Time to Buy a House Yet?

No.

Or most likely not. Probably not...

Here's a graph comparing Phoenix's real estate price index for the past 16 years with the rate of inflation:

(Data from Case-Shiller/S&P)

Two things to note:

1) The value on the left axis is an index of real estate prices in the Phoenix area, with January of the year 2000 set at 100. In other words, If you paid $100,000 for an average house in January 2000, it likely peaked around $227,000 before being worth, on average, about $117,000 as of January 2009.

2) Real estate price changes don't always match inflation changes, but over longer periods of time they do. For example, if inflation is 3% per year over 30 years, you could bet with some certainty that the price of your house probably rose, on average, about 3% per year over those 30 years. That's why it's at least somewhat important to compare real estate prices to the rate of inflation.

So since real estate prices have historically hovered around the rate of inflation, one could make a reasonably educated guess that Phoenix prices just have a little further to go until they're where they "should be" (matched up with the shaded, dark blue section at the bottom of the graph).

Here's the same graph for DC:


If you look to the current year at the far right of the graph, you'll see that DC is still technically (and I mean technically) more overpriced relative to inflation than Phoenix.

The fun part is figuring out the large number of reasons this is the case. But I'll leave that for another time...


And this one is a composite of 10 U.S. cities (Specifically an average of Boston, Chicago, Denver, Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, Washington DC):

Keep in mind the baseline inflation rate (the shaded blue portion on each graph) is basically an average home price from 1993 & 1994 multiplied by the rate of inflation - Or what you'd expect a house you bought in 1993 to be worth each year if it appreciated at the inflation rate.

According to my little inflation-baseline model here, real estate prices in these 10 major markets are, on average, overpriced by about 42%. That's pretty substantial. (...And for those of you who noticed the incorrect graph that was in this place first... Forget about that one!!)


So... Time to buy a house yet?

Probably not.

Although it is far cheaper to buy a house now than it was in any of the past 4 years, we've still got a long way to go before real estate is back at that inflation-adjusted line. There's no indication that prices are done falling, and, on top of that, bubble prices coming back down to earth often overshoot their "fair" prices.

So even if you think waiting a few more months will get you a good deal on a house (prices will be even lower for rest of this year than they are now), there's a very good chance waiting even longer (let's just guess the beginning of 2011) will let you buy close to the bottom.

---

But who knows? Even though I still believe pretty strongly that it's never a good idea to buy a house, maybe I'm missing something in this post... Like, perhaps, hundreds of billions of dollars of government home purchase subsidies...

Geographical Moral Hazard

I was recently asked, while on a road trip to the Grand Canyon, what I thought about the Supai villagers' helicopter rescue from the bottom of the Grand Canyon. If you don't know the story: 170 members of The Havasupai Tribe that lives in a[n apparently vulnerable] section of the Grand Canyon had to be rescued by helicopter this past August during a flood.

And in case you're curious, here's a timeline of my thoughts about people living in somewhat dangerous, remote and/or not-easily-accessible-to-emergency-crews places:

August 2008:
"Why would people live in the bottom of the Grand Canyon? Nuts."

August 2008, 1 minute later:
"We're using helicopters to rescue people who chose to live at the bottom of the Grand Canyon? Sure, we can't just let them die, but shouldn't there be some sort of 'no-rescue' credible threat to prevent people from living down there without their own escape plan, so other people don't have to pay to rescue them when an obvious and inevitable danger appears?"

September 2008:
"Hmmm... Yes. Yes, indeed, I am generally opposed to people living in dangerous places without their own escape routes/plans."

November 29, 2008, during a road trip to the Grand Canyon:
"...Why not just live on the top of an active volcano, then? I mean, if the government has committed to rescue you no matter what you do, then what incentive is there to develop your own escape plans (AKA Helicopters/Lava Sleds/etc.)? This is geographical moral hazard, and I'm anti-that."

Today - December 11, 2008:
"Wait a second. Is it possibly a legitimate government function to mitigate the risks of moving to potentially dangerous locations? Could there be some benefit to this?

If there is some benefit from geographical diversity (there is), and if trailblazin', pioneering humans that settle a new, but dangerous, location don't often have the means by themselves to arrange a complete rescue for each of their trailblazin' members (but only an incomplete rescue), then I could assume that there is some need for an organized body that lowers the risks (just enough) of exploring and settling new locations.

Now there are two relevant questions:

1. Does the cost of an inevitable complete rescue outweigh the benefits (short, long and very long term benefits included) of Living Dangerously?

2. If there is a legitimate need for a dangerous location risk mitigation service, who should carry it out? Can it be a private organization (insurance), or is this one o' them 'government-only' things?

