The Simpsons and Economics

Is The Simpsons more than just a funny cartoon series with animated gags for laughs? Or could it possibly hold deeper content about business, economics, culture, and everyday life? Recently, I was watching some episodes of The Simpsons, when I realized not only could economics be applied but it could be used as examples for certain economical concepts.

One episode entitled, “Homer vs. the Eighteenth Amendment,” the people of Springfield start pushing for prohibition after an incident where Bart accidentally gets drunk on television during a parade on St. Patrick’s Day (which is this upcoming Tuesday). The town then discovers it currently has an old law in place that prohibits drinking, so Springfield reinstates the prohibition.

Although a ban is in place, demand for alcohol is still high. This ban acts as a different type of price ceiling, but instead of limiting the highest price in which one can sell, it limits the quantity to be sold, and in this case limits it to zero. Of course at a quantity of zero there is a tremendous deadweight loss and this is where organized crime came into the episode and began supplying Moe’s Tavern (called “Moe’s Pet Shop” in this episode to hide what was really going on) with alcohol to help diminish this deadweight loss. After law enforcement stopped this supply of alcohol from organize crime, Homer decides to take responsibility into his own hands and begins supplying Moe with alcohol by himself. Homer is now a monopoly of the alcohol supply for Springfield. With demand still high and a low quantity of alcohol supplied, the price of one beer raises to $45.

With prices now skyrocketing, Barney states, “This better be the best beer in the world.” (Then he chugs it) “You got lucky.”

Sure at a price that high some people who would normally demand alcohol, will now try to find other alternatives, but there are still some people (and in Springfield plenty) willing to pay a high price to be one of the few to get it. Barney, in this case, represents a person with a high demand willing to pay a high price for the good.

The episode ends with them finally reading the next line of the charter which after the 200 year old law of prohibition, someone reads; 199 years ago they revoked the prohibition.

Another episode which contains some lessons in economics is entitled, “Bart Gets an Elephant.” Bart wins an elephant from a contest from a local radio station. They keep the elephant chained in their backyard and at one point a couple of kids ring the doorbell.

The girl says, “Can we see your elephant?”

The boy states, “We’ll pay you.”

Homer yells, “For the ninth time, no!”

Then he slams the door and walks away when he says to himself, “wait a minute… this gives me an idea.” The scene cuts to him hammering a sign reading, “Go Away,” in his yard.

Bart interrupts, “Uh, here’s a better sign, dad,” holding up a sign reading “See the elephant $1, Ride the elephant $2.”

There is an opportunity cost of having people pay to see or ride the elephant, instead of just keeping the elephant and not make any money. Homer did not recognize this opportunity cost, but Bart did. Later the episode deals with profits and losses. A firm in a market not making money must leave the market and in order to make a profit a firm must sell its goods at a higher price than the costs to manufacture those goods. Homer faces this situation and Marge confronts him about it.

Homer exclaims, “Look at this, Marge: $58 and all profit! I’m the smartest business man in the world.”

Marge claims, “The elephant’s food bill today was $300.”

Homer says, “Marge, please, don’t humiliate me in front of the money.

Although Homer was earning revenue from the elephant, the revenue was not greater than the variable costs to keep the elephant. Homer decides to raise prices instead of leaving the market (getting rid of the elephant). The new prices are “See the elephant $100, Ride the elephant $500.” Homer didn’t know the correct demand line for wanting to see or ride the elephant, the prices were way too high, and revenue quickly fell to zero.

After finally deciding to get rid of the elephant, Homer must choose to who he is going to sell or give the elephant. The first man offers to give the elephant a good home at an elephant refuge with thousands of acres of simulated African Savannah for it to roam.

Lisa excitedly says, “Its perfect dad.”

Homer responds to the refuge man, “I only have two questions. How much and give it to me.”

The man replies, “Well, we really can’t offer you any money, we’re a non-profit organization.”

Homer says, “So your bid is zero?”

The man says, “Well… we like to think of it as…”

Homer interrupts, “Thank you.”

Man says, “You know I really think…”

Homer again interrupts saying, “Thank you,” and turns his head.

Here, Homer does not take into account the positive externalities of giving the elephant away to a good environment for it to live. Nor does he take into account the negative externalities of selling it to a suspicious man who also offers to take the elephant off their hands. He offers a large sum of money for the elephant which worries Lisa.

Lisa says, “Dad, I think he is an ivory dealer. His boots are ivory, his hat is ivory, and I’m pretty sure that check is ivory.”

Homer remarks, “Lisa, a guy who has lots of ivory is less likely to hurt the elephant, than a guy whose ivory supplies are low.”

Homer’s point, although humorous, is based on the concept of utility, and that someone with a great deal of a certain good, ivory in this case, will have a diminishing marginal utility for each additional unit they receive.

At the end they decided to give the elephant to the refuge who would take good care of it, but not without first teaching us a few lessons in economics. Maybe The Simpsons is a much deeper show than just cheap gags for laughs or maybe people can over analyze anything to make a point, either way economics is all around us.

Chemistry TA fails test

In reading The Lantern the other day, there was an article about a Chemistry TA giving her students unfair advantages and unearned grades. Her situation was a basic Nash Equilibrium; she was allowing her students to excel with very little work, and her students simply had to "entertain" the notion of doing some work and they received excellent marks. This strategy failed her in the long run. Instead of forming a cartel with a select group of students to manage the risks, she attempted to apply this model to the entire class. Leaving a paper trail of emails and graded papers, she was caught and is now facing termination and removal from pharmacy school. She should have kept her mouth shut and let a good thing go, but those who read the Lantern know that didn't happen.

Library Computer Lab Rivalry

Immediately after class when we had the lecture that dealt with public goods and rivalry and exclusion, I went to the library and go to witness these concepts first hand. I always go to the business library computer lab between classes on Tuesdays to get some homework done. The computers in this lab would be considered common resource goods. Though not just any student can use these computers, they still aren’t non excludable. Any business student is welcome to use these computers at any given time, so from the stand point of all business students, these computers are non excludable; anyone in the college of business can use them. However they are extremely rivalrous, especially at this time of the quarter when work starts piling up. There are only a certain amount of computers in the lab, so though anyone can use them, not everyone can manage to find an open computer when they want one. Someone else using the computers greatly affects my ability to use them.

This made me think about the idea of highest value. Everyone wanting to use the computers at this time would have different values to using them. Someone who is in, for example, an accounting class and has to print out their memo by the end of the period to turn it in would have an extremely high value for a computer. Someone who needs to do work on an important assignment due by the end of the quarter would not have as high of a value, but still a relatively high value compared to someone who is using the computers to waste time between classes and checking Facebook. However the value a person has for using the computers does not play a role in deciding who gets to use the computers. The computers simply go to the people who get there first.

