Eric Clapton versus Bob Dylan concert: The Answer

Ok, to follow the logic, given that normally you'd pay £50 for a Bob Dylan concert but it only costs £40 that night, you'd be saving £50-£40 = £10.

So, if Eric Clapton is the only substitute that night, you wouldn't go and watch him if his ticket costs more than £10.

In other words, the opportunity cost of going to see Eric Clapton is £10.

......

I guess the point I've been trying to make is that, when this question was posed by economists Paul Ferraro and Laura Taylor to a group of 270 economic students, only 7.4% could give the correct answer. Given that there were only 4 multiple choices, there was a 25% chance of getting it right. Yet it does show that some knowledge of economics may be a bad thing if it wasn't taught properly.

We often go into economic classes and see lots of graphs with blue and red swiggly lines that just don't make much sense to us. However, the way Bob Frank teaches - narrative teaching, i.e. bringing real life situation into play and use economics to explain it - can really revolutionalise how the science of economics should be taught!

Eric Clapton versus Bob Dylan concert: The Question

A simple question taken from a very interesting book by Bob H Frank for everyone; doesn't matter whether you're an economist or not.

You've received a free promotional ticket to Eric Clapton concert which has no resale value. On the same night and at the same time, however, there is also a Bob Dylan concert. Bob Dylan is the only artist you'd ever consider going to listen to that night (apart from Eric Clapton, that is). On a normal day, you'd be willing to pay £50 for his ticket. The price of the Bob Dylan ticket for that night is actually £40.

Taken all of these information together, what is the opportunity cost - i.e. the cost of giving up the opportunity of doing one thing or consuming one thing and not the other - of going to see Eric Clapton concert? Is it:

A) £10

B) £40

C) £50

D) Zero.

Give yourself 5 minutes to think about this and post your answers in the comment below. No cheating now!

I'll reveal the answer in my next post...

Lesbian as an Identity: Is there a legal entitlement to geographic appellations?

In order not to turn this blog into a romantic discussion, here is a new interesting issue, albeit it still does not depart from the issue of relationship too far, at least in term of definition.

The issue concerns a great legal question regarding the existance of geographic appellations: Is the term "lesbian" something that the residents of Lesbos, Greece have a legal entitlement to prevent others from misusing? The Associate Press has the story:

A Greek court has been asked to draw the line between the natives of the Aegean Sea island of Lesbos and the world's gay women. Three islanders from Lesbos - home of the ancient poet Sappho, who praised love between women - have taken a gay rights group to court for using the word lesbian in its name. One of the plaintiffs said Wednesday that the name of the association, Homosexual and Lesbian Community of Greece, "insults the identity" of the people of Lesbos, who are also known as Lesbians. "My sister can't say she is a Lesbian," said Dimitris Lambrou. "Our geographical designation has been usurped by certain ladies who have no connection whatsoever with Lesbos," he said. The three plaintiffs are seeking to have the group barred from using "lesbian" in its name and filed a lawsuit on April 10.... The Homosexual and Lesbian Community of Greece could not be reached for comment.


Rules regarding name which is linked to the particular geographical regions are common in trade areas. Under intellectual property law, the term ‘Geographical Indicator’ prescribes the extent to which one is entitled to use the name of the specific region which has some connections with the product in question, while at the same time preventing the same product produced outside the particular region from such usage. The most common examples of such GI are ‘Champagne’ and ‘Dijon Mustard’ – even though the latter is becoming a generic name even within the EU nowadays. I have not been aware before that the same concept can be applied to the common term like ‘lesbian’. It is interesting to see how the court will address this but my hint is that the court may decide to introduce some innovative grounds to preliminarily dismiss the case to avoid considering this complex issue.

The search for ‘soulmate’ …. with constraints!

My apology for the unromantic title I give to such a romantic subject. In fact, during my writing here, I indeed plan to make an exploration on this topic and transform it to the least romantic analysis possible.

Yes, soulmate is made. But to a large extent, soulmate is found.

Man and women do not just sit and wait at home or go shopping to a ‘soulmate’ factory to have their soulmate manufactured. They look for that person.

Yes, they search.

However, the degree of searching varies accordingly to their culture and the wave of history.

It may not be the exact same way as when we look for the perfect job, but the men and women of this century are amazingly active when it comes to looking for love.

In the job market, if it is a competitive one- meaning that there is a vast number of workers and employers, nobody has the upper hand when it comes to selecting the right match. When every worker is closely homogeneous, the match is arguably rather random, for the fact that an employer is better off whomever they hire. Everybody who find his match is happy.

True, romance cannot be that simple. True, the love-finding market is not at all either that random or perfectly competitive.

In particular, go back a couple of century ago, it would be somewhat difficult to say that BOTH men and women were equally active at the search for love. On the other hand, it would be mostly men who did the search, while ‘the soulmate’ product was put passively on the shelves. ‘Male’ customers had the bargaining power to select his match. It would not be too wrong if we go as far as to resemble this situation to the ‘monopsony’ market. Men differentiated themselves through various degree of social positions, education level and professional rank whilst most of the ‘ladies’ product, apart from the social hierarchy where she was born into, were closely uniform. The match would be the one that made the person with more bargaining power-men- better off. In another non-romantic sense, the women he picked would be the one that was able to maximise not only his own utility function, but also the household function. (Becker:1973)

What about the romance market now?

Women have become a lot more differentiated than before. Education, careers and other social aspects that come with it make the ladies as distinct as the gentlemen. Women gained in the level of bargaining in the love-matching market.