And here are the correct answers:

1. No. The long term benefits of exploration outweigh any potential rescue costs.

2. Private insurance could do the job, but humans plan on too short a timeline and have too little information about the value of potential benefits of new geography to price them correctly. Usually the benefits to human exploration are gained by those who come after the trailblazers and harness resources/new knowledge/experience/etc, and these people wouldn't want to pay the insurance fees of their forefathers...


In other words, government should be making rescue commitments to people who settle hazardous locations.

Good job.

I'm In Yur Economiez, Preventin' Yur Deflashunz

LolBernanke.

If you're wondering how well the the Federal Reserve and the rest of us are going to fare against this recession we're all playing with, read this speech by Ben Bernanke from 2002. It's fantastic. Definitely worth a read if you've been worrying needlessly about things that are out of your hands...

My favorite line:

"We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

Notice the word "always."

So stop worrying about the economy, people. You're in good hands. If the crap really starts hitting the fan, I'm almost positive that Ben Bernanke will actually get a helicopter.

Star Wars Episode 2conomics

See how I added "...conomics" to that? That takes skills.

---

So we learn in Star Wars Episode II: Attack of the Clones that The Republic and all its Jedi buddies decide to utilize a previously-unknown-to-them army of clones of Boba Fett's dad in order to fight off the massive robot army of the separatists, who apparently are under the control of Darth Sidious, the alter ego of the guy that controls the Rupublic Senate and its clone army, chancellor Palpatine.

Do I have this right?

So on the well-written side we have a guy, Chancellor Palpatine AKA Darth Sidious AKA Darth Vader's Master AKA The Emperor, who is secretly orchestrating a war between two different factions that he controls, trying to destroy all the Jedi Knights.

But on the dark side of the script we have a lack of understanding of economics.

Of course.

---

Human beings that fight wars on Earth are valuable. Each life lost during a war (or any time) represents a substantial and costly loss. This is why wars are often relatively short - they are fought between two or more controllers of expensive, nearly irreplaceable resources that try to destroy each other's resources to get the other side to stop fighting.

But not in Star Wars.

In Star Wars, apparently, one side purchases a bunch of robots, and the other side (the Republic) purchases a bunch of clones of Jango Fett. In a universe where the gains from trade are literally astronomical, one would not think that the monetary resources necessary to purchase robots or clones is much of a strain in the slightest.

In fact, why purchase clones anyway? Supposedly they're better warriors than stupid droids, but they take more than 10 years to fully mature!

As I always say, fight robots with robots. Why does the Galactic Republic not simply purchase more droids to fight off the huge droid army of the separatists? I guarantee they have the money. In the real universe, they would do exactly this.

But there's a problem: Imagine you are a Galactic Senator. Even in relatively peaceful times, you know that any of your potential enemies might go out one morning and buy a whole droid army simply for the hell of it, and try to take over your Galactic Senate. Simply due to the threat of this possibly occurring, you have to have a huge droid army available (or even clones, if you feel like it) at your disposal any time of the day or night.

But how big must your robotic or clone army be?

If your enemy has a million droids, you must purchase and have on hand a million droids + an Imperial Walker. But your enemies will then just get 2 million droids, an imperial walker and a fleet of any of these:

The page I got this from is full of useful information...
...

So if you follow this logic to its conclusion, any real war fought in the Star Wars Universe must be shockingly large. So large that there would be a battle consisting solely of converting the most resources into military 'units' until almost all of one side's resources are used up. And I mean thousands of planets, trillions of humanoids, and a nearly infinite amount of raw goods with which one could produce an infinite number of quirky robots with annoying voices and terrible senses of humor.

But, of course, we can assume that the threat of an "infinite resource war" such as this would prevent any one side from taking aggressive action in the first place, can't we?

Again, not in Star Wars.

I believe the answer depends on the number of planets actively participating in the universe's federation of planets. This is why Star Trek is believable, and Star Wars is your toddler's bullshit fantasy. In the universe, no matter where you are or however much of a long, long time ago it happens to be there is no Force, and physics do not change so much that there is noise and fire in space and Jedi "Knights" - who can stop laser fire with swords! - can't seem to hop into military cargo aircraft properly on one end of the universe, and on our side of the universe space is boring and vacuumy, and even my grandma knows that when you're trying to escape a surrounding droid army's laser fire you get the fluck into that fluckin' cargo aircraft as fast as fluckin' possible.

Watch that scene in Attack of the Clones - you'll see what I'm talking about.

Oh, but my point was this: With too many planets within such short [time] distance from each other, the barriers to interstellar trade are minimal, and "infinite resource wars" are either entirely too likely, or constantly threatened, and will inevitably occur. But if your universe happens to be only sparsely populated with planets and intelligent life, and droids and clones are apparently difficult to come by (There's only one Data! ...Or two...?), wars are determined by dedication and diplomacy. Or lack thereof, I suppose.

