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?