Gambling With My Future

Last Monday, I got a last minute notification on Handshake from a recruiter about an interview slot open for the next morning, Tuesday, from 9:30-10:30am. I was chosen as an alternate for this company, so I was not able to initially secure an interview slot, nor was I expecting a slot to open up. But, this interview time slot conflicted with Coppock's class. I had to make a decision... skip class and go to the interview, or miss out on the interview opportunity and go to class.

So, I calculated my expected marginal benefit versus marginal cost. My expected marginal benefit would include the benefit of attaining the internship multiplied by the probability that I was offered the internship. This is a low probability, but not as low as the chance of a single vote determining the outcome an election. The probability would reflect the chance that I would make it past multiple interview rounds, competing against a large pool of applicants that have presumably prepared more than me for the initial interview. But, added to the equation would be the benefit of practicing my interview skills in order to prepare for different interviews. The marginal cost would be missing Coppock’s class, which I would feel morally guilty about. The cost would also include taking the time on my own to catch up on the material presented in class. Lastly, the opportunity cost of my time — scrambling to prepare for the interview instead of completing other work, dressing myself in professional attire, and taking the time to get to the interview and back to my next class was significantly high.

Did this expected marginal benefit plus the extra opportunity to practice interview skills surpass the marginal cost and opportunity cost of my time? The answer is no. In looking at a graph with MB and MC on the y axis, and a scale of ignorance to knowledge on the x axis, I valued more knowledge in Coppock’s class than ignorance. So, my marginal cost curve for attending class represented a low opportunity cost of my time, resulting in an equilibrium point that reflected more knowledge over ignorance. So, I did not take the last minute interview opportunity. I went to class, and I’m glad I did, because the topics covered gave me the inspiration to write this blog post.

Redistributing Everything but the Beer

Carson King, a 24-year-old Iowa State fan, prepared his sign for ESPN’s“College GameDay.” It read, “Busch Light Supply Needs Replenished” followed by his Venmo handle. Carson didn’t expect much. “College GameDay” boasts hundreds of clever, grammatically-correct, well-designed signs each week, so why would his sign – a simple black-Sharpie-on-a-white-background piece – go viral? Carson fully expected himself to end up in the poor class with income Y₁. After all, the odds that your sign is spotted in the crowd and people actually overcome the bystander affect to send a random stranger money for beer must be pretty low. This result depends on so many variables outside of his control, and he anticipated π₁ to be greater than π₂.

One week later, Carson received a grand total of about $270,000. That’s a pretty good haul for a week, and I would say – for the week at least – Carson found himself in the rich class with income more like Y₂.

Carson’s poster experiment represents a small-scale, real-world scenario of the equation we looked at in class. Before arriving at “GameDay,” Carson had no idea of whether his poster would bring him any money at all. He didn’t expect hundreds of thousands of dollars, and any small event could’ve changed the outcome. Traffic could’ve made him late to the show, or he could’ve broken his arm, preventing him from hoisting his glorious sign. Carson accepted that he could end up either in the rich or poor class and tried anyways.

His B value was pretty high as well. Instead of keeping the money to pay for his education, rent, or an Iron Throne made of Busch Light, he kept about $15 in order to buy exactly one case of beer as promised. The rest of the roughly $269,985 is getting matched by Venmo and Busch and donated to the University of Iowa Stead Family Children’s Hospital. Carson clearly values redistribution. Count him as a “yes” towards the class’ redistribution-policy vote.

Voting for Dinner

It would be great if there was a local restaurant named "I Don't Care" or "What Do You Want?" because these phrases are the most popular answer when it comes to asking my family what we should do for dinner. There is no dictatorial vote among my parents, my brothers, and myself, so we use a pure democracy to choose where to eat. Yet, when it comes time to deliberate and vote, many of my family members seem disinterested in participating. Only when the decision has been made do they speak up–by complaining. "We had that last week!" "But I don't like Italian!" Clearly, my family has differing utilities according to restaurant based on their preferences, otherwise they would not complain and we could pick randomly. Considering this, are they rational to not vote?