So now I think I have the right to propose the following Rule of Future Space Wars:

If there are enough planets, resources and humanoids readily available to produce a large number of droids with crappy senses of humor (which is evidence of their very low cost [because if you're adding wit into your droid's programming, the droid market must be a very competitive and established market]), then you will have one universal government.

In fact, this happens to be the case in Star Wars. Hefty interplanetary trade leads to one or two super-powerful governments, The Galactic Republic followed by The Empire.

But in Star Trek, there are multiple, competing, powerful governments. (The Federation, the Romulans, Borg, etc.) This is what you get with high barriers to trade. Borg!

So listen up, people: If you don't want your great, great, great grandchildren to have to fight for freedom against giant moon-sized, laser-shootin', planet-explodin' Death Starish space battle stations, you'd better hope the laws of physics and limitations of travel below 185,000 miles per second hold up.

If the rules of physics don't hold, then pass this warning on to your children, to pass along to their own children, and so on:

The minute your droids start making wise cracks, start preparing for a big ass war.

...

Follow that logic?

You Buy Now! Stocks Love You Long Time!

How many of you 4ECon readin' sons of bitches remember this post I did a long time ago in August of 2007, about my prediction of where the stock market was headed?

To refresh your memories, here's the graph I used:


That black, drawn-in brace on the right side of the graph was my prediction of where the S&P 500 would end up sometime over the subsequent two years.

And here's my favorite line from that post, referring to my prediction of when "serious panic" will hit the stock market:

"When? My guess: ANY TIME between now and October 2009. Mark my effin' words. When stocks do drop, it'll be down to the long term trend line. When that happens, make sure you're buying stocks - unless, of course, there's a much better reason not to (such as the rise of the machines, Terminator style...)"

...So, um... Who's awesome now, huh? That's right.

Here's today's graph of the S&P:



Look at that decline over just the past 15 months! Shizz!

So how well did I do? I was right about the time (but really, how hard was that to predict in August of 2007, especially with a two year window?) But I was overly optimistic about the extent of the decline.

And now here's today's graph of the S&P beautifully overlaid on the 15-month-ago graph, in case you're curious how close my prediction was:


For sheit's sake! It's like I drew that black brace from the old graph just recently, isn't it? I knew it, I'm some sort of stock predicting sorcerer! Perhaps I shall purchase a magical staff...

But wait... We kinda overshot the hell out of that trend line on the way down, didn't we?

Damn, that's quite an overshot.

All right, so I may have been overly optimistic about the lower boundaries of stock droptitude, but that means one good thing for you followers of Foreeconomical Canon:

The line from my August '07 quote, "When that happens, make sure you're buying stocks," is even more important to pay attention to now.

No, I'm not saying that you definitely will not get completely screwed in the short term (only on paper, mind you) if you buy stocks now. Who knows, there might be, as I said, a Rise of The Machines type of craptastic event that occurs in the near future. Machines grown from credit crises that force you to pay back your home loans with lasers. I'm not saying this won't happen. Mark those words. I didn't say it won't. There's my new prediction. Heeeed!

What I am saying, though, is that you will definitely not get completely screwed in the long term if you buy pretty much any stock [index fund] now. I usually avoid saying this line, because I grew so sick of people saying it over the past 3 years, but it's a reasonably good time to buy.

Relative to the past couple years, that is.

As of this posting, the Dow's at 7,997.28. Sure, you might get a better chance to buy stocks at better prices over the next year or so, but who can see that coming? I mean, besides a sorcerer with a magic staff... ...Which I will be the minute I find one on eBay...


Now if you actually are considering taking my advice, follow these rules:

1) Don't put all your money in at once. Split your investment into as many reasonably-size chunks as possible and dollar-cost average over the next year or two.

2) Don't buy a bunch of useless crap. Actually, here - here's the best advice of all: Buy a whole ton of the S&P Index tracker, (stock ticker: SPY - $81.50/share right now) in chunks over the next year or so and hold it for 10-15 years. You'll do fine.

But which of the one reader of my blog is actually going to follow this advice anyway? My real purpose here is just to say this crap on the internet so I can write another blog post in two years talking about how right I was way back in November of 2008.

...

But again, I apologize. This is just my Krug Disease acting up.

Yes, it's a real disease! Just Google it.

The Cost of My Economic Righteousness Part 2: The Return of the Blog Post Titled "The Cost of My Economic Righteousness"

So, as you're all fully aware after reading that last post, I am very much against the idea of a bailout for U.S. auto makers.

I'm so against it, in fact, that it would actually make me feel bad if it happened. I would literally lose [some] faith in [some] politicians that I've recently put [some] faith in. Not only that, but it would to a certain degree make me feel less confident in my government. Though you shouldn't get me wrong: I don't have that much confidence now. Also, I'm very flippant with my confidence-giving. And forgetful. I often misplace it...