This brings up the issue of seeing if there is a way these computers can get into the hands of those who value them most at the time. The main solution that is already in effect is that of a sort of social pressure. If people walk into the lab at the same time and there is only one open computer, people will use social pressure to get the computer if they can. They might try to guilt the other person by saying something about how urgently they need this computer, hoping the other person doesn’t need it just as urgently. Or maybe they will try saying that what they need the computer for will only take a short amount of time so they should be allowed to use the open computer, because if another one hasn’t opened up by the time they are done using it, the second person can have it. Guilt also works as a social pressure for people who are already using computers. If someone walks in and no computers are open but they look worried and agitated like they really need a computer, people who are using one only to check Facebook or sports news may feel bad enough to get off the computer and offer it up.

Or maybe there is some sort of government action that can be taken. In this case, the government would be the faculty in charge of the computer labs. If the idea is to get the computers into the hands of those who value them most, maybe each student coming into the lab needs to verify that they are using the computers for a purpose that is not a waste of the resource when someone else could be using it. It is fairly difficult for anyone to guarantee that the people who are using the computers are the ones who value them the most. The only way that this could really be achieved would be to create a market for the computers in the computer lab and make the students using them trade something for the use of them, such as money or something of value to the students. If this were the case then students using the computers would be the ones who really need them, since they would be the ones willing to give up the most. However since it is a library and all of the students are enrolled in the college, it is fairly unrealistic to charge students to use the facilities.

Solving the problem is not an easy thing to do and I don’t really know what would be the best solution, but I thought it was interesting to see right away the idea of rivalry and exclusion and how it really is evident almost everywhere.

Celebrity apprentice

I was watching celebrity apprentice the other day, and the task that the celebrities had was to sell as many cupcakes as they can in a given amount of time. I was thinking that if it were us normal people selling cupcakes, the demand would be reasonably low, especially because we would have to sell the cupcakes in the middle of the street. But because these people were well known, the demand for the cupcakes was much higher, and they would inevitably make much more money. Also, there aren't too many people selling cupcakes in the street, so in a way, they had a little monopoly going on, because there weren't any competition, and they didn't have to be price takers.

The supply was somewhat constant, because they had a given amount of time to make cupcakes, and however many they made, they hoped to sell it all, so the supply curve would be vertical. With the supply curve being vertical, normally one would expect the price to be where the supply curve met the demand curve, but once again, this is somewhat of a special case because not all cupcakes had to be sold at the same price. The celebrities called lots of friends, and some people spent as much as $10,000 on a single cupcake. In essence, the celebrities were selling the cupcakes at their marginal demanded prices, so selling according to the prices along the demand curve. Some people were willing to pay much higher for the cupcakes, and the celebrities sold their cupcake according to everyone's prices. This minimizes consumer surplus and maximizes supplier surplus. This made sense, because the goal was to raise money for charities, so all the surpluses went into these charities.

In the end, one group of celebrities ran out of cupcakes, so had they made more cupcakes, or increased the supply, they could have made more money. This also meant that they weren't charging enough for their cupcakes. Because the supply was vertical, they had to set the prices so that it efficiently rations the supply that they had, and by setting the price too low, a shortage was created, and some deadweight loss were created as a result.

Overall, I think the celebrities raised over $100,000, so shortage or not, it was still a big sum of money for charity.

A New Technology... Picking Up Another Market's Customers

Yesterday in class we talked about how the increase in the demand of fish was met by an increase in the supply of fish by new technology in the boats that are used to supply those fish. With this in mind I started thinking about how new technologies could be benefited by the falling demand of a similar market.

Take for instance the electronic cigarette. With the tobacco use at a steady decrease it looks as if the tobacco/cigarette companies will be nearly obsolete in the near future. With more than 20 states having a public smoking ban, talk of an open air smoking ban, increasing "sin-taxes", and a decline in the number of smokers the future for cigarette companies looks fairly grim. But on the flipside; a nicotine addicted smoker has a new option. The invention of an electronic cigarette, or e-cig, may permit smokers to enjoy their nicotine buzz in public. The e-cig looks, feels, and tastes like a real cigarette, but doesn't create the hazardous chemicals that real tobacco smoke does. The e-cig creates a nicotine vapor that is emitted into the mouth piece that has no residual smoke. Producers of the e-cig claim that the e-cig will help those who are wanting to quit smoking by the ability to adjust the nicotine output level so they can wean themselves off of nicotine, the addictive agent in real cigarettes. The average price of an e-cig is about $140 plus tax.

Taking into consideration this new invention I ask... Is this invention really aiming to wean smokers away from nicotine? If so, then I predict the market for these e-cigs to eventually suffer heavy losses. Smokers would take to this product because it would allow them to "smoke" in public, and if they decided to quit smoking it would aid in the process. Knowing that nicotine is the addictive agent in cigarettes and providing the nicotine in the e-cig is just another way to get the smokers addicted to a new form of nicotine, which serves as a way to get customers addicted to thier new product and keep the demand for the components of the e-cig fairly steady.

This invention is brilliant because keeping in mind the dying cigarette market this invention has the possibility to absorb some of the customers that are dropping out of the real cigarette market, and possibly steal members of the real cig market. This invention also has the ability to creat new smokers. If the e-cig produces no harmful chemicals as the makers claim then there would be no harm in starting to smoke because there is no risk. Producers of the e-cig state that the only product that is given off is nicotine and
"propylene glycol, which is used in everything from Hollywood smoke machines to food colorings to hydraulic fluids". The fact that it is used in hydraulic fluids doesn't really sound too appealing. They also state "That, e-cig supporters say, allows smokers to wean themselves from nicotine, which most doctors say is highly addictive but not, as far as they know, a carcinogen." The main part that I would like to highlight in this sentance is how they say "as far as they know".

If people believe that this product is a harmless way to feed a nicotine addiction, or to start one for that matter, then why wouldn't they use this product. Aside from how I personally feel about this product it is a brilliant invention because it will pick up a variety of smokers: Quitting smokers, current smokers, and aspiring smokers. Looking at this invention as an economist there are numerous possibilities for profit in this market.

