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Well, it has quite a bit to do with it actually. A lot of people have negative feelings towards the word "economics."
To many, it was their least favorite and/or most difficult class in school. But economics doesn't have to be that difficult
to understand. And I'm not just saying that because I got my degree in it. Economics CAN actually be enjoyable
and thought-provoking. But first, let's start from the beginning...
What is economics exactly?
Well, it is a social science (such as psychology and sociology) which studies the distribution and scarcity of resources.
Furthermore, most resources have alternative uses (milk can be used to drink, as well as make other dairy products such as
yogurt and cheese) which further complicates the situation. But don't be alarmed by the word "complicate." I'll
try to keep it as simple as possible :)
One of my favorite economic/psychological dilemmas comes from game theory and is called the "Prisoner's Dilemma."
Let's say two people are arrested for minor infractions, but are suspected for greater crimes (e.g. drug dealing).
However, since the police have limited evidence of their suspected drug dealing, they must rely on one of the criminals to
testify against the other. Each criminal then has two options: to testify or to stay silent. Of course, whenever
a criminal gives up evidence to prosecute a fellow criminal, the police usually offer him/her some sort of immunity; usually
in the form of reduced jail time or possibly even letting them get away Scott-free.
In this particular case, let's assume that if both criminals stay silent, the police can only hold them for
the minor crime in which they are currently arrested for; causing them to be locked up for 6 months each. If one of
them stays silent and the other confesses, then the one who confesses gets away Scott-free and the other is jailed for 10
years. And, if each of them confesses then the police are unable to give each of them "Scott-free immunity" so the criminals
each get just 2 years in prison.
Here is a grid that may show the break down of each possible outcome:
The greatest part of this whole dilemma is the psychology behind it. It reminds me of a great scene from "The Princess
Bride" in which a duel
is sparked between two people: Westley and Vizzini. Vizzini (the "bad guy") has tried to kill Westley (the
"good guy") multiple times with different people but with no luck. He then challenges him to a psychological duel, in
which Westley suggests a challenge in which both will receive a drink, one of which will be spiked with a poison but only
Westley knows which one. The goal for Vizzini is to then guess which drink is poisoned. For a good 5 to 10
minutes he analyzes out loud just what the possibilities are. Wesltey might have poisoned the drink currently in
front of Vizzini thinking he would simply take the drink given to him. However, Westley might have poisoned
his own drink assuming that Vizzini would want to switch drinks. But then, as he thinks about it, perhaps Westley
knew he would think this and for that reason not switch drinks, thereby poisoning the drink in front of Vizzini to begin
with. And on and on the analyzation went.
Such is the case with the prisoner's dilemma as well. Each prisoner has a million similar thoughts going through
their mind: "Will my buddy rat me out? I don't want to rat him out, but if he rats me out then I will get 10 years
and he will be free. Although, if I can trust him not to rat me out, then I can rat him out and I will be free!
And yet if we both stay quiet, we can just serve our 6 months and be done with it and neither of us will have to serve 10
years."
Thinking it over is enough to make you go mad yourself. You really have to get into the head of your fellow prisoner
to find out just how they are going to act. And even if both prisoners were able to consult themselves before "casting
their vote" there still would be no guarantee as to which way each prisoner would vote. I mean, if you spoke with your
fellow prisoner and he was showing strong signs of staying silent, can you honestly say that the possible freedom gained from
ratting him out wouldn't cross your mind? No? How about the fact that your fellow prisoner might play on your
weakness to "be nice" to him and stay silent, all the while he/she plans on ratting you out? Makes you think doesn't
it? Makes you want to quit your criminal ways doesn't it? /:)
Oh, so what happens between Vizzini and Westley? Well, it turns out it didn't matter either way because Westley
trained his body to became immune to the poison and spiked both drinks, killing Vizzini. Life is rough, huh?
Basic Economics
I’m
recently read a really interesting book called “Basic Economics.” What interested me in getting the book
was first off the price (I got it for 40% off of a “membership price” at a bookclub I belong to; it ended up being
like $7 or so). Secondly, though, was the concept of the book: to explain a complex subject such as economics into something
“basic” (as the name implies).
Aside from the author repeating himself a little bit (which isn't altogether
a bad thing in complex subjects such as economics), it is a very interesting and informative read. The first few chapters
deal mostly with supply, demand, and pricing. Considering I love to teach others, and I majored in Economics, I feel the need
to share what I’ve learned. :)
The difficult thing with economics is that a lot of it is theory. Some economists,
for instance, believe that the price of a particular product displays its worth. For example, say you have two objects: object
A and object B. Object A sells in stores for $50 and B sells for $100. Those of one philosophy would say that object B is
worth twice as much as object A. Pretty simple right? Well, not so fast…
Others have a different philosophy.
They believe that the time spent producing the product (i.e. the amount of labor it takes to produce it) displays its worth.
Continuing with the same example, if object A took 2 hours to produce, and object B took only 1 hour to produce, then object
A is worth twice as much as object B. They would go further to argue that the reason A is worth more is because it takes more
effort and energy to produce. So which is it?
Well those of the first philosophy would say that price should reflect
the costs of production. In other words, if object A takes twice as long to produce as object B, then it should cost twice
as much. The other side might counter argue that there may be something holding the company back from charging more for object
A. To which the counter-argument would be that there should be government regulation (or deregulation) to prevent that. And
on and on the arguments go.
So which economic belief system is “correct” in this case? Well, the answer
to that will probably be solved sometime after the “chicken and the egg” dilemma is figured out.
12 Steps to a Worry-Free Retirement
I just finished reading a great book by the name of "12 Steps to a Worry-Free Retirement" by Daniel Kehrer. I suggest
everyone go out and read this book. Here's a short review of it:
1. Redefining "Retirement"
2. Estimate How Much You'll Need
3. Manage Your Spending and Debts
4. Size Up Your Retirement Plan at Work
5. Discover the Real Deal From Social Security
800-772-1213 - Call SSA and ask for Form 7004-SM, "Request for Earnings and Benefit Estimate Statement."
6. Pack an Insurance Parachute
7. Get a Turbocharged Earnings Edge with IRAs
8. Set Up Your Own Pension Plan
9. Make the Best Investment Choices
10. Use These Moneywise Strategies
11. Make the Right Moves with a Pension Payout
12. Monitor Your Retirement Plan's Pulse
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