"What I Like About You"

While I was thinking about what to write for my blog I was watching the show, “What I Like About You.” In this episode, the character Val was getting married, but found out her fiancé, Rick, was with his ex the night before their wedding, so she called it off, and of course she was miserable with grief after all of this. This situation got me thinking about risk. Val was facing risk when she made her choice to call off the wedding. On one hand, she could choose the sure thing of no marriage. Her expected utility of this choice would not be complete, due to the fact that initially she will be extremely upset and she will remain unmarried, however after some time she will get over Rick and move on with her life a happy person. This choice would leave her with an expected utility of, let’s say, 80 no matter what. On the other hand, she could choose to take the risk of trusting Rick and going through with the wedding anyway, hoping he was not lying when he said nothing happened the night before and that he will not end up going back to his ex again. The utility of a successful marriage with no cheating would be the best scenario for Val, giving her a utility of 100. However if she does end up going through with the marriage and finds out Rick was indeed still getting with his ex, this will bring her down to a utility of 20, seeing as now she has to actually divorce him. Rick has been fairly afraid of commitment in the past, so there is a 25% chance he will cheat on her, leaving a 75% chance he will not. In this case the expected value of taking this risk is also 80. If these numbers represented Val’s utility for different choices, both choices have the same expected utility. However since Val has chosen to call off the wedding, this makes her risk averse. She chose to not take the risk.

In this same episode, Val’s sister Holly refers to a choice she has made: dropping out of college to pursue a career in the music industry. She has just gotten a job that she thinks will get her to where she wants to be, but because she thinks she might be getting fired she worries about whether she made the right choice. Just as marriage is a very important goal for Val, the music industry is a very important goal for Holly, so we can apply the same utility values to her case. If Holly remains in college, she may miss out on some opportunities that could have gotten her where she wanted to be, however she will end up with a degree and a fairly satisfying, well paying job, giving her a utility of 80. She can also choose to take a risk. She can drop out of school and hope to make it big and find a way to succeed at her dream. If this happens, she would have a utility of 100, but there is only a 75% chance she will not get fired and the job she has will lead her to the job she wants. If she does not succeed in the music business (25% chance), she will have a utility of 20. The expected utility of taking the risk of dropping out of college would be equal to 80. Holly also faces a decision of equal expected values. However in Holly’s case, she chose to go with the risk; she dropped out of school. Because Holly chose the risk when faced with equal utilities, this makes her risk loving or preferring.

This show often creates scenarios to show that, although the two girls are sisters, they are very different from each other. I find it very interesting that when the economic concept of risk is applied to choices these girls have made, the analysis determines that they are indeed opposite: one is risk averse while the other is risk loving. Even when they did not realize it, Val and Holly were analyzing the risk and expected utilities of their choices, and then used their personality traits (risk averse vs. risk loving) to determine the right one for them.