Freakonomics: Do We Need a 37-Cent Coin?

http://freakonomics.blogs.nytimes.com/2009/10/06/do-we-need-a-37-cent-coin/

by cwan • 17 years ago

42 50 17 years ago

freakonomics.blogs.nytimes.com

kakooljay2• 17 years ago

Interesting post (I love Steven Levitt) but there's a great lesson for developers here: Efficiency is only one consideration. What about usability? Do you really want to wait in line at McDonald's or Starbucks while someone (maybe a high school dropout) counts on his fingers to make change in 71 & 37 cent coins? The overhead here (an extra coin in your pocket) is well worth the added convenience. Aggregated over the whole economy, those extra seconds would literally be worth billions of dollars a year..

rglullis4• 17 years ago

How about a lesson for lateral thinking? I'd still prefer to do without the coins and go for a all-virtual, all-plastic system. Efficiency and Usability.

NathanKP2• 17 years ago

For that matter why not do away with the card as well and use some sort of biometric technology to tie into your bank account?

I think that this highlights an interesting parody. To get increased efficiency you need to buy more expensive equipment. A cash register full of bills and coins doesn't cost much and after the initial investment you are pretty much done except for the expense of receipt paper.

However, credit cards require more complex card readers, systems to tie the card into central servers, etc.

In turn biometrics would require even more: pupil scanners, etc.

So the drive for efficiency and usability would appear to lead to even more complex devices, rather than the simple usability of handing a metal disk from one person to another person.

ynniv2• 17 years ago

Dropping hard currency raises the bar to entry and kills a lot of low end business. No more street vendors, cash only local business, friendly card games or bets, informal services, or convenient tips. It would also give the plastic channel immense power over businesses. You might not use cash very often, but dropping it altogether would not be a good idea.

palish• 17 years ago

Hey now. I'm a highschool dropout / game developer.

kakooljay2• 17 years ago

Just speaking rhetorically.. don't mean to generalize. I'm sure Bill Gates would have dropped out sooner (in high school, instead of college) if opportunity came knocking sooner.. You're obviously an exception & probably dropped out for good reasons :)

manifold• 17 years ago

That's all fine and dandy in theoretical world, but I'd dispute that the probability of a transaction resulting in value v is uniform. I'd guess that there's some fairly prominent banding due to psychogical pricing at or just under 'round' figures.

uiohnuipb2• 17 years ago

Exactly - in the real world you only need 99c and 1c coins.

tedunangst2• 17 years ago

In the real world they charge sales tax.

tjic• 17 years ago

> 2. Probability of a transaction resulting in value v is uniform from [0,99].

Totally false:

http://en.wikipedia.org/wiki/Benford%27s_law

Benford's law, also called the first-digit law, states that in lists of numbers from many (but not all) real-life sources of data, the leading digit is distributed in a specific, non-uniform way.

DarkShikari• 17 years ago

But this is change in a larger transaction, not the first digit.

Past the first digit, Benford's Law still applies, but the effect becomes extremely tiny as one adds more digits to the front.

rfurmani• 17 years ago

This does not apply here since we are looking at the last digits, and not the first, so different rules apply. The bigger your price is, the more uniform the cents will be (aside from psychological factors like: 00, 95, 99 being very common)

mitko• 17 years ago

Benford's law is about the first digit of the number, it has nothing to do with the current problem. The pennies are the two last digits.

However, IMO the assumption you quoted is indeed false but due to other reason:

In real life, prices are not uniformly distributed because usually they are rounded to multiple of 5 cents or commonly they are .99 or .89 or s.th. like that.

I am wondering what happens if we put non-uniform prior on the probability of the pennies.

Another flaw in this research is forgeting that we often are getting change back. So maybe problem is to find combination not only to give exactly money, but giving and receiving change back. For example:

Using 1,5,10,20,50 you can make exact 4c only by 1,1,1,1, (4 coins). But getting change you can do 5, -1 (2 coins).

noodle• 17 years ago

while i agree with the premise that the prices aren't uniformly distributed, i think its less of an issue than people think.

there are undoubtedly uneven humps that favor certain areas. but i think that the actual result of real life retail transactions is a more level curve than you would expect due to things like multiple, varied item purchases and the possible inclusion of various types of sales tax.

Perceval• 17 years ago

Given the number of retailers that end prices in 9 or 5, one could probably calculate a better model of efficiency based on real world distributions. The secondary problem would be that tax is applied after the nominal price, and local taxes vary considerably.

graywh• 17 years ago

He didn't say it was true.

