Monday, January 25, 2010

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

Thanks for forwarding this to me, Professor Lucas!
My Wellesley Professors continue to enhance my life.

Saturday, January 16, 2010


Going to the Bahamas on a cruise with my fams.
I will return tanner and fatter. (although, I did pack sneakers and gym shorts so I could work out...)

Peace out, SUCKERS. HA.

Thursday, January 14, 2010

The Economics of Relationships: Your Votes.

14 of you thought that Yes! Relationships are fun and cost-effective!
1 of you thought No! I'm not wasting my time on lemons!
12 of you thought Nams and I are insane.
2 of you are asexual.

Thanks for your feedback, and sorry for the delay in posting results!

Topic suggestions for next debate?

Tuesday, January 5, 2010

The Economics of Relationships: Counterpoint.

This is Nami, guestblogging in response to Esther's post on the economics of relationships.  Read our blog posts then take the 1 question survey below!  We'll post the results in a week!

You’re young, fresh out of college, with your entire future ahead of you.  New opportunities and possibilities abound.  No longer strapped to your academic core and concentration requirements, you’re free to pursue almost anything you want – except another boy.  Why?  Because you’re in a “relationship.”  Bah.

Now, I’m neither an economist nor an expert on relationships.  But, I am a new grad in a new city, with a new life and a new boyfriend (I’ll refer to him as A).  Our relationship has seen its share of ups & downs and the option of splitting has, in times of stress, fatigue, and annoyance (can we say Friday nights?), more than once entered our vocabulary.  I’m sure that the question of “Is this worth it?” has crossed our minds multiple times.

But, the answer thus far has always been yes.  Once the fights die down and the rage begins to dissipate, a fear settles in.  “What am I doing? I don’t want to break up!”  Panic hits me, a fist to the stomach.  I’ve acted and reacted in such a way many times, but I rarely stopped and thought about the question – Is this worth it?  Am I gaining as much as I should from this boyfriend?  Do the allowances of this relationship really outweigh its limitations?

As I stated earlier, I’m no economist.  But, Esther is.  She suggested that I research the following terms to better understand my situation, from an economic point of view:
  • ·    Diminishing marginal returns
  • ·    Opportunity cost
  • ·    Sunk cost
Here’s my understanding of them:

  • ·      Diminishing (marginal) returns: when you get progressively less as you put in more (in contrast to what you would expect).  Relationship example: Before A & I were anything 1st person plural, I would get really happy when he called me.  Over time, he continues to call me – it still pleases me but I derive less and less happiness from each call. 
  • ·      Opportunity cost: value of the next best choice, or basically, what you’re giving up.  Relationship example: One opportunity cost of having a boyfriend is freedom to see other boys.
  • ·      Sunk cost: costs that have already incurred and you can’t get back – what you already gave up. Relationship example: We’ve been through too much; what a waste all our troubles were!  Even if I’m miserable now, I can’t just bail – I’m loss-averse!

Given her previous post and the terms she'd assigned me, I think we can all agree that she's not only an economist, but a Pessimist!  And it's true, these terms paint a pretty grim picture of love.  But, let’s take a closer look at how these terms can apply.  

Diminishing returns do indeed exist in dating – the 100th kiss does not rival the 1st.  Thinking about diminishing returns makes it seem as if you’re losing out in the end: I’m putting my love, patience, and time into this relationship…but why am I not getting the same high?  But, first of all, what you have to realize is: hey, you’re still getting some high!  You’re still gaining from the relationship, just not as much as in the beginning.  And this makes perfect sense.  The opposite of diminishing returns is accelerating returns.  For example, once a crush develops, every phone call and e-mail brings more and more excitement and pleasure.  You start dating and every moment you spend together seems better than the last.  OMG, this is perfect, you think, it can’t get any better!  Your returns are accelerating, your happiness is through the roof; 1st kiss and you melt. 

but Warning: this may not last.  But, that’s not a bad thing!  Your returns start to even out, become constant, normalize.  This is good: people can stop regurgitating.

