Decoding the Economics of Everyday Life: An Insightful Interview with Sudipta Sarangi on "The Economics of Small Things"

Dr. Sudipta Sarangi, a distinguished economist and Professor at Virginia Tech, USA, made his literary debut in 2020 with "The Economics of Small Things," published by Penguin, India. With a prolific career in academia, Sarangi has contributed extensively to the field of economics, specializing in Microeconomic Theory, Networks, Experiments, and Development Economics. Notably, he teaches a captivating course titled 'Economic Puzzles in History, Literature, and Movies,' which resonates with the themes explored in his book.

Starting as a research assistant during his graduate studies, Sarangi has amassed a vast body of academic literature. His research interests encompass applied game theory, experimental economics, and development economics, with a particular focus on social networks. He has held influential positions, including program director for economics at the National Science Foundation, and served as a professor of economics at Louisiana State University, where he was honored as the Gulf Coast Coca-Cola Bottling Co. Inc. Distinguished Professor of Business Administration.

Educationally, Sarangi earned his bachelor's degree from the University of Delhi, followed by master's degrees from the Delhi School of Economics and Virginia Tech. He subsequently completed his Ph.D. at Virginia Tech, solidifying his foundation for a remarkable career.

His book - "The Economics of Small Things" offers a unique perspective that intertwines everyday experiences with the lens of economics, essentially serving as a memoir of individual lives. He has masterfully weaved together stories of ordinary people, employing various economic concepts to explore these narratives. The book's well-crafted flow takes readers on a nostalgic journey, evoking childhood memories of renting video cassettes and indulging in the delight of eating mangoes. It effortlessly transitions to the present, delving into how marketing has transformed our habits, our reliance on domestic help, and the shifting significance of pens in the digital age.

Notably, Sarangi ventures beyond the realm of the familiar, venturing into advanced economic concepts such as game theory and earthquake economics. The book's highlight lies in its ability to connect culture, societal changes, the future, and human values, providing a comprehensive overview of our hybrid societies today. However, some readers may find certain portions to present a stereotypical view of Indian society and its customs. Nonetheless, the book remains enchanting, offering a blend of nostalgia, wit, emotion, and wisdom while providing profound insights.

"The Economics of Small Things" serves as a conduit for understanding various economic concepts, including the O-Ring Theory, Game Theory, taste-based discrimination, and efficiency-based wages. It is a recommended read for those seeking to explore the intricacies of everyday economics without sacrificing conceptual relevance.

Excerpts from the Interview :

Q1) Could you provide an overview of your book "The Economics of Small Things"? What motivated you to write about the economics of everyday life?

Sudipta Sir : The book has 25 chapters that talk about more than 25 themes – some chapters cover more than one idea. These themes are taken largely from microeconomics (I probably cannot explain macroeconomics with the same clarity). The disciplinary emphasis and the fact that I wanted to write how economics relates to everyday life prompted the title of the book. Since the 25 chapters are on different topics, it is not possible to provide a general overview – I can simply say that the binding element of the book is that fact that it tries to explain how small things in life can be explained using economic phenomena.

Q2) The anecdotes and examples you shared in your book, such as the chai drinker in Assam or the missing mangoes in the US, truly captured the readers' attention. How did you come across these everyday scenarios, and what made you realize their economic significance?

Sudipta Sir : Most of the stories in the book have more than a grain of truth to them. For instance, the chai drinker in Assam that you mentioned is actually a friend and coauthor of mine called (Dr Surajit Borkotokey of Dibrugarh University). There probably is no single way in which I understand the economics behind everyday life activities. Sometimes it happens while the activity is going on, sometimes I have an “aha” moment while I am out for a walk in the neighborhood and sometimes while I am teaching a topic and struggling to come up with an example. Probably the simplest way to say this is when you are trained to use the lens of economics and you have been doing it for a while, you can spot these situations.

Q3) In your book, you mentioned the application of repeated games to explain a driver's aversion to wearing a seatbelt. How did you come up with this game-theoretic perspective to analyze such behavior? Can you explain how understanding repeated games can provide insights into other societal behaviors, like the refusal to wear masks during the pandemic?

Sudipta Sir : This is another story that is close to home. The person who drove my parents’ car definitely adhered to this practice (also similar to not wearing a mask during a pandemic, which like wearing a seatbelt also has consequences for others). Whenever I visited, we would argue – I would insist that he wear the seatbelt and he would mostly ignore me politely. Now, assuming that he was not stupid (he like most people are not stupid) – his behavior always bothered me. I simply had to find an explanation.