Image provided by: http://www.cdc.gov/tobacco/data_statistics/tables/trends/cig_smoking/

For more info: http://www.mercurynews.com/extra/ci_11873938?nclick_check=1

Dwight at an English Auction

This season on the TV show The Office, the office was broken into and Michael decided to have an auction to help everyone out. A hug from Phyllis is up for biding and Dwight and her husband get into a bidding war. Dwight shows just how to play an English auction so he does not over pay if he wins.

http://www.youtube.com/watch?v=3uR4vnoCiOw

At an English auction the winner of the auction usually pays one bidding increment more the bidder with the second highest value. In the video Dwight wants to make sure, if he wins, he does not over pay even by “one penny.” So he bids one penny over the other bidders each time. Dwight is why most auctions have bidding increments higher than one penny.

NASCAR

Few people realize the intricacies of NASCAR and only think its rednecks driving in circles. This is not the case at all and with the present economic conditions, NASCAR is feeling the pain. Chevy, Ford, Toyota, and Dodge all field cars in NASCAR along with all Goodyear tires and Sunoco fuel. With GM struggling so much, many people are worried what would happen to the teams that are drive all Chevy cars. What makes matters worse, NASCAR recently just switched to the Car of Tomorrow (COT) last year that cost millions of dollars not only to produce for each team but also to test this car on each individual track. Being able to test cars on every track to find out what works best is critical to the driver's success during races. In previous years, teams were allowed unlimited testing. This really benefited the larger teams, such as Hendrick, Roush-Fenway, and Gibbs that all have deep pockets and big time sponsors. Smaller teams, with only a car or two could not afford to test at every track because it put such a strain on their budget with all they extra traveling and implementing new products for their cars. NASCARs answer was to impose a sort of salary cap, teams can only test their COT on certain tracks during certain times determined by NASCAR to try and level the playing field. This has helped considerably, especially for the smaller teams to stay competitive with the biggest and has led to better racing this year so far.

Another way NASCAR levels the playing field to have a prefectly competitive market is placing restrictor plates on engines for certain races. These are typically implemented for smaller race tracks to make for more interesting racing. These restrictor plates drop the top speed for each car down considerably, forcing teammates to work together that much more to have a chance to win the race.

Economics of a Bar Pt. II

Another night of bar tending brought more thoughts on the economics involved with a bar. Every Thursday we have a special happy hour from 6-8PM that offers dollar drinks on all beers and liquor excluding top shelf items such as Patron and Johnnie Walker Blue Label. The catch is that we charge a $5 cover for each individual that partakes. I was wondering if these consumers consider this a kind of tax or more of a sunk cost. It definitely can be considered a tax because those that pay receive the benefit of cheaper drinks. However for more serious drinkers I feel that they consider it more of a sunk cost because they are going to the bar to drink as much as they can for as cheap as possible so this $5 cover is already taken into their price of their drinks. Considering that our cheapest beers are $3 and our bottom shelf liquor will run you $4 it makes sense to pay this sunk cost and drink til your hearts content. Only drinking 3 beers and paying the cover would be a break even point for the consumer and after that it could be a consumer surplus.

Tonight we also had a pair of females promoting a new liquor for free that anyone could try. As far as brand recognition goes, this is a great idea. I witnessed that handing out this free liquor went over really well with consumer because it is relatively new and it was rare to find someone that had tried it. I feel that doing this and having posters hung up at a bar really help promote their product. I have never understand beer commercials that have frogs saying a product's name or just twins dancing around make consumers go out and buy that product. Yeah these commercials are entertaining but they do not make me buy that particular product at a bar. I am somewhat surprised that one beer company has not opened up their own bar selling their own product only, thus having a huge competitive advantage. We recently switched to only offering one particular company on all our draft beer and I have noticed that the majority of bottles we sell are of this company as well. If one beer company opened up their own bar they could sell their product even cheaper, thus increasing their producer surplus and that of the consumer as well.

Infrastructure

So about a year ago ASCE, that's American Society of Civil Engineers, published in their magazine and acticle about the infrastructure crisis in the united states. Here's a link to the article/magazine. http://pubs.asce.org/magazines/CEMag/2008/Issue_01-08/article1.htm Anyways this all came about with the callapse of the interstate 35W bridge collapse. Remember on August 1, 2007 when that Minniapolis bridge over the Missippi collapsed in Minnisota and killed 13 and injured more than 100 others. That's alot of M's. This bridge like many other bridges in the U.S has been insificiant for years but really nothing is done about these bridges. Partially to do with the rating system for bridges which is really weird. If I remember this bridge was rated a few months before the collapse and had a relatively decent rating in comparison to other bridges in the U.S. for example the Brooklyn Bridge has like a 2 out of 100. I don't get it either. The other problem is the fact that infrastructure has not been a national priority."From 1950 to 1970, for example, the United States devoted 3 percent of its gross domestic product (GDP) to infrastructure spending; since 1980, however, spending on infrastructure has been cut by a third, to just 2 percent of GDP" What do you expect to happen to these bridges when we don't have money to maintain and upkeep them? Alot of Americas bridges are 40 to 50 years old built for society at that time. Anymore these bridges are not ment to handle what we do to them today. You would think we would devote more effort to infrasture because it so greatly impacts our economy and public health, but no. Anyways the article goes more indepth about other aspects like avaition and dams and what have you. I do hear however that Obama plans to devote of his 787 billion economic stimulus package 46billion to transportation and mass transit projects, 31billion to modernize federal buildings, and 6 billion in water projects which is awesome. Hopefully this gets put into use soon because I don't know if you've heard but the job market these days isn't so great, even for civil engineers.

Property rights and fishing

When we talked about economics of ecology and property rights today, it immediately made me think of Norway and our agricultural politics. We are at little country and pretty much the only reason other people know about us I because we are one of richest, if not the richest country in the world (it should be because it is amazing in general, but that’s another discussion) We have gained this status mostly because of our large coastline and the ocean that comes with it. Yes, the government taxes us heavily on pretty much everything we do or make, but still the biggest reason we are so rich is our oil. A lot of this money is being used on creating lots of public goods, like probably the best maternity law in the world ( all ladies, move to Norway a little while before you get kid, you get 10 fully paid months of), public health care and so on. The rest of the oil money, we have saved for future generations when the “oil-days” are over. But traditionally what started to make us a rich nation is our fishermen.

Norway and Norwegians loves fish, we even have a political party called the coast-party who actually has a share part of members and we have a minister of fishing and the coast that makes sure that the sea stays non-privatized. Back in the days when little was known about sustainable populations, we uses to hunt down whales likes it was our job, the populations decreases drastically and almost disappeared, the world yelled at us and we learned our lesson. So now having fish as our major long run resource (the oil will eventually run out sadly enough) we protect it carefully. We have our coastal police patrolling the coast together with the army catching illegal Russian fishermen fishing outside their territory (directly translated we call them the sneaky fishermen) and also patrolling close to shore for locals using the wrong equipment, fishing for things that are in breeding season, not grown up and other things that may lead to over harvesting of the resources in the sea.

