A very Planet Money Thanksgiving

0:00This message comes from Capital One. Capital One offers checking accounts with no fees or minimum. What's in your wallet? Terms apply. See CapitalOne.com slash bank for details. Capital One N.A. Member FDIC. This is Planet Money from NPR. Thanksgiving is my favorite holiday. Me too. And I'm not just talking about food. Here at Planet Money, Thanksgiving is also about feasting on... Economics! Starting right here at the supermarket. Okay, let's see if we can find a shopping cart without a noisy wheel. All right, let's see. How's that one? Amazing. All right. Got your shopping list? I got my shopping list.

0:44This year, we wanted to share our love of Thanksgiving. So we hatched a plan to make an entire Thanksgiving feast and have all of our Planet Money colleagues join us. Or at least all of them who are available on a random Monday evening. Let's see, what are we going to get? Russet potatoes. Those are the kind you want for your mashed potatoes, right? Yeah, extra starchy. We got everything you could possibly need for a full-on Thanksgiving dinner. Butter. We need four pounds of butter. Look what I found. Cranberry sauce. Oh, wait, hang on. I gotta get my secret ingredient. Wait, what's your secret ingredient?

1:14I can't tell you. It's not going to be a secret anymore. Turn around. Turn around. You can't look at this part. But, of course, no Thanksgiving is complete without the main event. I think we're close. I think we're close. Oh, oh, oh. A baster. We have the oven bags. The turkey. It's the turkey. And voila! Whoa! Look at all these turkeys. Look, there's a lot of turkeys here. And right there, in the middle of the meat section, we encountered an economic mystery. It's on sale. It's only$1.99 a pound. Look at all this other stuff. It's like$7,$8,$20 a pound. Erica, turkeys are always on sale at Thanksgiving.

1:52Yeah, okay, compared to beef or lamb, turkey is always pretty cheap. It doesn't cost that much per pound. But around Thanksgiving, turkeys get even cheaper. the average retail price of turkey actually goes down during the holidays, which is odd. Because right when everyone's loading up their shopping carts with their Thanksgiving turkey, right when turkey demand is the highest, you might think that the price of turkey would go up. But that is not what happens. And it gets weirder. The price that supermarkets pay, the wholesale price of turkey, that does go up during the holidays. But for some reason, the price that consumers pay that we're paying, that goes down.

2:32It's a mystery. An economic mystery. With some surprising new answers. Hello and welcome to Planet Money. I'm Jeff Guo. And I'm Erica Barris. Thanksgiving is the very best time of the year. There's pie, there's stuffing, there's Brussels sprouts. The only thing that could make better economics. Today on the show, a very Planet Money Thanksgiving. We're going to get to the bottom of this turkey mystery. We're going to see what this cooking adventure reveals about an overlooked corner of the economy. And we are going to use economics to help us solve one of the biggest problems of the holidays, the seating arrangement.

3:10Planet Money is getting together for Thanksgiving. And you are invited, too. Thank you so much. All right, it's time to go cook. Does this all fit in this cart?

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4:39Is there a can opener in this house? Yes. Oh, beautiful. We are back from the grocery store. Okay, so I'm gonna get these onions chopped for the gravy. You know, it's not a meal if you don't drop three things. That's why you always buy the extra onion. And we're cooking up a feast for our very Planet Money Thanksgiving, starting with the turkey. Look at this guy. Beautiful. Oh, you're so beautiful. All right, turkey going in the oven. Here we go. There you go. See? Timer. How long do we want to cook this turkey? We're going to go by feel. No timer. No timer? Okay. I guess we're just going to wing it with the turkey.

5:22Erica, I had a thermometer. Right, right. You had a thermometer. And this 14-pound turkey only cost us like$25. And it's going to feed eight people. Which brings us to the first part of our very Planet Money Thanksgiving. The economic mystery we found in the grocery store. Every year during the holidays, during a time of peak turkey demand, the price of turkey actually goes down. And that's really surprising in a lot of ways. Xiao Dong is an economist who spent a few years at the U.S. Department of Agriculture. He is a food economist. He's looked at the data and he found that during the holidays, turkey demand spikes 750 percent.

6:05But the price of all those turkeys actually goes down by an average of about 20 percent. Schaub says there's a whole body of research looking at this phenomenon. When the demand for something goes up, but the price goes down. Economists call this phenomenon counter-cyclical pricing. And Schaub says economists, they've analyzed this problem in basically two ways. Number one is what's going on with the stores. Like maybe there's a reason that supermarkets want to charge less during times of high demand. The theory I'd always thought was the reason why turkeys are cheaper is because they're a loss leader.

