot overcharge the local – or up your half or whatever. It’s been a long time – thanks for making me think of those memories.

  17. In Canada, you *can* bargain, but you have to ask for the manager first ;-)

    The current level of inflation in a country must surely be taken into account. As globtrotteress indicates, round figures are important.

    Is it advisable to attempt to dodge the foreigner premium entirely? An African taxi ride remains more of a relational transaction than a Western equivalent (hence the need to smile) and no-one likes a rich person who is stingy.

  18. In Beijing, cabbies would try to negotiate fares with foreigners, even though all of the cars had meters. No matter how much a driver would protest the final negotiated price, I quickly discovered that a negotiated price was always higher than the meter price by a factor of several hundred percent (of course).

    The way to beat this was simply to insist on the meter. If a cabbie refused, walking away would normally induce him to change his mind.

  19. Senegalese have got to be the world’s most talented hagglers. In Dakar I felt like I was swordfighting without a sword.

  20. no-one likes a rich person who is stingy

    Amen to that. I can understand why people don’t like to feel “ripped off” but jesus, come on people. Let the poor taxi driver get lucky once in a while.

    The comment above, where someone is talking about how they bargain some Nigerian taxi driver down from 90 to 50 naira, is particularly galling. 90 naira is AUD0.66, 50 is AUD0.35. I can’t believe any westerner would actually put in deliberate effort to stiff some taxi driver 30 cents. Who do you think that 30 cents means more to, you or him?

    Obviously you can’t just act like a total naive fool in a developing country but let’s remember these guys are just trying to feed their families. Anyone reading this site is unimaginably wealthy compared to a taxi driver in Africa and it’s all just down to the cosmic toss of the dice. So spread it around a little – the drivers, and your karma, will thank you for it.

  21. You are shameless. You get paid about 1,000 dollars a day and you bargain off half a dollar from a famined Ethiopian who wants to bring some food to his family.

  22. Yikes. Did someone just call me ‘shameless’ and an Ethiopian ‘famined’ in the same sentence? Ah, the irony.

    I don’t see any philosophical trouble with bargaining, and neither do the people on the other side. Paying a fair price for a service is a perfectly reasonable objective, especially when dealing with middle class merchants in a prosperous and temperate green city (e.g. Ethiopian cab drivers).

    Besides, I’m not try to eliminate the ‘rich person premium’ but the ‘naive newcomer’ one. I usually have a friendly chat and repeat business with the cabbies afterwards. After a week, I chat with them on the corner in a friendly way. That is my travel philosophy.

  23. Depends how many taxis you’re taking, doesn’t it?

    If you’re taking, say, 5-10 taxis a day for months, those 30 cents begin to add up, and frankly by using so many taxis instead of walking, you’re already being pretty helpful to the local taxi driving industry.

  24. After I had lived for a couple of months in Addis, I knew about ten drivers and where they would usually be waiting for customers — and they knew me, and knew that I knew the regular price from my Ethiopian colleagues. This meant a minimum of haggling (usually less than a minute), a minimum of Ferengi premium, a maximum of enjoyment chatting with the drivers about what happened in their lives and with their families, and happy drivers who knew that they were assured that I would come to them first before approaching their colleaugues. It also netted me an occasional invitation for coffee at their houses, which was actually the best part of it all.