However……

One main constraint persists. Even though women benefit from the pills and modern contraception a great deal, they remain the losers in the battle against the biological clock. Therefore, in a love market where men become relative less differentiated, one the one hand, these twentieth century women gain in their bargaining power to find the most perfect match. On the other hand, in the assumed world where everyone has ‘baby’ in their marriage production function, the women’s level of patience in the soulmate search game is decreasing in an increasing rate. Time constraint limits the time for the love search.

In a job market, facing the parallel constraint of time, workers thus settle for the job that maybe not perfectly fit but satisfies their reservation wage.

And so to conclude it in the least possible romantic way, due to this constraint, the soulmate may not even be Mr. Right, but Mr. Right-Now, for the reason that household production can begin its engine!!!

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Reference

S. Levitt& S. Dubner: Freakonomics (2005)
Gary Becker: The Theory of Marriage (1973)
Tim Harford: The Logic of Life
Carrie Bradshaw :"Sex and the City"

Soulmates: made or found?

“Soulmate” is definitely a dreamy and romantic idea to most. Whether it is believable, however, depends on how it is defined. One of the popular definitions of the term ‘soulmate’ is that there’s one person out there that is destined for each and every one of us, i.e. there’s a Miss A out there for a Mr. B. Given this definition, I can say with much certainty that the odd that these two people will find each other is not very good. How can you find that one person from the six billions of them out there? Even if you limit yourself to your own city of residence, the odd is still against you. There are about 4 million people in Los Angeles. Assuming the gender proportion is about 50-50 and that you are interested in finding a soulmate of different gender than you, the odd is still about 1 in 2 millions.

Moreover, when you meet a person, how do you know that he/she is your soulmate? Given the above definition, you can conclude that the person is your soulmate only if you believe that there’s no one else out there who fits you more perfectly, or if you expect that there’s no one else with whom you can be more deeply in love. How can you commit if you expect a better match? A counterfactual proof – proof by contradiction – may work. Break up with that person. If you still long for him/her afterwards or if you can’t find anyone who better suits you, then he/she must be your soulmate. The proving process could be painful but it’s definitely a way.

If it is unlikely that you would find your soulmate and it is not easy to prove whether you have actually found one, how can people claim so?

I believe that there’s a group of people* – not just one – whom you get along with or relate yourself to more conveniently than the rest of the world. To quote a friend of mine, it is a group of people who “operate at the same wavelength.” But, no matter how well you and the other person suit each other, there’s no perfect fit. There are times when adjustments are needed, sacrifices made, and deals negotiated. Through these adjustments and negotiations, a partnership is formed and tightened until the two people accepts each other and cannot imagine adjusting or sacrificing to anyone else.

The making of soulmates might not sound as romantic as the finding of one but it sure is more likely to happen and can be proved by induction. You work with one person until you can conclude whether he or she is your soulmate.

Soulmates are made, not found.

(*The size of such group depends on one’s specifications. A Brad Pitt or an Angelina Jolie is rarer to come by. If you want someone with an MBA degree, I have recently read that there are about 500,000 of them on earth.)

P.S. I was writing the first draft of this essay right before a friend of mine announced to me that she’s getting married to someone she believes is the right one for her. I would like to dedicate this essay to the couple.

What's luxury for?

When people visit me in Los Angeles, one of the attractions I take them to is Rodeo Drive, the center of all luxurious brand names in Beverly Hills. (For movie buffs, the street has been parodied in Shrek II, and it’s where Julia Roberts was refused service in Pretty Woman.) Few of my guests actually spend money there; most of them just walk around for spectacular window displays and, if they are curious enough to walk into the stores, touches of luxury. A friend of mine, with no real intention of buying, went into the Versace store and was astonished by a $3000 jacket – costing more than two months of my rent. He asked me for an economic explanation of how a jacket that doesn’t seem very special can be so highly priced. At the time, I told him that the name Versace, even though is not shown on the jacket, is enough to differentiate it from a seemingly similar $100 jacket at Gap.

A few weeks ago, however, I had a pleasure of speaking to a freelance stylist who has worked at several photo shoots in Thailand. The topic of luxury goods again came up. He insisted that a $500 Prada shirt is superior to other regular shirts. It is made of better fabric – some fashion houses sign contracts with textile manufacturers for exclusive use of particular textiles. Prada’s craftsmanship and quality are well-regarded; with Prada’s reputation, you know that the shirt is perfection. True, but one can look pretty good in a tailor-made shirt in Bangkok for $40 or a $60 Banana Republic shirt without having to worry whether the perfect shirt would be damaged from the next imperfect laundry.

What then motivates people to spend on luxury goods? An MBA friend of mine and his team conducted a survey on potential product lines, say, furniture and home furnishings, for Louis Vuitton. Reputation, quality, design, and craftsmanship are certainly parts of the story but also cited in the survey is the feeling of superiority and better self-image as a result of owning, wearing, or carrying brand-name products. The finding is a testament to the theory of social comparison. One compares him- or herself to others, gains utility if he or she feels superior to others, and is willing to pay extra in exchange for that utility gain.

Brand-name stores exploit this need for social comparison in their creation product lines and their pricing strategy. People may hesitate to cough up a few thousand dollars for a big-ticket item but they are willing to spill a quarter of that amount for smaller ones. According to Barry Schwartz, from whom I took the Introduction of Psychology class during my freshman year of college, a $100 keychain at Tiffany no longer feels expensive, compared to a $10,000 bracelet one has eyed but couldn’t afford. The keychain is not necessarily worth that much and we don’t necessarily need the keychain, but it may be all the luxuries we can afford.

The desire for luxury has recently spawned a new line of business catering to people who can’t afford to buy luxury goods. They can now rent the pieces on a daily or a weekly basis. Ironically, they sometimes end up paying more than retail prices of the goods themselves. It seems irrational but, at least, there’s a luxury behind it.