
Freakonomics: Do We Need a 37-Cent Coin? - cwan
http://freakonomics.blogs.nytimes.com/2009/10/06/do-we-need-a-37-cent-coin/
======
kakooljay
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..

~~~
rglullis
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.

~~~
ynniv
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.

~~~
rglullis
I have serious doubt about "killing a lot of low end business". I'd imagine
that we'd start seeing lots of alternate, local currencies. Card games and
bets would probably have other medium of exchange (poker chips) or in-kind
value (a 12-pack of beer).

~~~
hughprime
Probably. Hell, we could all just start using Euros (or whatever) for cash,
and then exchange our Euros for plastic-only US dollars at changing booths
(which would suddenly become a lot more common).

This, of course, doesn't make life any easier for anyone, except the jerks who
already use cards for everything (aka the jerks I always get stuck behind in
line while I wait for their little receipt to print and get signed).

------
gojomo
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!

~~~
dfranke
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
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.

~~~
dfranke
Vending machine manufacturers are used to this, I suspect. They go through it
every time the design of the currency changes.

------
psyklic
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?

------
ieure
“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.”

------
manifold
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.

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

~~~
tedunangst
In the real world they charge sales tax.

~~~
uiohnuipb
That's a perculiarly American problem - everybody else factors tax into the
sticker price.

It's only America that seems to add it at the register. I assume it's to take
advantage the famously high level of math education among Americans who can
easily add 4.5% state and 1.8% city sales tax to a coffee in their head.

~~~
tedunangst
For an article in an American paper about the American currency, I don't think
the problem is that peculiar.

------
tjic
> 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.

~~~
mitko
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
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.

------
karzeem
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
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.

------
zhyder
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.

------
sethg
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.

------
raquo
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.

------
jperras
An older but more thorough analysis may be found here:

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

------
sandrogerbini
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.

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

------
ankeshk
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.