Anyways, I really do not want to see a substantial bailout for the Big Three - GM, Ford and Chrysler, nor even the multiple suppliers that depend on them. They don't need it, nor do they deserve it, and it would be a terrible waste of money and resources to subsidize any of these companies' continuing survival.

But it still might happen. In fact, I put the odds on a multi-billion dollar "aid package" to any or all of the big U.S. auto makers at better than 50/50 over the course of the next year. Probably more like 75% likely, I would guess. But I'm not positive, of course.

So on one hand I'm facing a reality in which a bailout for the Big Three does not happen. Let's just assume that there's a 25% chance for this, maybe more, maybe less. I'm not sure. That's probably a decent guess. But if the bailout does not go through - if we allow GM, Ford and/or Chrysler to be privately bought out, bankrupted or simply left to barely eek by, the world will be a better place for me now, and in the future. Not having a bailout could potentially mean any or all of these:

- Our politicians in charge understand and prefer good economics over bad politics. Big win!

- We just saved billions of dollars on our tax bill by switching to not-bailing-out-crappy-corporations.

- GM, Ford and Chrysler might all become better, more efficient, more competitive and sustainable companies in the long run.

- Lobbyists for the auto industry are losing their grip...

- I might see fewer taxpayer subsidized enormous GM SUVs on the road in front of me when I'm driving my little ol' '96 Honda. Maybe...

All of these are big wins for Davis McDavioid.

On the other hand, let's assume there's a 75% chance that more than a few billion dollars of taxpayer money will be given to the Big Three as a bailout.

All the big wins turn to big losses for Davis McDavioid. Also, Hard Company Registration - AKA Hardcoreg - is on record saying that she will become a "Cranky bear" should taxpayer money be spent on "bailing out businesses who suck at business..."

Becoming a cranky bear is not a big win. For anybody. Nobody wants a cranky bear.

So how do I solve this problem? Clearly, my "Economic Righteousness" - my inability to stop being arrogant and to not care about the economic decisions other people make - is causing some hardship.


Here's how I hedge my concern:

As of the writing of this post, GM stock is selling for $3.01 That's per share. Compared to October of last year, when it hit a high of $42, it is down around 93%. That's a phat load of losses, freres.

So let's assume I buy 50 shares of GM stock at $3.01 and hold them for as long as I can. This will cost $150.50. If there is no bailout and GM goes bankrupt, I lose all $150.50. This is the cost of my economic righteousness. If there is a bailout, however, we can reasonably assume that GM will at some point over the next year (or few years) shoot straight up to at least its "cautious but safe" levels of, say, around where it was a couple months ago - In September, it was at $13.00. That's a good safe bet for a post-bailout price, I would think.

But there's no guarantee, so let's change our percentages a little to reflect this:

If there is a bailout, the odds of the stock necessarily going at least that high are not certain, so let's change that 75% chance of a bailout into, say, a 60% chance of a bailout-and-return-to-reasonable-stock-levels, and a 40% chance of losing everything (even with one or two bailouts, GM still could go bankrupt over the next few years.)

So now we've assumed a 60% chance that GM stock will rise to $13.00, and a 40% chance that it'll fall to zero... A 60% chance of making $499.50 profit (50 shares * $13.00 = $650 - $150.50 = $499.50) and a 40% chance of losing $150.50.

The expected payoff from this bet is:

(.60 * $499.50) + (.40 * -$150.50) = $299.70 - $60.20 = $239.50

So that's $239.50 in profit if my estimate of the odds is correct. That's a pretty good deal just by itself, iddnit? In fact, the expected break even point is at P(Bailout) = .232. In other words, if there is greater than a 23.2% chance that Congress bails out GM, or simply that the company returns to profitability on its own, I'll make money. This seems to suggest that either GM's current stock price is too low due to panic, or pricing in a far-too-long horizon for return to profitability (in which case the returns stockholders are ultimately expecting would be eaten up by inflation over the course of many years...)

But that's just the expected value. When reality arrives, all probabilities go to 0 or 1, so let's sum up where I'll be when Congress makes that fateful decision:

When an announcement comes that GM is filing for bankruptcy, and Congress stays silent, I will be out 150 bucks and feel very proud that the politician(s) I voted for are kickin' ass and making the world a better place (by simply ignoring lobbyists, no less!)

- OR -

When the announcement comes that GM is receiving billions of dollars of taxpayer money in order to produce more crappy vehicles, I will be annoyed. I'll have decreased optimism for our politicians, the near-term future of our economy, and - most importantly - I'll have to fend off cranky bears.

But I will have $499.50 to spend on booze, ice cream and video games. Good distractions, all.

The Cost of My Economic Righteousness

I am very against the idea of the government giving money to car companies, AKA "Bailing Out" any of the three major automakers in the U.S. - GM, Ford and Chrysler.

This is not the real point of this post, and hopefully most 4ECon readin' types already agree with me, but I'll explain why before I go on to brighter subjects:

(...In numbered list form, of course...)