> with the following stipulations:

gojomo• 17 years ago

Obama economic advisor Austan Goolsbee once recommended eliminating the 1-cent penny -- by having the government declare pennies by fiat to be the new 5-cent nickel:

http://www.nytimes.com/2007/02/01/business/01scenes.html

It's quite a neat idea, getting rid of the current seignorage loss and inefficiency of 1-cent pennies, without incurring the wrath of the penny materials lobby -- or even worse, voters with giant penny jars.

Given the reasoning here, perhaps pennies should become 3-cent pieces.

Rebasing small coins to be worth more isn't quite dropping cash from helicopters, but it should still have a mildly stimulative and redistributive effect. Something for everyone!

zach• 17 years ago

Or you could effectively take the penny out of circulation by announcing a 6-cent rebasing plan but continually postponing its effective date.

dfranke3• 17 years ago

This would be a great plot for an Evil Overlord.

dfranke3• 17 years ago

I love this idea. Not so much because of its efficiency, but because it'll make so many people say "Wait, you can do that?". Too many people haven't internalized what having a fiat currency really means. Having the government flex its muscle in this manner would be a fantastic civics lesson.

albertsun• 17 years ago

I'm not sure it would really succeed. For a long time after the change many people would still refuse to accept a penny as 5 cents. Vending machines, toll booths and the like would all also have to be reworked.

karzeem• 17 years ago

On the subject of coin usability, I'd say one requirement is that any coin denomination should divide cleanly into 100. Surprising that they left that out.

Timothee• 17 years ago

I completely agree. What do you do when you have 3 37-cent coins?

Theoretically, it wouldn't change much for the end-user if s/he was always trying to use the coins they already have (which probably doesn't happen that much). But for banks, stores and everything else, it would be a mess, because there's no easy way to put the coins in rolls of "easy" values of a round number of dollars.

techiferous• 17 years ago

10-cent coin. Dollar coin. Banknotes for $5+. Done.

ieure• 17 years ago

“Do you know what this country needs today? A seven-cent nickel. Yessiree, we've been using the five-cent nickel in this country since 1492. Now, why not give the seven-cent nickel a chance? If that works out, next year we could have an eight-cent nickel. Think what that would mean. You could go to a newsstand, buy a three-cent newspaper and get the same nickel back again. One nickel carefully used would last a family a lifetime!”

- Groucho Marx, “Animal Crackers.”

sethg• 17 years ago

According to Wikipedia (I haven't bothered to check the math), a ternary currency system would maximize the likelihood that a customer would get exact change.

http://en.wikipedia.org/wiki/Balanced_ternary

So I think we should eliminate the penny; issue three-cent, nine-cent, and twenty-seven-cent coins; and redefine the dollar to equal eighty-one cents.

ankeshk• 17 years ago

Why only restrict to 4 coins? Why do pennies have to be removed? Why not just add the 3 cent coin to the mix?

1,3,5,10,25.

jperras• 17 years ago

An older but more thorough analysis may be found here:

http://discovermagazine.com/2003/oct/featscienceof

sandrogerbini• 17 years ago

Ignoring the extreme inconvenience, this might be an interesting way to tackle our nation's (U.S.) problem of students with poor performance in mathematics.

psyklic• 17 years ago

There are many different (and perhaps more practical) criteria than average coins per transaction. For instance, I don't like a lot of coins in my pocket at once. And, I always want to get rid of coins when I use them! So, what are the least number of coins I can carry to guarantee that I come back with at most the number of coins I started with (after change is given)?

On the other hand, sometimes I only carry coins to get rid of them! With the current system, I need to carry nine coins to guarantee exact change -- what system maximally reduces this?

raquo• 17 years ago

How about a coin that is worth 1/3000th of a US dollar? That's what we have in Russia :) Yes, it is as useless as it sounds.

By the way, the real price distributions are far from uniform. You mostly encounter .99, .49, etc.

Also, in Russia some retail chains do not deal with pennies - the prices are mostly with pennies, but at checkout any pennies in the total sum are chopped off automatically.

zhyder• 17 years ago

An alternative definition of efficiency is total number of coins you need to carry in your pocket to cover a single transaction of 1..99 cents. Interestingly all the good 4-coin solutions in the article, including (1, 3, 11, 37) as well as our current (1, 5, 10, 25), require a total of 10 coins.

There are 12 other 4-coin solutions, (1, 3, 9, 25) being the most reasonable looking, that only require a total of 9 coins.

Freakonomics: Do We Need a 37-Cent Coin?

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