Exercise 5.1:
So why am I ignored when I walk into the store?

At some time we have all been teen-agers. Regardless of the generation we are in, we have, quite likely, experienced something like the following in our mid-teen years:

You walk into the department store with money in your pocket and a genuine desire to buy something for your mother's birthday. You spend twenty minutes wandering from place to place in the store waiting for someone to come to you and ask if they may help you. You may as well be invisible. Someone else walks in and the sales person is quick to approach with "How may I help you?" or "May I show you …?". Why? You have money just like they do, you have the desire, just like they do-in other words, you have an effective demand for whatever the store is selling.

The underlying activity here is called signaling. The mere existence of an effective demand is not enough to attract the attention of those on the supply side of the market. They must be made aware of the demand. In an auction you make the seller aware of the existence of your demand by making an offer. By mail order or over the Internet you also make the offer to buy. However, when you walk into a store, you may be there to buy, or you may simply be there to bide your time while you wait on a friend to show up. This does not depend on your age or station in life. The salesperson must make a judgment call and decide whether the expected marginal benefit of approaching you exceeds the expected marginal cost. From their perspective, if they are working with one customer who really is not interested in buying, and another who really is interested in buying leaves because no one waits on them, the marginal opportunity cost is quite high-a lost sale-and the marginal benefit is zero. Thus it is important that salespersons develop the skill of recognizing who is most likely to make a purchase.

Experience has taught these salespersons that teenagers tend to spend less money in department stores than other customers and they tend to be slow to decide what to buy. They have also learned that the executive on his or her way home tends to buy quickly and with the least amount of direct help-a simple showing of a size will often suffice. In other words, from the perspective of the sales person, the marginal cost of waiting on a teenager tends to be higher and the marginal benefit lower than waiting on a middle-aged person in a suit. Since everyone is best served if they follow the course that maximizes the difference between expected marginal benefits and costs, salespersons act on their experience and do not approach teenagers quickly.

The upshot of this is that they really are avoiding you and it makes perfect economic sense that they are. It has nothing to do with you, as an individual, it is merely that you do not possess the signal for which they are watching.

As an interesting sidebar, and as an experiment you might try on your own: It is likely the case that teenagers get treated very differently in one type of store as opposed to another. If you are a teenager get together with someone who is past their twenties, if you are not a teenager get together with a teenager. Go to your local mall and try the following. Both of you (NOT together) go to a store that caters to people who are not teenagers—a kitchen store or upscale home-wares store would be good. Record how long it is until a sales person approaches you—don't approach them, but be sure to "look interested" in the stuff on the shelves. Now both of you (again NOT together) go to a store that carters to teenagers-an appropriate clothing or music store will do. Again time how long it takes for a salesperson to approach and offer assistance. It is quite likely you will find that the two of you sent different (and opposite) signals to the sales staff.

Exercise 5.2:
Why Do People At An All-You-Can-Eat Buffet Eat Less Than They Could?

At an all-you-can-eat buffet, people may eat as much as they want for a set price. That means that they can continue to eat more and more without paying any more. So why does anyone stop eating? The answer lies in the Law of Diminishing Marginal Utility.

As a person eats more and more at the buffet, the additional utility from consuming declines. The first bites of food yield great satisfaction (after all, the person must have been hungry to go to the buffet to eat). However, as more food is consumed, the added satisfaction from consuming it declines. The later bites of food are not as satisfying as the first ones were.

Eventually, as people continue to consume, they will reach a point at which the added satisfaction from consuming another bite is zero. That is, they are no happier after consuming the food than they were before. At this point, consuming additional food would lead to lower utility (make them sick). Most people eventually learn to stop eating before this point. While the cost of additional food may be zero at the buffet, at some point it does not make sense to eat any more because it does not increase happiness (and may decrease it).