The property rights in the sea has also been one of the major argument for many to not enter the European union, there the whole sea area is commonly known as the “European union sea” and the union give out property rights. As we have a lot a fishing resources compared to our population and are exporting most of what we are catching and the EU have scares fishing resources in their own oceans, big imports and too many fishermen’s who because of that are looking for fish in other oceans. A lot of taxes and tariffs are placed on Norwegian fish to make it harder for us to sell, but even though promises of lowering this rates if we share some of our sea territory we are still better off alone. And that is pretty much the reason we are not a part of the EU today when it comes down to a lot of things, we have so much money (and fish) that staying on the outside makes us better off.

Household Worth Plunges -- Bad News for the Stock Market...

U.S. Householders saw their net worth decline by $11.2 trillion during the 2008 fiscal year. This represents a a drop of 18%, wiping out four years of gains in homeowner wealth. This record drop was a result of a combination of two factors. First was the decrease in the real-estate market (a drop of $937 billion. Drops in the construction industry are almost always harbingers of economic troubles, because homes are often the largest, most stable investments that most people will make in their lives. The second factor was the large drop in the stock market. Direct holdings, insurance holdings, and mutual funds all fell by massive quantities. This accounted for the largest drop in household wealth. People lost pensions and retirement accounts, people lost investments, but most of all people lost faith in the investment markets in America. This has been reflected in the fact that despite the massive drop in wealth, American households have actually started to pay back their debt for the first time in years. They have also increased their savings. This is good news for banks, people need to put their money somewhere and this will help in their recovery. The real-estate market will also bounce back, it always does. People simply need homes, and as they move to find new jobs, they will purchase homes, and as the population increases, new homes will be built. The construction industry has dips, but it never completely folds. However, the stock market is still in serious trouble. As wealth declines and savings increases, investment will drop even further. This would seem to indicate that the current lows in the stock market do not represent the bottom of the recession. We've learned in economics that people fail to invest when they do not trust the market, when in essence that is exactly what they should be doing. Too much savings will cause the market to drop even lower. The only silver lining in the story is that at some point, the market will drop so low that people will take the risk in investment because the potential gains are so high. The market will have nowhere to go but up. Unfortunately for many businesses, this day does not seem to be too near. That means that we will see more corporations folding and going under before the market improves. Eventually the returns on investment will overtake the interest rates banks are willing to pay to hold your money, and people will begin to re-enter the market. Hopefully this restoration of balance will occur sooner rather than later...

Endorsments in Professional Golf

Since I am quite versed in the world of golf, I decided to write about how the economy has affected the golfing world. I have many friends that are on both the PGA Tour and Nationwide Tour who have recently gained their tour cards. About 4 years ago when the economy was much better off than it is today, a first year PGA tour player would make right around $750 thousand in endorsements before even teeing it up. That number is with no credentials other than having your card. My friends who just got their cards this year told me that the first year endorsements are at about 200 thousand now. From speaking with one of the manufacturers, Titleist, I gathered some information as to how badly they are being struck by the economy. I feel anyone with just the most simple knowledge of golf knows about Titleist, would understand that Titleist is about as close to a monopoly in golf as you can get. Out of 200 professional golfers with their PGA Tour card, 173 are currently playing the ball. I am personally convinced that the others are playing a Titleist as well, just with a different stamp on it. the supply and demand of endorsment contracts is very simple. The demand is always going to be inelastic because everyone who is on tour is going to want endorsement contracts. The supply however is going to be inelastic based upon the economy. If the companies are not doing well because the whole world does not have the discretionary income to spend extra money on golf, they are obviously not going to be making as much money. Therefore the supply curve is going to shift to the left and less endorsement contracts are being fulfilled. On, the other hand, if the economy is booming and the brands have the extra money to spend on endorsements (which are essentially advertising) then the supply curve would shift to the right resulting in more endorsement contracts. The economy has hit the world of golf very hard much like everything else. In 2007, the International Tournament was taken off the schedule to to lack of sponsorships. Nickent, a smaller golf company, has failed to pay some its endorsement contracts leading to bigger legal issues and essentially more money they will have to pay. Essentially what I am trying to say is that no matter what you are talking about, the economy is going to have an effect on it. I just think people need to stop worrying so much because regardless of what anyone thinks, the economy is going to come back and boom again. It always has and always will. That is why you are taught to have an emergency fund that you can draw off of in times like this.

Demand for government jobs

The economic downturn in Ohio has caused an increased supply of candidates for municipal and county government jobs in the State of Ohio. This issue began with the state’s fiscal crisis and has increased with the world economic downturn.

Beginning several years ago the State of Ohio enacted a hiring freeze. Under the hiring freeze, no new positions are created at the agency level. Positions left vacant by personnel changes may still be filled, but oftentimes in the State’s budgetary environment even those positions remain unfilled. This has caused a number of would-be state government jobseekers to seek employment with municipal and county governments within the state. Due to this hiring freeze there is a price ceiling in effect for labor within the state. Unfortunately for those jobseekers, municipal and county governments are also feeling fiscal strain. For the past several years, many local governments in Ohio have been facing a period of soaring costs and stagnant revenues. For example, the cost of road salt, an essential purchase of local governments during the winter months, has risen by approximately thirty percent this year. With increasing costs and stagnant revenues local governments are not expanding services or the size of their staffs and thus there are not many job openings beyond positions vacated by retirements.

In addition to would-be state government jobseekers, members of the private sector workforce who have been laid off are seeking second or third careers in local government administration. After living through the strain of being laid off, workers may find themselves more attracted to government jobs because of the relatively increased job security and attractive benefits package. As discussed, the state is not a viable option for jobseekers right now due to the hiring freeze. Why then local and not federal? Due to the locations of most federal jobs, Ohio jobseekers would need to relocate. For many jobseekers, especially those seeking second or third careers, constraints such as family and home ownership pose barriers to relocation. Thus local government career options pose the most logical solution.

The Moral Hazard Found In The US Banking System

With a little bit of knowledge, and I stress the term little, left over from my money and banking class and some from this class I was able to do some reasoning to asses the moral hazards that a prevelant in our banking system.

