Saturday, August 8, 2009

The Funniest questions to economist

The following are the questions posted on "The Financial Times" undercover economist. I swear I have not read anything funny of this sort on the most serious topic which is economics. As we know economist are very serious people because they are usually involved in making money. Anyway, kindly read the Q&A.

Q) I believe that there is an inexplicable shortage of sex. Given that studies show that women and men enjoy it more than most other activities, and given its intrinsically low cost, it appears that even a crude approximation of a utility-maximising person would probably spend much more time having sex than most. Do you know of any economic discussion of this?

A) It is true that there is something puzzling about the lack of sex in the world. Everybody says they enjoy sex, you can do it fairly safely for the price of a condom, and all you need is somebody of the appropriate gender and sexual preference. How difficult can it be?

Economics professor and blogger Tyler Cowen has offered an embarrassment of possible explanations. In the spirit of perfect competition between economic pundits I suggest that you need fewer answers.

We need just two complementary theories, one to explain the all-night-long sex that couples aren’t having as much of as they should; and the other to explain the casual sex that strangers should be having with each other, and aren’t.

For couples, it’s surely a case of diminishing returns. Just because the average utility of sex is high, doesn’t mean that the marginal utility of more sex is also high. I enjoy sex but I am no longer a teenager and, to be blunt, it takes me days to reload. For strangers, the risk of rejection, violence or social condemnation seems very high. In groups where these risks are lower (gay men, students, hippies) my theory predicts that more sex should be going on.

There is a simpler explanation, though: everybody is having constant, guilt-free sex. They just haven’t told the economists.

Q) I recently noted that I only really fancy my girlfriend after I’ve had a few drinks. Is this relationship worth pursuing?

A) I know how you feel: I only fancy chips with mayonnaise. Sadly for my waistline, my relationship with chips has not suffered. You are saying that like chips and mayonnaise, alcohol and your girlfriend are complementary goods. I am not sure this is a problem.

It might be a problem if your predicament were unusual. It is not. Many people have found that alcohol has aphrodisiac qualities.

Of course, it is easy to drink more alcohol than is good for you, but there should be no need for worry. The government advises that the average man should drink no more than three to four “units” of alcohol. Since the typical British couple claims to make love every three days or so, you should be able to lubricate yourself appropriately without putting too much strain on your liver.

It seems to me that there is one cause for concern: your girlfriend must never suspect that you need to don the beer goggles to find her appealing. Drinking is commonplace in our culture, so you shouldn’t find it hard to camouflage the limits of your infatuation. Just don’t do anything stupid, such as discussing it in the pages of a national newspaper.

Q)Why do most of us iron our clothes, when we are untidy in so many other ways?

A)There is an obvious difference between an immaculate shirt and an immaculate sitting room: you get to enjoy the aesthetic benefits of tidying your living space, but not – unless you spend a lot of time in front of the mirror – the aesthetic benefits of your own clothes.

After all, how many of you can honestly say you haven’t sailed through the day, only to discover that you have spinach between your teeth and you forgot to brush your hair? The horror is apparent to everyone but you.

So why do we care more about other people’s enjoyment of our tidiness than our own? It is not a matter of selflessness: we try to make a good visual impression because it will bring us wealth, status and, we hope, a bit of sex, too.

But a second question arises: why are we judged on appearances? It might be intrinsically satisfying to have a well-dressed boyfriend, but there is nothing fundamentally less productive about a scruffy accountant. Evidently, the tie is important because employers believe it is correlated with diligence and talent.

If this is true, we would expect to see the largest premium on snappy dressing in professions where there are few other effective ways to evaluate performance. Estate agents and management consultants are sharply dressed in the absence of more convincing guides to their competence.

In professions where talent is more obvious, this façade is not needed. That is why when I scan the Financial Times office, neatly pressed shirts and blouses are hard to find.

Q) I have just joined a dating website in the hope of finding true love. Friends of mine have started dating someone they met online, only for a “better offer” to arise on the website. If this happens, what should I do?

A)Internet dating allows more offers to be considered, so the tried-and-tested rules of thumb may no longer be appropriate. It might seem natural simply to consider how many offers you must sample until you are likely to meet “Ms Right”. That would be naive. You must instead balance the benefits of choice against the effect your flightiness may have on your targets.

These decisions are much like those faced by a company choosing the optimal number of suppliers. Dealing with more suppliers allows the company to choose the cheapest and best. But having too many makes suppliers insecure and unwilling to invest in the relationship.

Your ideal choice depends on what you want. Fun and frolics are ideally obtained by keeping options open, perhaps even switching to the spot market. But if you want your partner to have your babies, support you while you write your novel or share the cost of buying a home, you will need to reassure her that you do not have other competitors waiting in the wings.

In some industries it is common to sign contracts with two suppliers – enough competition to keep each on its toes, but enough commitment to inspire big investment in the relationship. In your case that would be a wife and a long-term mistress. Perhaps the tried-and-tested rules of thumb work after all.

Q) I am in doubt whether it is worth changing school for my last year of A-levels. I would be living in a much better place (Cambridge, whereas I am now in Dover) and getting more tuition. I am likely to have better accommodation, more freedom and will meet people with diverse interests. But is it worth the risk of not getting into university or getting lower grades on my A-levels? Please help me to solve this dilemma.

A) Let us run through this supposed dilemma again. You are considering a move to a place that appears to be better in every dimension, including the academic one. Yet you are hesitant because of a perceived risk.

I am tempted to suggest you consult a shrink rather than an economist. Fortunately, so-called behavioural economists combine the best qualities of economist and psychologist. And any behavioural economist would quickly diagnose that you are a victim of the “endowment effect”.

The endowment effect is an irrational preference to keep what you have – better the devil you know and all that.

A typical experiment designed to reveal the effect would give participants a small gift for participating in the experiment. Later, the participants would be invited to swap the gift for an alternative. No matter what the original gift was, or what the alternative is, people, irrationally, are reluctant to make the swap.

Your attachment to substandard lodgings and scant tuition in Dover is clearly irrational. Move to Cambridge at once. You may be wrong, of course, but a risk of error is no excuse for inaction.

Q)I am about to be married, and have no doubts about the relationship. But there is one nagging worry: my fiancé co-owns a condo overlooking the Pacific Ocean near San Francisco – with an ex-girlfriend, who lives next door to it. She is not in a position to buy him out of his investment, and although they rent it out, the mortgage is steep. I believe the condo is an investment specific to the former relationship and would like it divested – but the housing market is a shambles.

A) While I sympathise with your problem, I must correct you.

A relationship-specific investment is one that is worth more within a relationship than outside it, such as a set of wedding photos. The condo is not relationship-specific, just unprofitable and illiquid. The condo can therefore be disposed of without destroying value – but not, it seems, by either side buying the other side out.

If your fiancé sold his share to a stranger, he’d sell at a loss. But, in truth, the loss has already happened; his reluctance to sell suggests he’s pig-headed as well as an incompetent investor.

So I recommend that you buy out your fiancé’s share, at a fire-sale price. Subsequent negotiations about the condo would then be between you and the ex. Should your marriage work out, you can share the profits with your fiancé. And if not, at least you will have prearranged some compensation.

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