1. Taxpayers should not pay for companies to sell uncompetitive, unnecessary goods.

There, that's it.

What? You want really long explanation? Shucks:

Imagine the U.S. government decided to give a typewriter company a couple billion dollars to make sure they didn't go out of business. Almost everybody is buying computers instead of typewriters, so the company and its many employees would surely be doomed if the government didn't bail them out with a lot of cash. Of course, the government can't let all those jobs disappear, so they give a bunch of taxpayer money to the employers, Typewriter Co. So now Typewriter Co. and its employees continue to sell typewriters for around the same cost as before, but now the taxpayers (computer owners, largely) are basically purchasing typewriters for other people who want them; Other people, that is, who don't want typewriters enough to pay a higher, company-sustaining price for them. But hey, at least all the Typewriter Co. employees have jobs, right?

The only difference between this example and the Big 3 Bailout is that car companies A) employ many, many people and B) have a remote possibility of making a product everyone might someday want.

First off, B) is a not legitimate reason to save a company or even an industry. People seem to think that auto companies create some unique good that our lives would be worse without. This isn't true. Even if it were, American auto companies aren't the ones creating the unique goods... Put simply, if GM, Ford or Chrysler are employing resources (people, that is) that might one day create something that people really want, but it requires the framework of a massive corporation to bring this product to market, these resources will be put to better use by companies with more experience in selling innovation to the public, e.g. Honda, Toyota, et al.

But what should we do about A) all the jobs that would be lost if there were no bailout? Well, that's a problem, yes, but it doesn't mean that we should give money to these employees - via their employers - to make stuff (e.g. Chevy Tahoes) that nobody really wants to buy, does it? Following this logic, why not just pay other companies to hire these employees to do [somewhat] different jobs altogether? We could just as easily ditch the bailout, then institute a tax credit for other companies hiring former auto workers, and a little unemployment insurance boost in the meantime. This would be government-subsidized job training for employees from The Old Economy. This is not the worst idea in the world...


2. Chapter 11 Bankruptcy exists.

This is why you shouldn't give a few billion dollars to GM in the form of a direct bailout. Without a bailout, what happens? That's right: Another kind of bailout called Chapter 11. In bankruptcy reorganization, a company must take a good, honest look at whether it is a necessary entity or not.

If the company is unnecessary, useless, stupid, a waste of time, never learned right from wrong, from the gutter, livin' on a prayer, taking up space, etcetera, then its assets will be sold off and that'll be that. No more company, no more employed GM auto workers. In this case, the government should (and would) offer hefty unemployment benefits (at the very, very least) to former employees.

However, if the company is somewhat useful - if it'll make more money for its creditors by staying in business than by selling off its assets, then it'll just reorganize. After spending a few protected years (or months...?) trying to figure out how best to emerge from bankruptcy into the glorious world of profitability, it will emerge, or it will give up. Either way. Does it matter? I mean, whatever the answer is - give up or become profitable - a company will be better off than it was in the money-losin' years leading up to its bankruptcy, right?

So by all means, allow GM, Ford and Chrysler to file for Chapter 11. Sure, they might have fewer employees in the short term, but in the long term they will in all likelihood employ far more people at far more competitive (read: lower) rates. In other words, more jobs, more sustainable company. Also, fewer billions of dollars spent on bailouts this year, and in two or three years when GM & Friends need a bigger bailout. Bonus. Good stuff.

So there you go. Two reasons to be against an auto company bailout that, when combined, form an awesome powerhouse of "There is Absolutely Nothing But Negatives in an Auto Company Bailout."

...If you think there is some benefit to bailing out the automakers that doesn't specifically involve a higher opportunity cost, then you're missing something, or possibly simply weighting your variables like a noob.

...

But this was not the point of this post. The real point was supposed to be about trying to figure out the cost of making me feel better about an auto company bailout, should it actually happen. That, dear 4ECon browsing types, I will cover in my next post.

For now, I've got to go jam some foodstuffs into my mouthhole.

Welcome Back Davis

Thanks, post title! It's good to be back.


Now let's get right into the rambling - I've got some points to make:


1) I love writing things in list form. Numbered lists are my favorite.


2) Today is November 10th. A year ago today was my first visit to Washington. I remember it like it was a year ago. Today. I've lived around/in DC for 11 months (December 3rd was the day I left Tucson) and I still haven't done 90% of the stuff a tourist would do in this city. The only plus side to this - in my head - is that when old friends/family come to visit me (which has happened... twice...?) I will be able to go see touristy stuff and be legitimately interested. This is, by the way, an open invitation to any one I know who reads this blog - you're welcome to come to DC and sleep on the hardwood floor in my studio apartment, between the table and the window, next to the fridge, any time you like.


3) Here's my ranking of Star Wars movies, from best to worst: I. III, II. II, III. V, IV. VI, V. I, VI. IV.