Life is full of situations that repeat themselves. Going out to eat with your friends, team effort in your workplace, going places in a car or playing a game of cricket. So, understanding patterns of behavior is important to doing well in repeated situations Imagine as a bowler, you know a particular batsman’s weaknesses. Then it may be easy to get the person out. But when this batsman figures out that you know their weakness, they will try and address it and so on…

Q4) One intriguing example you discuss involves the theft of only the left footwear from shopfronts in Sweden. How do you use the concept of complementary goods to shed light on this peculiar behavior? Could you explain the relevance of simultaneous investment in complementary sectors of the economy?

Sudipta Sir : The textbook example of complementarity in economics is right shoes and left shoes – they are perfect complements. Imagine you have 1 left shoe and 2 right shoes. Well, the second right shoe is useless without an additional left shoe. It is as good as not having it. So in the example the thieves were stealing the left shoes in Malmo (Sweden), and across the border in Denmark (in Borgen), they were stealing the other half of each pair since store windows in Denmark display the right shoe. Similarly, many sectors of the economy are inter-related and developing one while ignoring the other will have disastrous consequences. For example, we cannot invest in the financial sector today without also making appropriate investment in computer security.

Q5) In your book, you discuss various aspects of economic decision-making in daily life, such as including a picture in a resume or paying domestic help above market wages. Could you explain how these seemingly small choices can have significant economic consequences? How can individuals benefit from understanding these economic nuances in their own lives?

Sudipta Sir : They may or may not have significant consequences – but I have always been fascinated by human behavior and part of my objective was to share this with others. It is true that if you understand what drives behavior you can probably make better decision. For instance, if you know that your boss does not like PowerPoint presentations, then you are more likely to impress them by not making one! As for the domestic help – the consequences of this one hopefully does not have to be spelled out. Simply ask someone who has been without good domestic help for a significant amount of time – or imagine your own life without it (that is if you currently have one).

Q6) Writing about economics without relying on equations, tables, and figures is quite a departure from traditional economic literature. What motivated you to adopt this approach? How do you believe it enhances the accessibility and appeal of the subject matter to a broader audience?

Sudipta Sir : Economics is about human behavior – which unlike what electrons do is more about what happens on average. Hence storytelling is and has always been a part of economics. Equations, tables and figures have a place – they convey more accurate information, but in my opinion introducing the big ideas of economics to everyone does not require the use of technical tools. This I feel increases the appeal of the subject to a broader audience – and a basic dose of economics I think is essential for everyone to make good decisions.

Q7) One interesting example you discuss is Mahatma Gandhi's complaint against the railways. Can you elaborate on the economic motives behind the pricing of goods and how the laws of demand play a role in explaining the exportation and pricing of alphonso mangoes?

Sudipta Sir : The long-run motive behind pricing is to maximize profits. In the short run the firm may be exploring other goals like market share or revenues, or testing which product might do better. So, in general economist assume that the goal is to maximize profits. The most commonly known law of demand is pure common sense. It says, keeping everything else like income, taste, etc. constant (a very important caveat that people often forget) price and quantity are inversely related – you will only buy more at a lower price. The one that talks about why good products are exported outside is often called the Third Law of Demand. It really is a simple idea: if both high quality and low quality goods have the same fixed costs (like transport costs or export costs), then to the buyer the high quality good will relatively be more attractive and they are more likely to buy those. Hence it is better to export the best stuff.

Q8) Your book touches upon the concept of product differentiation and its relevance to the success of T-series in the music industry and the placement of breakfast cereals in grocery stores. How can individuals benefit from understanding and applying this concept, particularly when it comes to crafting resumes or building successful teams?

Sudipta Sir : We live in an age where the most precious commodities are probably our time and attention. When you understand this, you will immediately realize that your stuff (whether it is a product or your resume) needs to stand out. Product differentiation , as the name suggests is how you differentiate your stuff from the others out there. I understood this very early on in my doctoral studies.

One of my advisors had an office that probably qualifies as one of the messiest offices I have ever seen. The Fire Marshall called it a fire hazard because of the high density of combustible material (paper) in a small space. Of course, my advisor knew exactly where everything was in an office that had the appearance of a space where a librarian was storing their books and papers before sorting them out. He once told me – imagine your paper is one of these in my office. If you want me to read it – it has to stand out.