6:41Yeah, so this loss leader is probably the most popular theory. A store can discount a popular item to draw in more consumers and then they would buy a cart full or basket full of products too. Does that hold weight? That is an empirical question that a lot of economists have been trying to answer. Xiao says, yeah, that is one possibility. Some stores could be using turkeys as a loss leader. But Xiao says the second way to look at this mystery is through demand. What's going on with customers? He says, yes, a lot of people during Thanksgiving are buying turkey, but that demand might be special.

7:22Meaning those customers might be more price sensitive. Like maybe they're buying a lot of other stuff during the holidays, so they're more conscious of prices. Or maybe they just don't really care about turkey. They only buy it once a year for the sake of tradition. So they just want the cheapest turkey they can find. If customers are price sensitive, that means they're willing to shop around. They're going to flock to whatever store offers the lowest price on turkey. So because they're more price sensitive, stores will lower the prices a little bit. Aha. The idea is that if stores don't lower their prices, they might lose out on a lot of those price sensitive customers.

7:59Now, Shao says these theories about stores or price sensitive customers aren't just ways to explain counter cyclical pricing for turkeys. Actually, these theories were developed when economists observed counter cyclical pricing for a lot of other products. For instance, the price of champagne drops right around New Year's. The price of canned tuna goes down during Lent. And avocados, they get discounted right around Cinco de Mayo. Economists have even seen this phenomenon for ice cream during the summer and like soup during the winter. But when Shao looked at all this past research on countercyclical pricing, he realized that all these theories missed something when it came to turkeys.

8:41He has a new theory that helps explain counter-cyclical pricing, particularly for turkeys. One day I was shopping, it was like in July. So I actually asked the store manager, I was like, do you have full-bored turkeys? He's like, no, that's only a holiday season thing for us. Oh, wow. Okay. And then were you like, why? No, I felt a little awkward asking him why, so I didn't continue. He's an economist, Erica. He's not going to ask questions. He's going to go to the data. He's going to prove it. Standing there in the aisle at the supermarket, Xiao realized that, yeah, not all stores carry whole turkeys year round.

9:18And this was a light bulb moment because it got Xiao thinking about how stores compete with each other. Turkeys, they are basically, let's call them a hyper-seasonal food. Demand for turkey peaks during the holidays. And according to Xiao's theory, that seasonal demand is really attractive to a lot of supermarkets that don't normally sell turkeys. Maybe they think they can make money off of turkeys or that they can use turkeys as loss leaders. Whatever the reason, right around Thanksgiving, a bunch of supermarkets swoop into the game. These stores can just, you know, free up some freezer space and start offering turkeys because it's probably profitable to do so.

10:00And if there's more stores that come in, that puts downward competitive pressure on prices. And to confirm this theory, Shao analyzed data from more than 5 ,000 grocery stores, dozens of chains across the country. And he found that during the holidays, the number of stores selling turkeys increased by 16 percent. Which might not sound like a lot, but that can be enough to create competition and drive down prices. And this may help to explain the mystery of why turkeys are priced 20 percent lower during the holidays. So I think it's a complementary theory. As one of my economist friends says, this is probably like an economic hot take of what is going on and supported by some data.

10:44Okay, that was the turkey mystery, but Thanksgiving is not just about turkey. No, no, no, no. Some people would say that Thanksgiving is really all about these side dishes. The stuff might not all fit in the same oven. Is there only one rack in here? No, no, there's two. So let me take the turkey out first. Gotta squish him in there. So while we wait for the turkey to finish cooking, we got to start preparing the sides. And that is going to lead us to the second part of our very Planet Money Thanksgiving. A lesson about what is counted and not counted in the ways we measure the economy. Because making all these sides, it is a lot of work.

11:23I'll wash, you peel. Let's go. I love this. Assembly line. Assembly line. Starting with the mashed potatoes. That's what the four pounds of butter were for, obviously. Do you want a full peel or do you like a rustic peel? I honestly would eat them unpeeled. Oh, really? Okay, then a rustic peel it is. Rustic peel. We also got sweet potatoes, homemade gravy, the green bean casserole, and cranberry sauce. Oh, oh, it's time for my secret ingredient. Oh, okay. And of course, Erica, you made your famous pumpkin pie. This is looking good. This looks pumpkin pie-y. No lumps. We are clearly working to make this meal.