4) As I had been predicting with extreme arrogance for literally months leading up to the election, Obama won the crap out of that election. I'm glad he won - he's an excellent speaker, an incredibly talented politician, and I'm convinced he's a "Secret Economist." That's right. "Secret" because economist-hating socialists think he is on their side, and "Economist" because socialist-hating economists know that he's not.

Evidence? Obama's positions on freezing interest rates, pigovian taxes, immigration, competition in health care, gas-tax holidays, progressive taxes (including an implied understanding of government budget constraints), and his comments on the gains from freer trade (before it became apparently necessary for him to start bashing NAFTA, which I still hold against him... But, then again, it seems he was just being a clever politician.)

Most of these examples come from his early debates with Clinton, so I will grant you that he might have since contradicted himself and/or changed his "opinion" on some or all of the specific examples (which I'm way to lazy to link to) of the topics I listed above. If so, it just means I have to put more emphasis on the word 'Secret' in Secret Economist.

Obama was supported by The Economist magazine. This line was my favorite, though I've taken it out of its somewhat wary context:

"The Economist does not have a vote, but if it did, it would cast it for Mr Obama. We do so wholeheartedly..."

And there's this other line in the article, attributed to Obama's advisors:

"...he is a political chameleon who would move to the centre in Washington."

That sums it up pretty well, I think. How about Chameleonomist? ...Terrible. But you get the point.

Finally, pay attention to Obama's economic advisors. Austin Goolsbee is a pretty clever fellow. I'm convinced you can learn more about a president [elect], by looking at who he trusts for advice than by listening to the things they say during campaigns...

So, long story short, I'm proud Barack Obama won. He'll be a far-better-than-average president. Also, I voted for him, as required by the rules of Gamepaign 2008. Of course, I cheated a little bit and completely ignored Gamepaign 2008 for the past... Year... or so... But hey - rules are rules.


5) Speaking of that: I also voted for Eleanor Holmes Norton, and some Libertarian whose name I don't remember. And that's it. It took me exactly 9 minutes to get out of my chair in my office, walk to the church/polling station, vote, and return to my chair at work. And now my vote is one of the 210,000 for Obama in DC (compared to McCain's 14,800). 14,800 to 210,000?!?! Your nation's capital, dear Foreecon readin' types, is surrounded by quite a shocking number of Democrats. Just FYI.


6) PokingFood.com is kickin' ass and taking names, and has been for weeks. If, after browsing the wonderfully hi-res photos of fingers in food, you become inspired to capture your own FoodPoke, simply email it to pokingfood@gmail.com. Stupid caption optional.

Join the revolution, dickheads!


7) I'll be back soon to update Ye Olde 4ECon with some more useless crap.

Revisiting

In March I posted this, about employment discrimination lawsuits in the U.S. from 1978 to 2006. I received a number of good possible answers from people in the "real" world, so I s'pose it's time to figure out some kind of answer to the original problem. Check the Stolen Graphs post for a refresher...

Here's an email I received from a certain "Juliana," whose last name I will omit in order to prevent internet people finding out she associates with shady Conglomerates like this one. First check out the graph from the last post:

And here's what she wrote:

First, between 1991-1998, the economy grew tremendously, no? I like the quote I found on Wikipedia from David Greenberg, a Professor of Media Studies and History from Rutgers:

"The Clinton years were unquestionably a time of progress, especially on the economy [...] Clinton's 1992 slogan, 'Putting people first,' and his stress on 'the economy, stupid,' pitched an optimistic if still gritty populism at a middle class that had suffered under Ronald Reagan and George H.W. Bush. [...] By the end of the Clinton presidency, the numbers were uniformly impressive. Besides the record-high surpluses and the record-low poverty rates, the economy could boast the longest economic expansion in history; the lowest unemployment since the early 1970s; and the lowest poverty rates for single mothers, black Americans, and the aged."

So, it follows that on the whole people probably felt more secure in their jobs during 1991-1998 than they had during the Reagan/Bush years. Since they didn't think they'd be fired (note, single mothers, black Americans, and old people were more secure than ever), they may have been more inclined to air their grievances.

Also, they had relatively more support in terms of social policy programs. For example, a Clinton budget package included the Earned Income Tax Credit. Although it is illegal, poor and minority Americans likely had the perception that their employer would fire them indiscriminately if they complained, and that they (the poor people) would not have the resources to fight back.

Also, during a strong economy, most of these folks probably had more savings. That way, if they lost their jobs for a few months for complaining about discrimination, they were more likely to still be able cover basic expenses like heat and feeding their kids. Suddenly, they could stop worrying about survival and think about the fact that they made less than the white guy in the office next door.

Add to this a media climate that encouraged litigation and political correctness. We've also left out two important historical events that happened in 1991-1992: Rodney King and the Anita Hill hearings. These can't be left out of the picture because they altered the discourse around race and gender discrimination in the United States.

