Have you ever stepped foot in a grocery store and been immediately overwhelmed by all the choices you have about everything from chips to sodas? The paradox of choice is that we often believe having multiple options makes it easier to find the product we really want, but it turns out that having a lot of options makes it harder to figure out exactly which one we want and often leaves us unhappy with our choice.
George Carlin — Stupider than Average
George Carlin makes a simple statistical error (unless he’s talking about a symmetric distribution) in describing the intelligence of the average person. Typically, the measure he is describing refers to the median, which would place half of the sample above the value and half the value below. Many students assume that the median and the mean are the same thing and will often describe them similarly, but averages can be prone to outliers. In this case, a really dumb person in a room full of genius can pull the average way down, but won’t change the median.
Thanks to Jeff Wooldridge on Twitter for the recommendation:
Boston — Rock & Roll Band (1976)
This song is older but is still useful as a discussion about investing in human capital. Human capital is much more than just getting a degree. Human capital also involves general knowledge (what do you know?), skills (what can you do?), experience (where have you been?), and personal characteristics (are you reliable? do you work well with others?). If you have a small enough class, ask students to identify investment in these characteristics based on the story in the song. Not only does the song tell a good story, but it also shows that there’s more than one way to get an education.
Thanks to Bryan Sloss for the submission and summary!
Braveheart — We Didn’t Get Dressed Up for Nothing
In this scene, the Scottish army is waiting to fight the English army. William Wallace (Mel Gibson) is going to “pick a fight” and make sure that the nobles from each army don’t negotiate a peace. His fellow leaders are in charge of passing out weapons. When asked what to do they remark, “we didn’t get dressed up for nothing.”
They are falling prey to the sunk cost fallacy. Just because they’re all dressed and ready to fight doesn’t mean that is the logical thing to do. The soldiers are not using effective marginal analysis to determine whether fighting is the next best course of action.
Thanks to Luke Starkey for the clip and summary!
Aladdin: One Jump
Aladdin has stolen a loaf of bread is furiously trying to escape Razoul and his guards. The potential cost of stealing the load of bread is large, but Aladdin notes that he only steals when he has to: “I steal only what I can’t afford.” In this sense, Aladdin is weighing the expected costs against the benefits from stealing the bread and reasons that it’s worth the risk when it means he gets to eat.
Monsters at Work: No More Scaring
Tylor was one of the best young monsters to graduate from Monsters University and always dreamed of becoming a Scarer. Once he lands a job at Monsters, Inc. he discovers that scaring is out and laughter is in. This brief scene from the movie’s trailer is a good opportunity to discuss skill-biased technological change. While scaring was previously seen as a good-paying job with a bright future, the world has changed suddenly and those skills are no longer needed.
Manifest — Selection Bias
Manifest is the story of a missing plane that shows up over 5 years late, but the people on the plane don’t experience any time change. Saanvi was a researcher whose work has been used to treat pediatric cancer while she was away. One of the boys on the flight qualifies for treatment, but allowing him to join the study puts the study at risk since they don’t know what happened on the flight. Selection bias occurs when people are selected (or not selected) into treatments in an unrandom fashion. The young boy qualifies to be part of the study but is excluded on the basis that it’s not clear what happened on the flight.
Thanks to Alfredo Paloyo for the clip recommendation!
A Series of Unfortunate Events – Paid in Coupons
The Baudelaire orphans have been sent to the Lucky Smells Lumbermill and are being forced to work on the production floor. After a grueling morning of “log day,” the workers are given an entire five minutes for lunch, but the Baudelaire’s come to find that lunch consists of gum. Frustrated, they wonder if they can use their wages to buy something else, but it turns out that the Lucky Smells Lumbermill pays their workers in coupons rather than actual currency. The coupons don’t have any value since the workers don’t have any money to go out and buy things anyway. The workers also don’t have power to leave or demand better conditions because Lucky Smells is the only place to work in town.
When a single firm controls the labor market in a region, they are said to have monopsony power in the market. Monopsonies can pay workers below competitive wages because workers are unable to find alternative employment opportunities. In this case, the Lucky Smells Lumbermill pays them almost nothing since the coupons can’t really be redeemed anywhere.
A Series of Unfortunate Events – Aunt Josephine’s Risk Tolerance
The Baudelaire orphans have been sent away to live with their Aunt Josephine. They’ve been told how formidable and fierce she is, but it turns out that Aunt Josephine is incredibly risk averse. She has disconnect the doorbell and the telephone because someone may be electrocuted if they have a faulty pacemaker, even if no one in the house has a faulty pacemakers. Risk averse individuals are willing to give up some benefits (in this case, doorbells and phone calls) in exchange for avoiding possible negative consequences (electrocution).
Family Guy — Volcano Insurance
A traveling salesman sells Peter an insurance policy to protect his home against a volcano eruption. He convinces Peter “a volcano is coming this way” despite the fact that Peter lives in Rhode Island, far away from any active volcanoes. He convinces Peter to purchase the policy by using the gambler’s fallacy and convincing Peter that Rhode is “due for one.”
If this were actually true, the premiums associated with this policy would be extremely high and likely be the same as the cost that an actual volcano would inflict on the town. Insurance markets function on the interaction between uncertainty, risk aversion in consumers, and risk neutrality for firms. If some horrible event were guaranteed to occur imminently, there would be little incentive to sell insurance.
Thanks to Alex Marsella for the clip submission and most of the summary!