With so many banks failing in today's economy and the proposed bail-outs that soon follow it is very important to understand why these banks are failing. Most people say its because the banks are making bad decisions, or that the banks are greedy and are looking to make too much money. This may be true, but we need to look at the underlying cause. It is the moral hazard that is created by the FED and deposit insurance that banks have. Don't get me wrong; deposit insurance is 100% necessary, but it is what is allowing these banks to make these bad decisions. Banks are leveraged, banking term used to describe the magnification of their profit or loss; for example a bank with a 12:1 leverage would make a higher profit or loss on the same investment that a bank with a 10:1 leverage would make. Their leverage is partially created by the necessary deposit insurance created by the FED. The moral hazard that comes into play, even though some bankers have no morals at all, when these banks do decide to get greedy and make riskier investments, the riskier the investment the higher the return. Big banks, which are usually highly leveraged, face a bigger moral hazard that do small banks because they know that if they should become bankrupt that the insurance provided will "bail" them out. My solution to this moral hazard would be to monitor these banks more carefully. Although with over 8,000 different branches of banks this could be quite expensive to do. These bad investments aren't all made because of bad information about the investment, but because the banks want to make a higher profit; which makes them risk loving. Small banks on the other hand are risk averse because they know that small banks are less likely to be bailed-out and that they will have to absorb the losses rather than the FDIC. The moral hazard that is produced by the banking system is costing our government billions upon billions of dollars which has the trickle down effect since we pay the government through taxes. Taking the trickle down effect into consideration... "Crap doesn't roll uphill... and we, as citizens are at the bottom."

Salary Cap in Major League Baseball

For my second blog, I wanted to touch on the subject of how a salary cap is needed in Major League Baseball. Fans of the game want baseball to be a competitive sport on and off the ball field, however, as residual values increase of ball players, making player salaries at an all time high, I see Major League Baseball consisting of a monopoly. Now who would this monopoly be none other than the New York Yankees. In 2008, the Yankees spent $209 million on player’s salaries, not including the salary tax implemented by Major League Baseball. When you look at the numbers, three players on the Yankees: Alex Rodriguez, Jason Giambi, and Derek Jeter, made more money in 2008 than the Florida Marlins spent on their entire roster. Now if Major League Baseball can implement a price floor in player salaries at $390,000 per season, why can’t they implement a price ceiling, in terms of a salary cap, on team salaries? An argument could be made that this would decrease the marginal costs of baseball players, allowing team to receive a higher marginal benefit due to their marginal cost. However, a salary cap could allow the thirty-one other Major League Baseball teams to supply comparable salaries to this individual, allowing for a greater demand and making teams more competitive on and off the field. Two recent offseason acquisitions by the New York Yankees to demonstrate their market power would be: Mark Teixeira’s 8 years, $180 million contract and C.C. Sabathia’s 7 years, $161 million contract. These are two ridiculous contracts in such a deprived economic time. Now, I am not jealous and give these two individuals and agents applause for receiving a contract as above, however, this just demonstrates how Major League Baseball is becoming a monopoly in terms of player salaries. Good thing that it only buys ball plays and not championships or even playoff spots.

Chimpanzees and Economics

So after watching the video in class, I decided to do some investigating into the use of chimps in economics experiments. It’s amazing to me the fact that economists are using chimpanzees to study economics and relate it to humans. I guess it shouldn’t be too surprising since chimpanzees are our closest relatives, but there are vast differences between the two species. For starters humans don’t groom each other and snack on what they find.
One of the most basic aspects of economics is bartering, which is what researchers are training the chimpanzees to do. Chimpanzees were taught to trade tokens for valuable commodities such as grapes, kind of like how humans use money to buy things we like. But researchers are studying chimpanzees to learn more about humans than just how we barter.
One similarity I have come across is the endowment effect. Both humans and chimps seem to favor objects they were just received over objects that they would usually prefer that they could get through an exchange. Primatologists have run experiments to test this effect on chimps by using peanut butter sticks and frozen juice bars. The preference for peanut butter and juice bars was half and half regularly, but when they were endowed with the peanut butter, 80% of the chimps chose to keep it instead of exchanging it for a juice bar. A similar test was run on humans using coffee mugs and chocolate bars; they also preferred to keep what they were given over exchanging to meet the expected preferences.
You may be wondering why the endowment effect is important, well for a long time economists believed that this effect was a fluke because it meant that humans might not be as rational as we thought. But since this has also been discovered in primates, the only rational conclusion, according to an article from The Economist, is that humans are irrational animals.

"The endowment effect | It’s mine, I tell you | The Economist." Economist.com. 2 Mar. 2009 .

"What chimpanzees can teach us about economics." PhysOrg.com | Science News | Technology | Physics | Nanotechnology | Space Science | Earth Science | Medicine. 2 Mar. 2009 .

"Why Don't Chimpanzees Like To Barter Food?" Science Daily: News & Articles in Science, Health, Environment & Technology. 2 Mar. 2009 .

Baseball's Competitive Balance

So while I was reading over the other blogposts and trying to think of something to write about, I noticed posts talking about the NBA and the NFL. I figured sports would be an interesting topic to talk about, and since I don’t know a thing about the economics of NASCAR or soccer, I decided to discuss the economics of Major League Baseball. I will discuss how the MLB attempts, and usually fails, to maintain a competitive balance between its teams and tries to prevent monopolies, i.e. the Yankees. Professional sports, as an industry, must be regulated to maintain a competitive balance because there are only a certain amount superstar caliber players. With this limited amount of high caliber players, the demand for them will raise salaries with no ceiling. Most professional sports such as the NBA and NFL maintain a competitive balance by implementing a salary cap, which puts a cap on the amount of money a team can spend on salaries. Baseball instead chooses a more complicated and less efficient system that uses a luxury tax and revenue sharing. The luxury tax taxes teams if their team salary is over a predetermined amount, which is $162 million for the 2009 season. The idea of revenue sharing is sort of a “Robin Hood” type deal, take from the rich and give to the poor. Revenue sharing works by taking the local revenue generated from baseball operations by the most profitable teams and giving them to the poorer teams. As good as these ideas may seem in theory, they are flawed. The major problem with baseball’s competitive balance system is that it doesn’t do its job. The luxury tax is almost completely useless because it doesn’t even redistribute the wealth. The money generated from the luxury tax goes toward player benefits and the promotion of MLB around the world. All this does is provide a slap on the wrist to the teams with the most money. Paying the luxury tax usually has a lower opportunity cost than not signing a player who will help win games, and therefore keep fans in the seats and the revenue coming in. The bigger problem with baseball’s system is the revenue sharing. While this “Robin Hood” system seems good, it really isn’t. Many proponents point to the fact a different team has won the World Series every year since in has been put into effect. However most of the teams from small markets are only able to obtain short spurts of success, instead of the desired long term success of the Yankees or Red Sox. This is because the teams with the lowest local revenue get the most money. As a low revenue team has success, more people go to the games, which increases their local revenue. This leads to a drop in their money from revenue sharing so they have less money to resign people, and therefore leads to less success. This vicious cycle is why teams like the Florida Marlins and Colorado Rockies can make the World Series one year and finish last in the division the next. Baseball’s collective bargaining agreement is up in 2011. As a baseball fan, I hope the MLB can finally realize how obsolete their competitive balance system is and switch to a salary cap.