12:04And the thing about all this work, all the time that goes into making an entire feast, the shopping, the cooking, the endless cleaning. Oh my God, the cleaning. None of this is included in official ways we measure the economy. Like the gross domestic product, GDP. That only counts the goods and services that people buy and sell. But obviously all this stuff is still real work. Macroeconomists, they study this kind of work. They call it home production. And Thanksgiving, well, I would say it's kind of the Super Bowl of home production. I am wondering if you have a favorite Thanksgiving dish. Turkey.

12:40Actually, I grew up in China. So usually we prefer to get some awesome Chinese food. And combine it with turkey at Thanksgiving. So I have a wonderful dinner with friends. When she isn't eating turkey with a lot of awesome Chinese food, Jixi Yu teaches economics at Louisiana State University. And we went to Jishu for our second Thanksgiving mystery, which is how much home production actually happens in our economy. Jishu says to answer that, economists have to resort to asking people. Every year, the government asks thousands of Americans to complete what are called time diaries. Time diaries.

13:20Time diaries. So in each time intervals during these 24 hours, what are you doing? So what is your primary activities? What is your secondary activities? So like a log of how you spend your day. Yes. Economists use those time diaries to estimate all the home production that people are doing. How much housework, cooking, shopping, childcare, etc. And then they try to put a price tag on that labor. Essentially, they try to estimate the market value of that labor by looking at the average wages for jobs that do similar kinds of work. So they take those estimated wages, the number of hours, the number of people, and they add it all up and get a big price tag.

14:03If the value of the home production were included in GDP, the value would add trillions of dollars to the U.S. economy. Trillions of dollars? Yes, yes. Trillions of dollars. Yeah, trillions of dollars. Like maybe increase the GDP by about 20%, 25%. Oh yeah, home production is a huge part of the economy. And quantifying home production is key to understanding the real state of the economy. Like, if you're only looking at GDP, you are missing out on the big picture. Jishu studied the most recent recession, the one during the pandemic. She estimated that while lots of people were staying at home, home production went up a lot.

14:42So the picture is not as bad when you add GDP and home production together. Yes. It's not as bad as we only see the GDP drops. Look, I'm telling you, it was the power of all those sourdough starters. And for us at our Thanksgiving feast, it has been a lot of home production. We've been cooking for seven straight hours. And the turkey is almost done. Stop. Stop. The alarm just keeps going off. Make it stop. How do you make it stop? You got to fan it. Fan it with a coat or something. All right, guys, I'm going to check on the turkey. Super excited. Please don't be over. Oh yeah, guys, we're done.

15:27The turkey's done. The turkey was done. Maybe too done. Man, I can't believe I overcooked the turkey. This is deeply embarrassing. Overdone turkey aside, the biggest challenge of Thanksgiving still awaits. People were about to arrive, and we still needed to figure out where to seat everyone. Luckily, economics can help us out with that. That's after the break.

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18:03Thank you, and back to the episode.

18:14Okay, we have been cooking all day. We have our turkey, we have our sides, we have three pumpkin pies, courtesy of Erica. The sun is setting, and our guests have finally started to arrive. Let us in, let us in! We're coming, we're coming! Hey! Happy Thanksgiving! Happy Thanksgiving! Look at this view! Hi, friends! So good to see you! Hi! Welcome to Thanksgiving! I'm totally distracted by the view! The view is pretty, pretty awesome. Be careful, there is a hot oven. Our guests are Planet Money colleagues, Amanda Aronchek, Mary Childs, Keith Romer, James Snead, Willa Rubin, and former host Robert Smith.

18:55They come in and they admire the feast we spent all day making. Oh, it smells good in here. Smells like, oh my gosh, it smells good. Oh, guys, you want to see the proteins? Sure. Check this out. Oh my goodness. Holy moly. Everyone is here. We have a table overflowing with food and a problem. Where should each dinner guest sit? Who should sit next to whom? This is the final part of our very Planet Money Thanksgiving. A challenge. The seating arrangement. And we didn't want to just throw people together randomly. We wanted to find the optimal seating arrangement. And this is actually a really tough challenge.

