Tag: rationality

Zelle — Birthday Gifts

From an economic perspective, giving the wrong gift makes society poorer. If you spend money on chocolates and give it to someone who happens to think it is worth less (due to an allergy!), you’ve lost value. Whenever you receive an outfit that is the wrong size or style, a candy you won’t eat, or something that is worth less to you than what the gift giver spent on it, an economic inefficiency has occurred. Thus, from an economic perspective, the most efficient gift is always cash. The person will maximize their own utility by spending (or saving) the money according to their preferences.

Submission and description from Erin Yetter!

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Could Have Had a V8

One of the classic commercials of the 1970s came from V8 (they have updated ones as well!). Unknowing consumers of snacks and sodas realize mid bite/drink that they could have had a V8 instead of their other choice. The concept of opportunity costs is that by consuming an item, you give up the opportunity to consumer something else. A rational individual will pick the item with the highest level of utility, but sometimes we aren’t fully aware of all the alternatives. The individuals in this commercial only realize when it’s too late.

The clip was described in Joel Waldfogel’s book, Scroogenomics: Why you shouldn’t buy presents for the holidays. Dr. Waldfogel also appears in an Adam Ruin’s Everything episode on the inefficiencies of gift giving.

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CNN — Man Loses Life Savings On Carnival Game

Henry Gribbohm lost a few hundred dollars trying to play a carnival game to win an Xbox, but then went home to get his life savings, $2,600, which he then proceeded to spend at the carnival game. Gribbohm claims the game is rigged, but he did walk away with a giant banana with dreadlocks. While humorous at first, it does paint a picture of financial literacy should be an important component of secondary education.

Thanks to Tammy Batson for the suggestion!

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Star Trek TNG — Data Overanalyzes

 

Data is trying to formulate a battle plan for Commander Riker, but he’s assuming that Commander Riker is rational and knows that Data has analyzed his move. Data takes it a step further and hypothesizes that Commander Riker knows that Data knows that the commander has a battle plan. Full information is a tough assumption about rationality, but bounded rationality lets us assume that people have limitations but still respond to incentives in a predictable way. While perhaps a human failure, most of society does not operate on the same level as Data.

Thanks to Peter Nencka for the clip suggestion!

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Brooklyn 99 — Gift Giving Externalities

 

Charles and Gina have been secretly hooking up  for a while, but now their parents have decided to start dating and it’s freaking the two of them out. Charles rushes to the office to show Gina a gift that his dad is planning to give Gina’s mom. At first the two are scared of the repercussions to their lives if their parents start dating, but quickly realize that the planned gift is much worse for their parents than for them. Gina also goes through her process of unwrapping gifts before the actual reveal because she doesn’t want to get surprised in photos. Her risk aversion results in lots of time spent to avoid embarrassment.

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Kyle — Playinwitme feat. Kehlani

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.

I like to use Old Domion’s song, Break Up With Him for the same lesson as well.

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One Day at a Time — Risk Aversion

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.”

Thanks to Khalaf Alshammari for the clip!

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Impractical Jokes — Auction House Meltdown

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.

Thanks to Alyssa Lampros for the submission!

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Life in Pieces — Coupons as gifts

Matt isn’t the best at giving gifts and he’s realizing that this year. Matt gives his wife a homemade coupon book that she decides to finally cash in to show him how awful the gifts are. After a while he doesn’t work as hard, but then at family dinner he finds out that no one really appreciates his gifts because it doesn’t seem like he puts much thought into them. There is a small line about positive externalities because Jen got a flu shot for her birthday once, which her husbands announces was “the gift that keeps on giving.”

Life in pieces also has another great clip on opportunity cost that’s worth checking out!

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TED-ED: Why incompetent people think they’re amazing

 

The Dunning-Kruger effect is an interesting psychological theory that looks at why novices tend to overrate their abilities and even rate themselves on par with experts. This mindset has real implications for decision making because overconfidence made lead us to make suboptimal choices.

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