Tuesday, September 27, 2011

One shoe or two?

In economics, "left shoe" and "right shoe" are an often-cited example of perfect complements.  But my friend went to India and brought back an interesting story.  He found himself in need of a new pair of flip flops, so he located a shoe stand.  The man asked him: one shoe or two?

At first he was confused: why would anyone want one shoe?  But in retrospect it's obvious!  Here we buy our shoes in pairs, and we get a new pair when the old shoes stop looking nice.  But if we didn't have that luxury, we would wear our flip flops until one of them broke, and then we would just replace the one shoe.

Thursday, September 22, 2011

Economics with time travel?


This is almost certainly an experimental error.  But in the meantime, why not entertain some Econ Time Travel Thoughts?

First of all, let it be known that from an economic perspective, time travel isn't inherently paradoxical.

Wait, but isn't it?  I mean, if you can travel back to before you were born and fiddle with things so that you're never born, but wait then how can you ever exist to travel back and fiddle with things, but wait then...

And doesn't time travel muddle causality in a pretty serious way?  I mean, if you're going back to yesterday to tell yourself that today you should go back to yesterday to tell yourself that today you should go back to...

A lot of people would throw up their hands, but we're economonomists so time travel doesn't scare us.  Time travel does muddle causality, but it does so in the same way that causality is always muddled in that most standard of economic concepts, the equilibrium.

When everyone in the class is cheating, who caused it?  Who is to blame?  Well why does there have to be someone to blame?  Why can't everyone just be reacting optimally (perhaps even socially optimally) to everyone else's behavior?  An equilibrium is a fixed point, where everyone's behavior causes and is caused by everyone else's.

A world with time travel can be in equilibrium too, of course.  Even if I go back to last week and deliver a message to myself, that message may be what causes me to behave precisely the way my present self is behaving.  And could I go back in time and mess with my birth, create paradoxes and whatnot?  Well, maybe the right way to think about it is that we just don't observe such out-of-equilibrium behavior.  It's not like -- as in many movies -- we exist until the moment we go back in time and mess with our past.  Rather, the whole history either is consistent with itself, or not.  If not, then what's to see?  Where time travel is concerned, you can refuse to believe in out of equilibrium behavior without being a stubborn classical economist.

I'm not saying there are many potential universes that support a time travel equilibrium, but they are certainly not a logical impossibility.  So we can safely consider the possibility of being in one ourselves, and we can safely imagine what some fun ones might look like.


Here's a fun one, by the way.  Has anyone seen The Time Traveler's Wife?  Spoiler alert!  Strictly from the perspective of economonomic time travel theory, it is a very good movie.  (If you're not into that stuff, you'll have to get your recommendations somewhere else!).  Most movies with time travel are, I think, of the "don't think about it too hard" variety...but this one displays, essentially, a stable time travel equilibrium.  What I most like is that it makes you check your causality judgment at the door, in the same way that earlier post about cheating is supposed to make you check your judgment at the door.

When Girl meets Guy for the first time in her life, she is like 7 and he is already in love with her, and he cultivates that relationship as she grows up, which you could say is kinda sick.  But on the other hand, when Guy meets Girl for the first time in his life, she is already in love with him and does the very same thing.  Due to the magic of time travel, there is no sense in which one of them initiated the relationship or caused it all to happen.  Hopefully you walk away from this movie recognizing that there are no fingers to point.  There is nothing here but a time travel equilibrium, a fixed point where everything is in perfect balance, whatever that balance may be.  There's a good deal of information flow to the present from the future and the past, but it always exactly enough to do exactly what it needs to do, namely to preserve the equilibrium.

Tuesday, September 20, 2011

Real Transferrable Utility

In economics, we don't normally treat utils as real things so much as a theoretical convenience to make the math easier.  It is preferences that are fundamental, we say, while a utility function just represents those preferences.  We set up u so that u(x)>u(y) whenever x is preferred to y, and then we just have to look at u to determine what the agent wants.

Indeed, this is so fundamental that within economics, "transferrable utility" really means "transferrable money."  (There are situations when you can and can't transfer money, and we refer to them as transferrable and nontransferrable utility situations).

But what if utils were an honest-to-god real thing, and what if we could trade them?  What if we could literally stick some utils in a bottle and trade them to someone else for bananas?  Although this may never be directly relevant to the real world, it is a very good exercise in economics to think through the implications.  In what ways is the transferrable utils world better than our world?  Does it solve any problems automatically that we would have to work hard to solve?  Which problems does it still not solve?  What sort of social welfare laws would we want to see in such a world?   What would a market look like?

More to come.  In the meantime, feel free to take a stab.

Monday, September 19, 2011


so much depends

a red back

streaming with

beside the white


William Carlos Williams penned the above poem in 1923.  It is often considered his masterwork, and as such it has been the subject of much analysis and speculation over the years.  But no one truly understood what it meant until yesterday.  Seems pretty clear, in retrospect.

Wednesday, September 7, 2011

Good news and bad news

My friend, who just got back from the dentist, imagines the contents of the voicemail he just received:

Well there's good news and bad news, sir.  The good news is, we drilled the right teeth.  The bad news is, we were supposed to drill the left teeth...

Friday, September 2, 2011

It's a feeding frenzy

We were like, "This is cool and all, but why is the music so dramatic...?"

And then we understood.