Economics of a Bar

After finishing another shift of bar tending at a campus watering hole, it finally dawned on me that the economics involved with bars is one of a kind. Bars operate in a market that is far from being perfectly competitive, they offer basically an endless supply of alcohol while demand is dependent on price and time of year.

First off, bars in close vicinity to Ohio State's campus do not operate in a perfectly competitive market. Ohio State students have a wide variety of bars to choose from that are all located within a 10 minute cab ride or a 15 minute walk. Students can go downtown to the arena district, or stay on campus at the likes of the Gateway bars, Panini's, The O, Too's, Senor Buckeyes, Out-R-Inn, Little Bar, or head even further north to the bars around Sloopy's. None of these bars offer the same price for their product or atmospehere to their consumer, thus it is not perfectly competitive market. Bars in the Arena District tend to be more upscale that attract an older clientale which also means higher prices for drinks. However, on campus the price of your typical domestic beer tends to be right around $3 wherever you go. Although the price may be somewhat equal, the atmosphere at each bar is definitely different. There are bars that are also packed full and then others that draw a much smaller crowd. Some are 18 and over while others only allow 21+ to enter. Some bars focus on having lots of Tvs showing all sports, others rely on playing good music nightly, and others stick to darts and billiards. No matter your likes or dislikes, Ohio State offers a bar that is right for you.

I have worked at a bar for over two years now and have never seen one run out of a supply of alcohol. However, bars are in the business of making money so having an almost endless supply of alcohol is critical. There are restrictions to this supply which are when bars open and close. Most bars on campus open around noon and the last possible time to receive a drink is last call at around 2:15AM. Demand for this alcohol changes on a nightly basis depending on the time of the year. Thursday through Saturday are typically the busiest nights throughout the year no matter the season. During OSU football season, demand peaks right before the game and then immediatley following. Spring quarter is by far the busiest time for bars because of the weather and almost any night of the week can get busy. I work at a bar with a large outdoor patio so we see a large influx of consumers during gamedays and spring quarter. During spring, people will walk by and see a mass of college students drinking and having a great time and feel the urge to come in and have a drink which shifts our demand to the right or increases. Another key factor in demand are nightly specials. "What are your specials" is the first thing I hear out of every patron that is not a regular of my bar. From experience, I have realized that no matter what I tell them they will get the "special" of the night even though it really is not that great of a deal outside of any bar. Everyone knows that you can go buy a 12-pack of your favorite beer for around a buck a beer but that same beer will run you anywhere between $3-$4 at your favorite bar. This increase is so that the bar can turn a profit so you are basically paying for the atmosphere. When bars get extremely busy, it seems that demand breeds more demand and consumers are willing to pay these prices regardless and are usually willing to tip more to receive their alcohol in a timely fashion.

Nationalized healthcare: The economics behind the politics

In light of the current economic crisis it has become necessary for the President and congress to make some tough decisions on a wide-range of fiscal and social policies. One issue that is coming to the forefront is whether the government should subsidize the cost of healthcare for those who cannot afford it. It seems like a great idea: give all citizens access to healthcare on Uncle Sam’s tab. However a simple economic analysis suggests that it would seriously jeopardize the quality of healthcare for all Americans.

Here’s how it works…nationalizing healthcare would make medical procedures appear “free” which would lead to an overwhelming demand for these services. The supply (doctors, hospitals, drugs) for these services is very inelastic so suppliers would be forced to make a compromise: quantity or quality. The first option is to ration care to the current capacity, placing other patients on a waitlist. This is downright scary considering the urgent nature of most medical procedures. The other option is to lower the quality of service in order to see a higher volume of patients. In my opinion, this is an unacceptable compromise. Our neighbors in Canada use this system and the results are disastrous. Evidence of this can be seen by the thousands of Canadians who come to America and pay for their own medical treatments.

While the service would appear to be “free” to individuals it would be extremely expensive for taxpayers. Nationalized health care would require higher taxes and a diversion of resources from other areas of government.

Under a nationalized healthcare system there would be a significant fall-off in the research and development of new drugs. Drug companies will be hindered by government regulation and price controls which would ultimately take away any incentive for them to invest in R&D.

It is no coincidence that 12 of the 20 largest drug companies are currently headquartered in the US. The pharmaceutical industry is one of the most profitable sectors of business, returning an average of 17% on revenue. What do these companies do with all this cash? They spend the majority of it on the research and development of new drugs. And they don’t spend it because they feel obligated to research diseases and find cures…they do it because developing a life-saving drug will make them lots of MONEY! Many people are outraged at the high profits these companies make but I believe they deserve even higher returns. It takes a lot of invested capital to put a drug through the process for FDA approval. Even if it gets to this point, the success rate is quite low. So while many companies make a lot of money from a few major drugs, a large amount of this profit is used to fund the development of new projects and cover the expenses of other failed ones.

This will hurt large drug companies, destroy smaller ones and ultimately threaten the quality of healthcare in America. Taking away this opportunity to trade in a free market and placing a cap on their profits will destroy all medical innovation.

A simple economic analysis of the supply/demand of patients and doctors, the effect of price controls on drug companies and the increased tax burden on all Americans is enough to show that government run healthcare would be an incredibly destructive entity.

Not to mention the government has a pretty lousy record when it comes to running private sector industries. We saw what happened when we handed our mortgages over to Fannie and Freddie…do we really want the government running our healthcare system? Ask any Canadian, they will tell you.

Set your own price restaurant...

Last week I stopped in for some dinner and drinks at Brazenhead Irish Pub in Grandview with a friend of mine. Even though it was not Burger Night ($3 burgers every Wednesday) we decided to stop in for some fish and chips and a few Smithwicks. It was 4:00 in the afternoon and the place was empty with the exception of staff and a few yuppies who were bellied up to the bar.

Conversation began about a recent internet article my friend had seen about a restaurant that let customers pay whatever they thought their food was worth. (http://www.timesonline.co.uk/tol/life_and_style/food_and_drink/eating_out/article5767771.ece). Looking through the menu my friend complained about the $9 hamburger and $4.75 drafts. “That’s absurd. Nobody is even here right now. What if I told the server that $4 is all I’m willing to pay for a hamburger…he can take it or leave it. Why would they not accept that offer? It would be a choice between making a profit or not, right?”

