
Why my students dump their boyfriends: The 3 most eye-opening ideas in economics - Walkman
http://www.learnliberty.org/blog/why-my-students-dump-their-boyfriends-and-girlfriends-the-3-most-eye-opening-ideas-in-economics/
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igk
Reading this I tought "Huh, simplified economic concepts, ending on
overpushing the idea of voluntary transactions a bit...smells a bit american-
libertarian".

Click around...project of IHS...

[https://en.wikipedia.org/wiki/Institute_for_Humane_Studies#O...](https://en.wikipedia.org/wiki/Institute_for_Humane_Studies#Organization_and_funding)

None of the concepts are wrong, but things are _more complicated_. For a short
summary on the idea of Inequality of Bargaining and consequential hollowing of
the "voluntary" transaction you can check out
[https://en.wikipedia.org/wiki/Inequality_of_bargaining_power](https://en.wikipedia.org/wiki/Inequality_of_bargaining_power)

Interestingly, one area where this is taken into account, is study design
(i.e. thinking about when a reward will skew the results/be unethical towards
participants)

For some discussion see:
[https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3646546/](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3646546/)
[https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2600442/](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2600442/)
[https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2600442/#S2titl...](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2600442/#S2title)

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k__
I think you're right, things aren't that simple, but I have the feeling when I
used these 3 points in the past, things went better.

But on the other hand, I always have the feeling, relationships go better if
they aren't emotionally evaluated too much.

Sunk Costs

I've seen relationships go to shit but people are like "we are together for 10
years now, I can't leave them!" even in face of domestic violence or general
abuse.

Yes the 10 years were nice and you paid them with your lifetime, but do you
want to pay the shitty part too or just leave it by the 10 nice years?

Nothing is Free

I've seen relationships between people who simply don't fit together, but one
part wanted to keep the other around, because of ... reasons? The other was
way out of their league, attractive wise, and knew it. The other part was
rich, and knew it.

Sometimes the other part was even the almost perfect fit, but didn't get their
life in order.

Revealed Preferences

I've seen so many people who say A and do B. Especially in relationships. Talk
is cheap and I did it too, in the past, but if you always say you want kids
and never have them, time is over someday.

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zeroer
> A common example to help explain sunk costs is the movie theater experience,
> where a person buys a ticket and, 20 minutes into the movie, she realizes
> that it is a horrible movie and it will only get worse.

Offtopic I know, but twice in my life I've walked out of a terrible movie at
the theater within the first 30 minutes and gotten a refund from the manager.
Don't think you have to sit through terrible movies!

~~~
bouis
That is absolutely absurd to me. I understand walking out, but getting the
refund had to have caused some eye rolls and jokes at your expense after you
walked out. Where does it end? Can you walk out and get a refund because you
didn't like the last 20 minutes? I think this sort of speaks to the absurdity
of some aspects of this "get mine" mentality cultivated among economists

~~~
ubersoldat2k7
Fair point. Hell, you could even argue that you didn't like the ending...
Refund!

~~~
candiodari
One thing you might notice when traveling a lot, the US attitude towards
refunds (ie. when reasonable, and I would argue even when "slightly"
unreasonable in the interest of customer service) differs a LOT from most
countries attitude towards refunds (which can be summarized as essentially
only when convicted in a court of law - and even then)

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bouis
While I'm sure he knows this, most reasonably social college students
reflexively trade up in dating and I would hazard to guess they are near
equilibrium. Economics basically reifies these implicit social concepts. That
said, most dating market choices are not easily explained with the perfectly
competitive market in a vacuum analogy that gets used in economics 101. For
example, the sunk cost bias is actually metarational in the sense that it
asks: "Am I really right about the grass being greener on the other side? How
important is it to me to trade up?" which incorporates the concept of
subjective beliefs and risk which is not addressed in the perfect information
scenario and may not even be something that's tractable to explain in a
rational actor model

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Ixio
I'm not really convinced by his third point "Revealed Preference — Actions
Speak Louder Than Words". I mean it's a useful concept to understand some
interactions but it seems to me it also fails on some simple examples like
payday loans and software bundling.

"My point is that if the exchange is voluntary and there is no fraud or
misrepresentation, then it is a win-win transaction." Though maybe it can be
argued that with abusive loans and getting Windows on most computers the
exchange is not voluntary?

~~~
candiodari
How is a payday loan not a win-win transaction ?

The person getting the loan obviously values money now more than total amount
of money, for some reason (which may or may not make this preference entirely
voluntary).

The person providing the loan values total money more than having constant
availability of all their money (ie. they're investors). And I'm sure you
would argue they also value more money more than ethics/decency.

Ie. the reason the economy works is that while price may be the same between
buyers and sellers, value is subjective. Therefore it is a win-win in that
both parties increase their perceived value through this transaction. This is
also how a mortgage works, for instance.

~~~
falcolas
> How is a payday loan not a win-win transaction

Usually because the borrower is not in a rational state of mind, and because
we as humans focus more on today than tomorrow. Payday loans (like the loan
sharks of old) take advantages of this in order to put borrowers in positions
that a rational, future conscious person would never get into.

Economics say one thing, but it's the humans in the equation which muck up
these otherwise ideal economic principals. Ultimately, economics should be
there to serve people, not the other way around; payday loans are there to
exploit people in need, not serve those who are in tough situations.

~~~
dismantlethesun
We can't assume that all of the borrowers aren't in a rational state of mind.
And I'd hesitate to even say _most_ of them aren't.

Payday loans serve a pretty specific purpose: covering short-term cash flow
when you can easily pay off the interest in the next term. This is a fairly
common problem for people on the low-income scale with little emergency
savings. If a car breaks down, it may cost $350 to fix it, and that money is
necessary _now_ and not 10 days from now. It used to be that people would ask
for advances from their employers, but this is a solution that sidesteps that.

~~~
candiodari
Excellent response.

The only thing I'd like to add is that you cannot design a system that allows
for individualism and yet somehow does not require individuals "to be in a
rational state of mind".

Besides, that is like attempting to "protect" a drug addict from the
consequences of their actions. It is the one thing in the world that is worse
for them than letting them suffer.

~~~
falcolas
Yes, let's let the drug pushers continue to legally advertise and sell their
harmful drugs, and be sure to assign the blame onto their customers.

Great analogy.

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throw2017
I doubt the examples he mentioned can be reduced to simplistic economic
theories.

For the movie for instance people could stick on hoping things will get better
and things could.

For relationships most are loaded with emotions that make us irrational and
decisions to make or break would also involve a multitude of other factors
well beyond the scope of economic theories of sunk costs and self interest.

Listen but make your own decisions. You learn by listening to yourself, making
your own mistakes and taking responsibility for them.

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carsongross
The sunk cost fallacy fallacy: you have perfect knowledge of what other
options you have, all specific knowledge and experience acquired in your
current course of action is worthless and persistence never pays off.

Given how prevalent the so called sunk cost fallacy is in humans, you would
think smart people would give a bit more thought to its darwinian origins.

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Syllinger
I adhere rather vigorously to points 1 and 2 because I value my time over most
things. But, I find 3 a stretch. A movie is overpriced when you are unable to
realize the full potential of the market. Last I checked, piracy is still a
problem.