Second of all, you lose some, you win some.  While you lose some of the excitement and eustress over time, you gain consistency, reliability, dependability.  Boring?  Maybe.  But, definitely more satisfying in the long run.  The high dissipates but contentment and security take its place.  I now have a companion, a partner-in-crime.  The spectrum of sentiments I express widens – I can be angry, I can be a brat, I can be depressed, I can be annoying, and I know that he’ll understand, and vice versa.  

Now, with opportunity cost, things get more interesting.  Having a significant other has its perks, but it also has its drags.  Am I still the i-n-d-e-p-e-n-d-e-n-t woman that I was?  Sure, but less so.  What am I giving up by being with A?  Being the center of my own life.  There’s another party to consider now.  What do we both want to eat?  What do we want to do?  Another is romantic freedom: I’m not free to sow my wild oats!  I am not living the care-free, dating-around, everyone’s a potential hook-up kind of lifestyle.  Bound to monogamy: prison!  And last but not least, I may possibly be giving up The Perfect Boy, The One  – somewhere out there, my exact counterpart may be waiting for me, searching for me, but I’m nowhere to be found.  This relationship is a prison!  Free me from my chains, lovely captor!

But, wait.  We must consider the opportunity costs of being single or breaking up.  I mentioned some before (reliability, companionship, etc.), but there are more.  I lose a best friend, a listener, consistent plans, consistent physical relations, and freedom…from loneliness.  We’ll get into the actual financial costs and gains later.

Considering the role sunk costs play in all of this makes everything a lot more…serious.  Technically, if you’re a rational player – and I’d like to think of myself as quite practical and reasonable – you shouldn’t take sunk costs into consideration.  The example Wikipedia gives us is about buying tickets to a movie.  Let’s say you Fandango that shit and buy advance tickets to High School Musical 2. Then, you realize there’s no way you want to watch that – the reviews have been terrible and you don’t know what you were thinking.  Should you bail or go? The sunk cost is the price of the movie ticket.  If you stay, you’ve lost $9, your mental well-being, and your time.  If you bail, you still lose $9, but you’re mental state is intact and you can spend your time better elsewhere.  If you look at it that way, of course you should bail!  But more often than not, people stay.

So, maybe I’m not so rational.  I know I ought not consider sunk costs, but I do.  I order a big meal, it’s expensive, I get full after eating half of it.  But, what do I do?  I truck on and devour the entire dish, which leads to stomach pains, fat goggles, and world of regret.  Why do I do it?  Because I paid for that goddamn meal!

Right, so back to relationships.  Relationships aren’t easy; they require work and sacrifice.  The road to A & my relationship was rocky – distance and time differences aggravated tensions, resulting in countless arguments and resentment.  We worked through each and every one.  Sunk cost.  I moved to a new city, not for him, but it would be wrong to say he didn’t play a part in my decision-making.  Sunk cost.  How can we break up now?  After all we’ve been through, after all we’ve put into this mess?  Technically, if things are rough with A & me, I should consider only the future, ignore sunk costs, and break it off.  Eff this, A!...right? 

Not exactly.  Yes, a relationship is an investment, but it’s not a night at the movies.  A sunk cost in making a relationship work is nowhere near the same as $$ paid to watch Zach Efron.  With love, a cost can also be a gain – arguments can make your relationship stronger – and sunk costs are also history, and history is part of what holds relationships (friendships, family, romantic) together!  A shared history with your best friend is invaluable.  Sunk costs need not be the focus, but they should be considered to some extent!

I’m guessing you have a pretty good idea by now where I stand in terms of my relationship.  But, this wasn’t easy.  Weeks of field research have shaped my conclusions, during which A & I experienced the best and worst of our times together.  So, let’s scrap all this theoretical and romantic nonsense and get down to the numbers.  Is our decision to stay together a financially sound one?