I acknowledged that he brought up an interesting point. Because there was currently no demand for a hamburger, the market equilibrium price should be very close to the actual cost. So then we began to think about this on a larger scale. What if you opened a restaurant that did not have set prices? Instead the price of an entrée would be determined by how crowded the restaurant was. This would be a fair reflection of demand and would ensure that the restaurant was crowded and making money all day long.

Well this was the spark that started a forest fire. In the ensuing 15 minutes my good friend started laying out the details of such a restaurant, “we could have a giant digital board in the front where prices are listed, but it can change like a stock ticker! Ya know!? Then for every 10 people who come in, prices will increase by 20%.”

Now I should probably note that this is the same friend who wanted to start a bar called Nattyville. The concept was a self-serve bar with one product, Natural Light. Each patron would pay a $3 cover and receive a plastic cup, good for unlimited refills on any one of the 20 strategically placed taps. My friend thought this was such a brilliant idea that he went so far as contacting the owners of the recently closed Nuthouse Bar on High Street and pitching the idea to them. Needless to say he didn’t get very far. Anyways the point is, very rarely do I take his ideas seriously.

Obviously opening such a restaurant would create a host of problems. But that was not the point. Looking back, it’s interesting to observe how different people value goods and the thought process that goes into purchasing a good. We were the consumers but were trying to analyze the cost through the eyes of the vendor. When a vendor prices a product they will do so according to the price they think the consumer will be willing to pay.

Science and Game Theory

I was logging on to my gmail account the other day and an article popped up on my igoogle homepage titled, "Bizarre Bird Behavior." As I read the article started to explain how scientists used Game Theory to predict the hunting or eating habits of a specific group of Ravens on a roost the North of Wales. Feeding behavior for most ravens is scavenging on already dead large animals that are found individually, then guarded by  two "paired" adults. In general the younger ravens search individually for carcasses that have already been found my the adults and then gather other younger raven to move in on the adults, therefore taking over there prey. In contrast the young ravens on a roost in Northern Wales have adopted another strategy for capturing prey. The younger ravens on Northern wales have been adopting the strategy of a "gang." After observing this bizarre pattern the young ravens behavior only in Angelsey, Wales, scientists began to develop a mathematical theory that could predict what strategy would be chosen by evolution. The first strategy was thrown out and by game theory we were left with 2 options for our game. So for our example we have 2 players. the birds that search individually and then recruit, and the birds that search for a food with a "gang." Both players move simultaneously, however there are outside circumstances that come into effect, the region that these ravens are in is a temperate forest with lots of farm land around, so food was abundant. In this scenario, the experiment showed that gang searching should happen when searching individually is no more efficient than multiple ravens searching for prey. This scenario will happen when a gang of ravens can cover an area of prey in about a day. In the article they talked about how they can use these gang motives to there social benefit when they do not have the worry about food. They used the model to show that when food is abundant, the ravens used the gang choice instead of searching individually and then recruiting. When food is abundant the ravens have more time for other things giving them the upper hand in social interaction, first choice to mates and prey along with other aspects of survival.

Still trying to upload diagram. Please be patient.

Externalities in a College Setting

So as I got to reading about externalities the other day, I came to the realization that ever since I came to college, there seemed to be an increasing number of noticeable externalities at my disposal. As I went from being a freshman to a senior I also noticed that a lot of these seemed to change from positive to negative externalities. For instance, upon my arrival the loud noises and excessive partying were things that I enjoyed and couldn't get enough of. I could easily walk up to someone's house, drink their beer, and enjoy the party at no cost to me.. a luxury that bar hopping doesn't present nowadays. As I sat in bed on a Monday night trying to sleep, I heard these boisterous noises and realized how they were decreasing my general well being and that in order for other people to have fun, they were doing so at my expense... I also realized that at the age of 22 I'm turning into an old lady. I just thought that this concept could be interesting if applied to other phenomena and if we look at how some externalities might start as something positive and eventually turn negative as needs and wants change in society.

The PPF of MTV's The Real World

It's Wednesday, which, to me, in my sad, TV-centric life, means it's Real World night. I've been thinking about the show, and frankly, there are a lot of underlying economic principles at work that help to optimize the show's entertainment value.

One consideration is that the show's season could be looked at as a big Production Possibilities Frontier in which episodes face trade-offs between comedy and tragedy. Some episodes feature blatant silliness, such as when the male roommates of the house kept putting rats in their musophobic female roommates' beds. Others yet feature absurd ridiculousness, such as when the recently transgendered Katelyn felt like doing a striptease on a pole at a bar. There was only one problem: Katelyn was dancing on an ungreased architectural support pole.

Yet, the show would get old quickly and lose much of its transcendent appeal if it couldn't also hit home with serious issues. One of the most personal and somber episodes featured Ryan, an Iraq veteran, as the show chronicled his introspective reminiscence on September 11th and his struggle with possible post-traumatic stress disorder. Another examined Sarah after she had encountered sexual abuse in her childhood and how that affected her life presently, particularly, her relationship with her father.

Clearly, it's not easy to hit all of these moments in one given episode. The flow would be disjointed and the juxtaposition of raunchy hook-ups and emotional introspection would be too jarring. Therefore, the episode editors face trade-offs as they decide what moments are usable in an episode and which would fail and be ineffective given what they've already produced. Thus, each combination of comedy and tragedy could be viewed as a different point on the season's bowed-out PPF curve.

As an extension of this metaphor, the roommates would act as inputs used in creating the desired outputs. Sure, if the house had eight wise-cracking one-liner masters like Chet, there would be some very funny episodes. But, the show's overall ceiling would be severely limited its inability to capture other tones and more serious moments. Another extreme would be to have eight strong-willed, out-spoken, argumentative personalities like Devyn. Undoubtedly there would be great entertainment as these guests all butted heads, but after two-three episodes of constant shouting and fighting, audiences and ratings would surely wain.

Thus, it is imperative that producers determine the right mix of roommate personalities (inputs) in order to achieve the most entertaining and efficient shows (outputs).

Drilling in the Alaska Wildlife Refuge in economics

Though it has not come up as much recently, just a couple of years ago and for the last twenty years there has been a major issue regarding prospective drilling opportunities in the Arctic National Wildlife Refuge (ANWR). Conservatives argue as to the value that the billions of barrels of oil that are predicted to be in the area would have on the US economy and the price of gas for the US consumer, while liberals argue that drilling in the area would permanently damage an ecosystem that has a greater amount of ecological diversity than any other area on Alaska's north slope. While I personally support the conservation of valuable natural resources I thought it would be interesting to look at this issue strictly from an economics standpoint discussing the utility of both drilling and protecting the refuge.