If the expected marginal benefit of casting their vote on dinner exceeds the marginal cost of doing so, it seems they would vote every time. With only six voters, the expected marginal benefit is likely sizable, since the probability that one vote matters is not negligible like it would be in a political race. Thus, the problem must be that there is a significant cost to voting for them to be rationally abstaining. I believe the cost they face comes from the fact that we vote vocally, so each person has to suffer the chore of defending their preference, entertaining complaints, and being "responsible" if the food or service is subpar. Each abstaining voter would rather let the vote play among those who choose to participate, then attempt to sway the decision in a non-democratic manner, either by persuasion or complaining.

I would prefer if every single family member voted, so everyone's preferences would be expressed and the non-democratic cycle of whining would end. To solve this dilemma, I can propose two solutions. First, we can add a non-probabilistic benefit to voting. I suggest that each person who votes can have dessert at the restaurant. Second, we can minimize the cost to voting by formalizing the vote with a secret ballot. Personally, I think there is some value to the vocal vote, because it gets my family to discuss the options. Therefore, the first solution takes the cake.

Professor Elzinga Conspiracy Theories

            One of my housemates writes for The Cavalier Daily. The other night, following an editorial meeting, Bridget came home in a fit of rage about a proposed story idea. Nearly the entire meeting was dedicated to a discussion about Professor Elzinga always scheduling a midterm on Election Day. Conspiracy theories were being thrown out left and right about Elzinga’s motivation behind this scheduling regularity, everything from the day falling in the tenth week of class to Elzinga purposefully attempting to keep students from the polls (disclaimer: I have no idea if Professor Elzinga even schedules exams on Election Day each year, but if he does, I definitely do not buy into these theories).

            Let’s take it as fact, for the purposes of this post, that Professor Elzinga does schedule a midterm each first Tuesday of November. This means that, more likely than not, students taking ECON 2010 will have a higher marginal cost of voting than many of their peers who are not taking Professor Elzinga’s class. The increased marginal cost is attributed to any number of things that affect students on the day of a midterm: the study time lost if a student chooses to go vote, a lack of concentration on the upcoming test, and potential for unforeseen conflict if a student breaks their typical midterm preparation ritual. The only way that an ECON 2010 student’s marginal cost of voting would not increase in this situation is if they are fully invested in the idea of Dutch Knockout and are banking on the final.  

            Therefore, if we take Professor Coppock’s example of a $20 marginal cost of voting to be the standard for UVA students, a UVA student taking ECON 2010 will have MC > $20 come Election Day. In a situation such as this, the “something” that would make voting rational, D, of a student taking ECON 2010 would have to be greater than the D of a fellow UVA student not enrolled in ECON 2010, ceteris paribus, in order to justify going to vote.

            I told Bridget, after hearing this story, to report back to her editorial team that one conspiracy theory, for sure, can be thrown out the window. An economist like Professor Elzinga knows full well that the probability of one of his students’ votes being decisive in an election is a number so small that we can call it zero—therefore, scheduling an exam to keep his students from the polls cannot be the explanation.

Andy Samberg, economist extraordinaire

In January 2013, a group of performers-turned-economists known as "The Lonely Island" released a hit single called "YOLO", in which they emphasize the importance of living a life that is consistent with minimax regret theory. For this group, the term YOLO is an acronym, which means "you oughta look out". They give sage advice to our nation's youth, warning them that they "should never trust a bank, they've been known to fail / and never travel by car or bus, boat or by rail". This flies in the face of the careless ideology that has penetrated popular culture, which suggests that one should consider probabilities when assessing potential risks. But perhaps their most profound insight is that one should "wear titanium suits in case pianos fall on you". Looking at the table below, we can clearly see that they are correct in this assessment, according to minimax regret. The potential cost of not wearing a titanium suit would be instant death, and the potential cost of wearing one is simply needing to buy the suit (and maybe a little bit of discomfort while wearing it). Clearly, this is an easy calculation: avoid death, and wear a titanium suit at all times. And based on the fact that the music video has nearly 90 million views on YouTube, it appears that their impeccable logic is taking the nation by storm. Thanks to The Lonely Island and their lead singer Andy Samberg, we can expect the rate of piano-related deaths to plummet.

