John receives an XXL shirt as a child, which was pretty useless to him. His mom suggests that he use it as a sleep shirt, but he really wants to make a comment to the person who gave him the gift. His mom explains that it’s rude to make comments about people who give your gifts, but John is quick to notice that the inefficiencies of receiving gifts that aren’t really usable.
One of the fun topics of decision making is to ask students if they have ever been stuck in a relationship they weren’t happy with, but they continued dating that person anyway. The most common response to why this occurs is that the students have invested a lot of time in the relationship and they don’t want to see it wasted. This example is an introduction to the irrational decision making people often go through because of their resiliancy to focus on sunk costs when they should be ignored. Kyle and Kehlani’s new song goes through the same tough decision because both feel like they’re being played with. Kyle and Kehlani both ask:
Girl, why are you playin’ with me? I don’t got the time for that Might need me a refund, haha I’ma need that time back
Since neither can get their time back, if they are unhappy or anticipate being unhappy in the future, they should rationally move on from each other.
Dottie decides to quit right before the World Series, and her coach isn’t too happy about it. One of the most salient topics taught in a section on behavioral economics is the idea of ignoring sunk costs. When things get boring or tough, a rational agent may decide to quit. Dugan believes that baseball is a great separating equilibrium and that it shows who’s tough and who isn’t. If baseball were an easy game then the it wouldn’t be a beneficial signal to everyone watching.
In one of Seinfeld’s monologues he covers the time inconsistencies between people’s decisions late at night versus the next day. In his latest Netflix special, Jerry Before Seinfeld, goes through the bit again with some updates. While we assume people to be rational in many models, people do odd things with respect to their own-selves that they may not do if they were forward thinking. This time inconsistency creates a lot of opportunities for discussions of procrastination, overconfidence biases, and other behavioral anomalies.
Penelope wakes up from a bad, but her mother is there to comfort her. After a second, Penelope notices that her mom has makeup on despite being asleep. Her mother tells her that she goes through the process of putting makeup on each night just in case she wakes up and meets someone or if she dies in her sleep. In this context, Penelope’s mom is risk averse and undergoes a lot of costs each night “just in case.”
The endowment effect in economics is a powerful explainer for irrationality. When people own something, they are often not willing to release an item even when someone is willing to pay more than it’s valued at. One of the famous examples is the coffee mug experiment. In this episode of Impractical Jokers, the guys head to an auction house and have one of them act like a remorseful seller who isn’t ready to part with their belongings. After pissing off the auction house members, the joker isn’t willing to buy his own tires back, which his friends submit to the auction house.
Vox goes through the popular wine test tasting to show that many drinkers are able to distinguishes between cheap and expensive wines, but that doesn’t mean that people actually liked the expensive wines. Often, people rated the expensive and cheap wines similarly. Even when it comes to experts, they often aren’t able to identify the same wine presented in a mix of other wines.
I’m teaching an Economics of Crime course soon so I’ve been on the look out for great clips related to cheating. I think my current plan is to have a series of goofy examples of cheating. In this Ted Talk, Dan Ariely discusses some of the research from his books on honesty by describing the idea of irrationality related to honesty. The rational model of crime first flushed out by Gary Becker assumed that criminals performed a cost-benefit analysis for cheating and would only cheat if the expected benefits outweighed the costs of being caught. Ariely brings the behavioral aspect of economics into play with his discussion on the nuances around decision making, even in criminal enterprises.
In behavioral economics we begin to study why people procrastinate. If you are teaching Time inconsistency either in your behavioral section of microeconomics or in a full class on behavioral economics, this is a nice short clip to motivate discussion.
Time inconsistency is one of those economic topics that is quite easy to have a basic understanding of but quite difficult to understand full models that employ it. This video can be used as a lead in during a behavioral economics course or a microeconomics course that touches on behavioral economics.