As far as the downturn in the graph, I credit that to the economic bubble bursting in 2001-2002 (tech bust, Bush tax cut for the wealthy, etc.). Suddenly, people were more worried about job security and feeding their kids again. General inequities (women making 70 cents on the dollar, for example) still mattered, but not as much on a personal level.

Very well said. So let me summarize her ideas, if I may, before I comment:

1. Higher job security meant people were "more inclined to air their grievances" with less fear.
2. The Clinton Administration provided "More support in terms of social policy programs," providing, at the very least, a psychological safety net.
3. More savings (stemming from economic growth) should have the same safety net effects.
4. A "media climate that encouraged litigation and political correctness."
5. Finally, economic stagnation helps explain the reversal in the graph.

All very good, very plausible theories.

And here's an email I received from a certain "Dave," (not my alter ego) whose last name I will omit because I didn't ask if he minded if I used his email for blog fodder (...I assume he doesn't...):

I think the graph of employment discrimination cases follows the graph of all civil cases pretty closely until 1993--the start of the Clinton administration, when workplace issues and labor discrimination became part of the public dialog. It rises disproportionate to the overall graph until 2002, when people had more important things to worry about.

Basically, it was more socially and politically acceptable to sue over workplace discrimination during the Clinton's America than ever before. 9/11 changed the social, political, and legal agenda of America so that this was no longer the case.

Both of them came to somewhat similar conclusions, I think. Of course, The Other-Dave deserves credit for writing me almost a month ago with his ideas as well as for helping me form some more thorough answers in the "real world." I didn't think I'd be revisiting this post until Juliana spoke up this week, though, so I figured I'd point this out... Also - Thanks to both of you for your thoughts.

Anyhoo...

Here's my commentary:

First off, I agree with everything that both of these folks have said. There is no reason to doubt that increased public attention, the effects of economic growth, certain policies enacted by the Clinton Administration and the media's effect on culture (e.g. political correctness) would bring to light discrimination by U.S. employers.

There are, however, a few problems:

1. The beginning of the rapid growth in employment discrimination suits in the graph was around the first part of 1991. In fact, from 1991 to the beginning of 1993 (before Clinton even took office), lawsuits rose from about 8,000 to about 12,000, a 50% rise. That's pretty significant, and can't be explained by Clinton-related policies. It can, however, still be explained in part by public attention, media focus, expectations, et al.

2. These theories operate under the assumption that employer discrimination levels remained unchanged over the years. Instead of people reporting it more, it's possible that employers were actually discriminating more. Is it not likely that the rapid growth of discrimination cases from 1991 to 1998 is due in large part to the growth of business, new jobs and discrimination rather than just the growth of discrimination reporting? Take a look at total job growth from 1990 to 2007:

With such dramatic job growth, you could expect the sheer number of employment discrimination suits to rise dramatically as well, right?


3. More relevant, I think, is the type of new jobs that were being added to the economy. Technological growth and innovation was the major driver of economic growth in the '90s, and businesses in this industry were young, inexperienced and, perhaps, not focused much on proper hiring/firing practices. It's even quite possible that it took four or five years for these businesses to train and/or hire the right kind of human resources staff to prevent such discrimination. (Thanks to Other-Dave, again, for helping me formulate this idea.) To give you an idea of tech jobs growth by itself, here's some data from the BLS on the Computer Services sector:
Notice that the beginning of the curve is around the start of 1991, just as in the discrimination graph.

4. And the statistical problem: The data set is very small. If we had data from the '50s, '60s and '70s, perhaps we might discover that dramatic changes in the number of employment discrimination suits and a low correlation with civil suits are not unique occurrences. It's possible that all periods of economic growth see such dramatic rises, and we just happen to have a graph that exaggerates the effect in the '90s. Maybe.

5. But the biggest problem of all, in my opinion, is the failure of most of these theories to explain the latter part of the graph: The decrease in lawsuits from 1998, the temporary increase in 2001-2003 (during a recessionary period, no less!), and then the big drop starting in 2004.

Even an economic/business growth theory, by itself, wouldn't account for the 2000-2006 period. Here's a GDP graph to help show why:

(We could also just use the job growth graph from above.)
If discrimination suits are directly correlated to GDP growth, we'd see the decrease starting in the third quarter of 2000. In theory. Also, from Q3 2000 to the following year we'd see a consistent decrease, but that happens to be the one time in the period from 1999-2006 that discrimination cases are increasing in the graph (figured I'd post it again):

So, if I had to come up with a theory that used the fewest numbers of most-likely explanations, it would be this:

The growth of tech-sector jobs from 1990 to 2000 was the primary contributor to discrimination cases during that period, mostly due to the fact that they were new, inexperienced, operating in a non-traditional sector, and - most importantly - they sprouted up faster than the supply of trained hiring mangers/lawyers/human resources staff. Growth of these companies didn't slow in 1998, but the supply of trained human resources employees started to overtake tech-company growth around that time. The longer-term decline in discrimination lawsuits followed, as tech-sector growth was finally in line with human resources growth. When tech-sector growth started lagging behind other sectors, the number of lawsuits started to regress even more rapidly to the mean. The one blip in the graph - the small upward trend from the latter half of 2000 to the end of 2002 - can be explained by substantial job losses nationwide, from which there are bound to be a slightly increased number of wrongful firing/discrimination suits.

