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What Can New York Taxi Drivers Teach You About Trading Goals?
In 1997, a study was conducted on taxi drivers in New York and it uncovered some very irrational behaviour.
On rainy days, the demand for taxis was much higher than usual, as you’d expect. Yet, the supply of taxis was much lower than on a typical day.
On the other hand, when the weather was good, demand for taxis was lower as people were happier to take a walk. But during these times, the supply of taxis was much higher than usual.
This strange situation raised some questions. Why were there fewer taxis on the road when they were in demand and more of them on the road when they weren’t?
The study found there was an economic rationalisation at play with the taxi drivers that was anything but rational.
The taxi drivers had daily income targets and as soon as they hit the target, they’d finish for the day.
This meant, on good weather days, they might be sitting there for a very long time without a passenger since there’s less demand. That meant they would work a longer day to hit their target. Whereas, on bad weather days, they might take one passenger after another and hit their daily income target in the shortest time possible.