19:37It's related to a whole field of economics called matching theory. Economics, at its heart, is all about matching people with the things they want. That usually happens through prices. But there are some markets where you can't put a price on things. Yeah, maybe you are trying to match kidney donors with people who need kidney transplants. Or you're trying to match medical students to residency programs. Or public school students to high schools in their area. These are all real-world instances where it would be immoral or unethical to use prices to match people. So instead, economists have used matching theory to come up with solutions.

20:18Matching theory even won the Nobel Prize in 2012. And the way that matching starts is by asking people what their preferences are. So to make our optimal table-seating arrangement, several days before our Thanksgiving feast, I called our guests, each one individually. Can you rank from one to ten, like one being amazing, great, and ten being like no, terrible, bad, who you want to sit next to? You want me to choose who I want to sit beside? Yeah. Like rank them. No. That is like the rudest thing ever. I would never. I work with these people. This sounds really uncomfortable. Who I'd like to sit next to?

20:58Yeah. Oh gosh. And this is recorded for podcast. We are always recording, Willa. We are always recording. Yes, a very awkward question to ask your colleagues. But we had to make them do it for the sake of economics. And people started sharing some answers. So I'm seeing Amanda on Friday. So in terms of scarcity, that downvotes her, but I love her. Well, I can give you a top two. No, no, now I'm second guessing it. I've never met Jeff Guo in person. So Jeff, go I was number one. OK, can I revise my list? I want to revise my list. OK, revise your list. And after we got a sense of people's preferences, that's when we got to work on figuring out how to make this optimal seating arrangement.

21:48And economists, they say there are actually two ways to think about what an optimal match even means. The first way to make matches is to optimize for overall happiness. In other words, what match will maximize the group's overall utility? Another way to make matches is to optimize for stability. Having a stable match means that there isn't any pair or group of people who could make themselves better off by trading seats with each other. Economists have found that in a lot of situations, you can't really achieve both goals. You can't maximize utility and have stability. In the real world, in a lot of situations, people have chosen to optimize for stability, like for matching medical students with residency programs or public school students with high schools.

22:33And the reason they choose stability over maximizing overall utility is, and this is an oversimplification, but because when you maximize the total amount of everyone's happiness, you can end up with situations that feel unfair, where maybe a few people are really unhappy so that they can make the whole group happier. Matches that are optimized for stability, they are the ones that tend to feel more fair. So for our Thanksgiving table conundrum, what we decided to do was to optimize the table arrangement for stability. We wanted to create a stable table. Is there an appetizer snack? Would you like to eat a whole sweet potato?

23:16Yes. Mary, here, have a Parmesan, Chris. Thanks. And this stable table question, and questions like it, they're on the frontier of this field of matching theory. Just this year, two new papers have come out about it. And unlike with the matching problem for kidneys, medical residents, and for public schools, which can all be solved with a clever algorithm, economists haven't figured out an algorithm to reliably produce stable table arrangements. So to solve this problem, the only thing we could do was to use brute force. Because we only had eight guests. And that's only 5 ,040 possible seating arrangements.

23:54For those who remember from math class, that is 7 factorial. So we, meaning Jeff, wrote a computer program that simulated every single seating arrangement possible. And for each arrangement, it calculated every person's utility by looking at who was sitting on their left and who was sitting on their right and how that matched that person's preferences. And then it checked to see if that person might be happier if they could switch seats with someone else at the table. And after looking at all of this, the computer gave us a seating arrangement, a supposedly stable table. And it was time to put this stable table to the test.

24:32So Willa, you're going to sit here. Next to Willa is going to be me. I'm going to sit next to you. All right. And then Keith is going to sit to my left. So everyone is in their seats just looking at the heaping plates of food on the table. But before we let anybody touch the food... Well, because this is Planet Money, we're going to quantify how good this seating arrangement really was. Everyone's going to get a piece of paper. You get a paper. You get a paper. We had to see if there were any trades that people wanted to make, if someone else's seat might make them happier. So we asked everyone to look around the table.

25:12Is there anybody's seat you would rather be sitting in right now? Please write down those seats on this piece of paper right now. That was the test. Have we optimized this table for stability? We collected all the slips of paper. And there were a couple folks who were interested in sitting in a different seat. We won't disclose who. You guys know who you are. But none of those people who wanted different seats matched up. There are no possible trades within this group that would make anybody happier. We have achieved a stable seating arrangement. Cheers. Cheers. Happy Thanksgiving. Happy Thanksgiving.