FOOD & DRINK: Going out every weekend adds up.  When I was single, I usually went out (dinner + drinks) on Fridays and Saturdays.  Dinner was an affair and drinks were expensive.  There was pressure to go out hard and spend the money to do so.  And if you're a guy, you can expect to spend even more -- impressing your dates with fancy dinners at fancier restaurants, buying rounds of drinks for the ladies you're trying to bed.  Once you're in a relationship, standards begin to change.  A fun night can just meet a night in, cooking dinner and watching something on Hulu.  Lame?  Maybe.  Affordable?  Heck yes.  Cruising for potential mates costs money, and by money, I mean alcohol.  People like to loosen up with liquor and unless you limit yourself to happy hours, drinks can get expensive.  BFs and GFs sort of eliminate the need to booze up.  Alcohol doesn't loosen you up, then, it just makes you sleepy.

Maybe I've just become lamer, more boring.  Maybe I've imprisoned myself, allowing hundreds of potential mates slip past me.  Maybe I'll find myself at age 42, stuck in a loveless marriage full of resentment and discontent.  Perhaps.  But for the meantime?-- at least, I'm saving a shit ton of money.

The Economics of Relationships

My parents have been bothering me a lot about getting married.  I'm offended that they're so eager to get rid of me.  However, it did make me think about my aversion to relationships.  It made me wonder why certain people find relationships so appealing…

Does anyone else think that it’s kind of unhealthy to be attached to any one person in the world?  The first thing we learn when making investments is diversification!  Relationships are like investments.  Your closest friends and the people you love the most are like stocks – high returns, high volatility (b/c they are the ones who affect your emotions the most).  Your 2nd tier friends are like bonds – low volatility and low returns.  Your frienemies are like cash – zero nominal returns, negative real returns, but you keep them around just in case…
How can you possibly place so much trust in ONE person?  That’s like putting all of your retirement money in Enron stock...OOPS.

I once told a boy that I couldn’t date him because my utility of expected value exceeded expected utility. In other words, I am risk averse.  I know that I can achieve a certain amount of happiness when I’m single, but when I’m in a relationship, it’s a gamble.  But I’m sure my utility function will change once I turn 30?  Or 40?  (I hear 40’s the new 30…)

Also, George Akerlof’s Market for Lemons paper has so many levels…
In his paper, George Akerlof explains how market failure occurs because of asymmetric information.  In the used car market, a seller has good used cars and bad used cars, aka “lemons.” The seller knows which cars are lemons, but the buyer does not.  Therefore, the buyer is only willing to pay the price for an average quality car.  Since the seller cannot receive a fair price for the good cars, the seller will resort to selling only “lemons.” Thus, “the bad drives out the good.” 
It’s the same with men.  I’m assuming that most douchebags know that they’re douchebags.  But it’s not like they’re going to go around broadcasting it.  Even the seemingly nice ones can turn out to be complete a-holes.  Therefore, I am only willing to invest so much in my relationships because there’s a pretty good chance that I am in fact, dating a lemon. 

However, my friend Evelyne points out that as we get older, there will likely be more “lemons”  in the market because all of the good guys will already be taken.  My mother also argues that it is the girl’s responsibility to turn a bad guy (because all guys are naturally bad, of course) into a good guy – take lemons and make lemonade?

Basically, I don’t want lemonade enough to look for a “good lemon.” Or maybe I don’t have the patience to squeeze lemons until I find good lemonade.  

What’s the point?  

It’s only a matter of time before the principle of diminishing returns kicks in and we get tired of each other.  Someone told me that human beings are only made to be “in love” for two years at a time.  That’s fine.  Boyfriends, and future husband, I accept that you may not love me “until death do us part.” All I ask is that you not make a COMPLETE fool out of me the way Tiger did with his wife.

It's a crapshoot, friends.  In general, the romantics will be disappointed and the pessimists will be pleasantly surprised.  I suppose that’s what we would call mean reversion in standpoint…