While economists are most often going to just discuss utility as it relates to humans, drilling immediately gets a boost because the main argument against drilling deals with the protection of non-humans. The real utility of drilling, however, seems to be relatively low. Research has reported that the area of the ANWR would yield somewhere between 5 billion and 10 billion barrels of crude oil, which would become about 10% of the domestic oil production. While this seems like a large number, these barrels would only be about half of one percent of global oil consumption and would not have any impact on global oil prices. So for the average American this drilling would not change life at all, and ultimately the parties that would benefit the most would be the oil companies that have already been making record profits. One major benefit in this economy would be that this domestic production could cut the import of foreign oil by as much as $100 billion dollars, which would go to America instead of being spent to foreign entities.

The arguments against drilling are mostly associated with the fragile ecosystems that would be affected by this drilling. While the oil companies report that only 20,000 of the millions of acres of the refuge would be affected, outside sources report that the number would be much higher. The animal that would be most affected by the drilling would be the Porcupine Caribou, but also many other species would be affected. The drilling's effects on the caribou could also have effects on aspects of the ecosystem that rely on the caribou. While this ecosystem does not have much or any utility for almost anyone in the country, there are a small population of people that do live around the area that wants to be drilled. There are also many unknown global environmental effects that this could cause, and in this day of global warming, destruction of this fragile ecosystem could have adverse effects for people around the world. 

So which strategy holds the most utility. Well, when discussing what would do the greatest good for the greatest amount of people, one has to go with supporting the drilling, because the creation of jobs for Americans and reduction of money being spent to foreign companies could help resurrect the ailing American economy. From an economic standpoint the refuge holds almost no utility, because it will never be a money making tourist attraction like Yellowstone. So, economically, drilling should occur in the ANWR, but taking economics out of the equation, the issue is essentially a push. This is another example of how economic utility can be very different than the value of an area or product to the world as a whole.

"gay" chicken

As I sit at my lab thinking of how I can get a few more points, I cannot get my freshman drop-out suitemate out of my mind and her love for the game she called "gay chicken." This game was played whenever she was under one of her many influences and consisted of her slowly leaning forward to kiss us (one of her 9 suitemates), since it was "girl-on-girl" kissing she would yell "gay chicken" if you dodged her kiss. My suitemate would of course never dodge, and the rest of us had to balance out the utility we got from not letting her peck us or from having her repeat over and over again till finally nobody dodged which gave her maximum utility. We all learned, if we just let her peck us she would be even happier under her influences and we all maximized our utility since she didn't repeat the game over and over again.

The ability of high utilities...

With it being the beginning of the month, at our house that means bill time. The bills consist of cable/internet, electric, gas, and water. The cable is always the same, the electric, although fluctuates, never gets very high, the gas was expected to be high in the winter months, which brings us to the water bill. It made me start to question why, like all of the other utilities, was there only a few major companies controlling the industry and prices. What would it take to jump into the water industry as a new company and succeed?
After doing research, there are four American companies that have the majority of control in the production of water meters. Most people purchasing the meters are the water companies which have to measure the water output so they can charge people what they owe. The meters are installed in either commercial or residential areas so that the water consumers can be billed correctly. Since every established place must have a meter, deman grows slowly, but stays consistant. This is because utility companies tend to have long relationships with the suppliers, and will rarely change. Another barrier to entry is caused by economies of scale. In order for a new company to succeed in an already upscale industry the company would have to invest in a large portion in order to gain some control and decision making ability along with increasing competition. The major companies do not really compete with each other, but instead cooperate with each other on setting prices that will generate a much higher profit for each. The companies are facing a prisoners dilemma, because if they compete with each other, prices would decrease due to companies trying to gain control over the market. This would decrease prices to a very competive level.
I'm tired of knowing that if there was more competition in the utility industry, we would be paying much less, which would increase our ability to have more money. Although it would be hard to establish a strong market share, the industry can be changed quite easily. Does anyone disagree that it would be nice to have a little extra coin in their pockets because utility prices would be lower? I wouldn't think so...

Too Many Dilemmas

Consider this fictional situation – you and your best buddy Andy, decides to rob the bank in during the bleak economic situation. To accomplish this heist, it requires both your expertise as a “professional getaway driver” and Andy as the “security electronics expert” and therefore neither can successfully pull of the robbery without the other. If either decides to proceed without the other, the chances of failure would be 100%, resulting in a -100 payoff. However, if neither decides to show up for the robbery as planned, nobody earns any money and therefore the payoff would be 0 for both you and Andy. Nevertheless, if both you and Andy shows up as planned and successfully reach the vault of cash, you both earn the figure X and Y whereby X,Y are positive.

However, upon reaching the cash, depending on Andy’s expertise, you may or may not trigger the silent alarm. In the case that you don’t trigger the alarm, you and Andy get away and inevitably into a huge argument as to who should receive what portion of the money. In a huge twist of plot, both you and Andy get into a Mexican standoff – Hollywood style. If neither shoots at each other, the dilemma where you and Andy would still be arguing over the proportion, X or Y amount of cash, where X and Y are positive, remains. However, if you successfully shoots Andy and dodge Andy’s gunfire, you would receive 100% of the cash and Andy would be -∞ , dead; or vice versa as illustrated in the graph below. As you can see, both would be inclined to shoot each other. Assuming that both doesn’t miss, they would both be in the situation worst off that they actually were – dead.

In the case where you and Andy DO get arrested by the police, the typical case of the prisoner’s dilemma as discussed in ECON 501 applies – both gets arrested and separately interrogated. If you confess and implicate Andy while he remains silent, you will be released scot-free while Andy gets 20 years. Same happens in Andy implicates you while you remain silent. However, if both you both confess, you and Andy would be spending about 15 years behind bars. In the case where you both don’t confess, you and Andy will only spend 6 months in prison, by which in due time when you and Andy are released, would result in the previously discussed standoff due to the inevitable argument over the proportion of money each should receive. And by all means, we could say that they would both shoot each other.

Nevertheless, both you and Andy would be inclined to confess and implicate each other and therefore would also be worst off – in this case, 15 years in prison. If we could assume that the police never found their stash of cash, it would then ALSO result in a standoff upon their release from prison.

Fortunately, from this bunch of “dilemma’s”, we can assume that whoever who decides to rob banks are unequivocally stupid. Therefore, we can conclude that this ‘dilemma of dilemmas’ should only happen in Hollywood and no mindful person should actually attempt this.