Blogs | October 11, 2011

Why are so many hairdressers on a street corner?

Charles asks: "I notice that in my city most hairdressers are situated on a corner, while that doesn't apply to butchers, bakers, bicycle shops or supermarkets. Is there anything specific to hairdresser economics that make this so? Do they have to be more eye catching because of lower customer loyalty?"

Ian answers: Despite regularly visiting a hairdresser, this is not something I had thought about before. There are a lot of economic studies on cities but I am not aware of any studies on this “corner preference” of hairdressers. One thing that strikes me is that it is difficult to verify whether hairdressers are actually more likely to be situated on a corner. I wonder if a thinking trap might be contributing to this perception.

Sometimes we see patterns where none exist
A possible explanation is that what you see may not be what is actually happening. Sometimes we see patterns where none exist. A random pattern, such as a repeated tosses of a coin, can give a consecutive sequence of five or more heads. Furthermore, we may tend to see patterns in random events when we are actively looking for something – such as searching for a hairdresser before an important date or job interview.

Players in casinos hungry for a win sometimes think they see patterns emerging in games of chance such as roulette or craps when, in reality, each spin of the wheel and roll of the dice is independent. Hoping that people will see patterns where none exist, is part of the way that casinos typically make money.

Ben Goldacre’s thought-provoking book Bad Science covers this issue in more depth, focusing on the medical world. Amusingly and provocatively, the chapter is titled “Why clever people believe stupid things.” Not that you are stupid, Charles.

Beware of the gambler’s fallacy
When it comes to managing money, it also possible to fall into the trap of seeing patterns where none exist. Fund managers might present figures showing how they performed in the past. However, financial regulators in many countries demand these figures are followed with a warning that past performance is not necessarily a guide to future performance. Similarly, just because a share market or the price of a commodity has gone up for a sustained period, there is no guarantee it will continue to rise. In behavioural economics terms, our tendency to overemphasize the importance of past performance is known as the “gambler’s fallacy”.

As a result, it is often more important to monitor the amount of risk you are prepared to take when managing your money than the return you want to achieve.

A curly one
It would be possible to carry out a scientific investigation of whether hairdressers prefer a corner location. And if this is done, I wonder if the preference for a corner location would vary between hairdressers for men and hairdressers for women. Just a thought.

Gambler's fallacy

Ian Bright
Ian Bright

Senior economist at ING
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45 blogs

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