How does it relate to building teams? Well – I will argue that you need people with different (complementary) skills. I am willing to bet that a football team that has 11 Lionel Messi’s would not be the best team. So, build a diverse team – do not put all your eggs in one basket.

Q9) The chapter on the story of the Pied Piper of Hamelin and its analysis using game theory is intriguing. Can you explain how game theory can shed light on the importance of not keeping one's work skills a secret in order to be appropriately compensated? What other real-life situations can be understood and analyzed through game theory?

Sudipta Sir : Game theory can be used to describe any situation where the final outcome depends on the actions of at least two people. This could be anything from Tic-Tac-Toe and Rock Paper Scissors to penalty shoot-outs. But it is all around us and the book has a whole chapter on another game called Chicken. Perhaps the most famous game of all time is the Prisoner’s Dilemma which can be used to understand the cold war as well as things like why it is hard to solve the climate change problem. For instance, if Pakistan does not build nuclear weapons, India should. If Pakistan does build nuclear weapons – then India should definitely build them. In the end, since no one will likely use them, both countries would have been better off spending that money for poverty eradication. This insight comes to us from game theory. Keeping one’s skill secret depends on the situation. If you trying to get a job, quite likely you do not want to mention that mafia mamaji. But if you are trying to evict someone who is illegally occupying your flat in Mumbai, then the mere mention of Mafia Mamaji might do the trick. So if you are interested in threatening someone, there is no point in hiding your Brahmastra.

Q10 ) Humor plays a prominent role in your book, adding an enjoyable element to the exploration of economic concepts. How do you find the balance between presenting complex ideas and injecting humor into your writing? What do you hope readers take away from this combination of entertainment and education?

Sudipta Sir : I think everyone who has been in a classroom knows that if you want to reach your students and want them to remember what you are telling them, you have to make it interesting. I think the only way to do this is to come up with extreme and/or humorous examples. The books basically reflects my teaching style. I hope for two things: a better reading experience and hopefully people will remember what they read.

Q11) One chapter of your book discusses the benefits of including a picture on one's resume and paying domestic help more than market wages. Could you explain the economic reasoning behind these counterintuitive strategies and how they ultimately benefit employers?

Sudipta Sir : In my mind these are not similar. I feel that putting your picture on your resume is now quite common and seems intuitive – it goes back to the old expression about putting a name and face together. I think we did not adopt the practice in the past simply because we did not have the technology to do so. In other words, as I have emphasized elsewhere in the book as well – we adapt relatively fast and can come up with applications for a product that go beyond what the product was initially intended for.

Prima facie, paying your domestic help more than market wages (or any good worker) seems counter-intuitive. But a little reflection will immediately tell us that it is not at all a bad idea (incidentally, Henry Ford had the same idea). Suppose you have found a really skilled worker – clearly you will be loath to losing this person. In that case if you pay this person more that what the market will offer them, this worker cannot really leave. Why? If they do so – then they can only get market wages, because firms can always hire other people at market wages. Since finding good domestic help is difficult, offer them higher than market wages and they will stay with you!

Q12) Considering the relevance of your book in the wake of the COVID-19 pandemic, can you highlight any specific economic phenomena or behaviors that have emerged or become more pronounced during this time? How can the principles and perspectives presented in your book help us navigate and understand these changing economic dynamics?

Sudipta Sir : I think the use of Zoom and work from home as a part of work culture were really outcomes of Covid that are here to stay. Similarly, more in-person operations have now been digitalized. Sometimes this is good and sometimes it can create other issues. I am not sure that I have really focused how to navigate these changes. I wanted to argue that human beings are resilient – when we have adverse shocks, we improvise and ultimately, we do overcome.

Q13) What do you hope readers will take away from "The Economics of Small Things"? How can individuals apply the economic principles discussed in your book to enhance their everyday lives and make more informed choices?

Sudipta Sir : I hope that people will take away with them the idea that economics is not just about the stock market and how to make money or what happens in India and the world at the macro level. It is also about putting human being under a microscope to understand their behavior.

I hope that the book will allow people to understand their own behavior and the behavior of others around them better. Armed with this knowledge – I hope they will be able to use the concepts described in the book to their advantage. For instance, realizing that offering incentives can get a job done, but sometimes incentives may have unintended consequences.

Thank you all for reading and a big thanks to Sudipta Sarangi Sir for collaborating!