	Piano falls on you	Piano doesn’t fall on you
Wore a titanium suit	0	Cost of the suit
Didn’t wear a titanium suit	Instant death	0

Mitigation Banking: A Cosian Solution?

For two summers, I interned at a startup mitigation banking firm.  This fall, I've been asked about mitigation banking in a few interviews, and I have found that it is a relatively unknown industry that is difficult to explain in a one minute response.  Luckily, this class has provided framework to make explaining mitigation banking easier.  Mitigation banking is a semi-Coasian solution to a negative production externality.  Consider the planned expansion of a rock quarry near the Atlanta airport.  In “producing” the new rock quarry, the quarry owner will irrevocably damage a wetland area.  Because wetlands act as natural water "filters," the destruction of the wetlands deteriorates water quality in the surrounding area, negatively effecting the fish population and thus the fishermen in the community. Other community members who derive utility from good water quality in the area also experience the negative externality.  The Clean Water Act makes the quarry owner liable for these negative externalities.

The exchange of mitigation credits makes mitigation banking is a semi-Cosian solution to this externality. A mitigation banker can restore a previously destroyed wetland in the same county as the expanding rock quarry, creating mitigation credits. The quarry owner can then purchase these credits to compensate for the negative externality.  The result is a zero-net loss of wetlands.  If the marginal benefit of the expansion to quarry owner exceeds the marginal cost, which includes the cost of the mitigation credits, then he will expand the quarry.  If not, the quarry owner will not pursue the expansion.

This is not a totally Cosian solution because the transactions costs are high.  Furthermore, government regulation is necessary for the creation and exchange of mitigation credits, but it could be argued that the regulation just acts to clearly define property rights.  Regardless, I think mitigation banking is an interesting industry that has been created to deal with with negative environmental externalities.

Negative Consumption Externalities with Movies

This past Sunday night, like most Sunday nights, my roommates and I like to watch a movie after everyone is back from libraries, or whatever other commitments they have. Usually we watch a movie that none of us has seen, but every now and then we watch a movie that someone has—that is what happened this past Sunday. 

Usually, this isn’t a problem, but this time, whether others watching noticed the economic relevance or not, one of my roommates proposed a strong negative consumption externality. Having seen the movie before, he would quote lines as they were being said and alerted the room when something important or funny was about happen. His interruptions were distracting and took away from my experience as well as other's, I'm sure. 

In taking Public Choice, I knew I could offer him something of value to internalize this externality. However, living with him meant that the transaction costs were not zero and my offer might cause tension or animosity between us. Unfortunately, the high transaction costs in this situation made a Coasian solution not an ideal one for me, and I decided to bear the costs myself.  

I thought about what movie theaters do to prevent these negative consumption externalities. Just like my experience, they do not rely on Coasian solutions to internalize externalities. Instead, they use the equivalent of government intervention to enforce rules that try to inhibit any externalities at all. 

Facebook's Social Pressure

When I logged on to Facebook on Saturday, this banner sat at the top of my news feed. I immediately began to feel sorry for Facebook. Does the company really not know that it’s irrational to vote since the probability of a single vote being decisive in such a large country is practically equal to zero?

Well, regardless of whether or not Facebook knows voting is rationally unjustified, the company does realize that social pressures can serve as a powerful incentive to vote. Like Professor Coppock, who votes simply to please his mom (and to avoid her displeasure), Facebook users may choose to vote simply so they can publicize this information to their friends, thereby evading the shame of not voting. 

After all, nearly 8 million people around the world have shared on Facebook that they’re registered to vote. What does it say about me as a citizen of this country if I don’t also register to vote?