---

But, in reality, I think the answer might have a lot more to do with specific legal policies. As I am both lazy and obsessed with economics, though, my theory has everything to do with economics and nothing to do with things that involve reading law history.

This is a pretty good start, I think. If you combine the theories from Juliana, Other-Dave, Gretchen and myself - provided there were no specific and overly obvious legal policies that correspond precisely with the graph - then we've probably got an answer as to how to explain the employment discrimination graph.

Right?

Thank you guys, a ton, for playing along. Let me know if I've missed anything...

Stolen Graphs 1: Make Some Crap Up

I stole this graph from some law blog a couple months back, and now I can't remember where I got it. Regardless, I'm two-bit enough that nobody's going to sue me. Well, actually... It was a law blog...

...Oh well:
OK, the green line is all U.S. civil discrimination cases, and the black line is, as you can see, only discrimination cases against employers.

What I think is wildly interesting about this graph is that starting at the end of 1991, after 10 years of almost no change, employment discrimination cases started a massively steep climb that didn't cap out until almost 1999. So I'm thinkin' that one or more of the following must be true from 1991 to 1998:

1. Employers were discriminating more,
2. Employees were filing more discrimination lawsuits, independent of employer behavior,
And/Or
3. The small possibility that the legal system started classifying discrimination lawsuits differently.

#3 poses a problem, though: If it were true, why does this graph even exist without disclaimer (this is only mildly troubling) and, also, why was there such a steep decline in lawsuits from 1999 to 2008?

The blog I stole this from didn't have much insight into the matter, if I remember correctly, and I have only one theory (two actually, but the second is overly simplistic, I think). But, of course, my theory is entirely dependent on economics. This narrow view is usually never enough in these situations, so I figured I'd enlist some help.

So here's your challenge, dear 4ECon Readin' Types:

Make up a narrative that fits the graph. In other words, make some crap up that could possibly help explain why the black line on the graph looks the way it does. I'm thinking that pretty much any theory will help shine some light on it, so let your imaginations go freakin' wild.

More Notes to People

This time, I admit it; I'll come clean: Some of the people I write notes to don't care about my notes. Hell, sometimes they don't even respond!

Regardless -

A note to DC's local Fox affiliate News:

Economic Crisis?! Seriously? Unemployment is barely up - and just recently, no less. Housing prices haven't even really begun their [likely] precipitous fall, manufactured goods orders just hit their ALL-TIME HIGH in December, GDP rose in the most recent quarter (albeit extremely slowly...), stocks are still high (The Dow is at exactly the same level it was around this time last year, S&P down just a bit), inflation is turning out to be relatively tame (so no stagflation worry, in theory) and the Federal Reserve is being unbelievably vigilant and pumping money everywhere it sees fit.

Now I'm not saying you shouldn't start freaking out, crying and go out and buy a 10-year supply of Spam, but there is certainly no economic crisis going on right now.

Notice I said 'right now.'


A note to the Hertz Car Rental company:

I'm totally going to go buy some doughnuts and give them to you. Then, once you've assumed ownership of said doughnuts, I will go around to each of your employees asking if they want one of these doughnuts and then promptly proceed to punch each employee in the arm and laugh hysterically.

See you all real soon,
- Dave


A note to the guy sitting next to me on the flight to Arizona who was wearing a helmet and a bowtie and told me the falling U.S. Dollar is a bad thing:

Our money has been very much in demand all over the world during the past 15 years or so. Up until recently, this has been a primary contributor to our country's Current Account deficit. In other words, we've been importing way more stuff than we export, but this is mostly because our money is so valuable in other countries, and that makes everything relatively cheaper elsewhere.

This is completely natural, but it can't last forever. The Dollar has been falling the last few years, and as it does, our goods get cheaper to foreigners and they'll demand more of our stuff. This is good for our economy, not bad, as it means more domestic jobs and more money flowing in. Sure, the price of imports goes up, but the increased demand for U.S. goods and services should help balance that out.

As simply as I can possibly put this: You don't have to worry about a "falling Dollar." The only thing that really matters is the usefulness of the products and services we produce, which really has nothing to do with exchange rates and everything to do with our skills, education, ability and so on.


A note to the guy that didn't see the 3D Dinosaur movie yesterday:

It was disappointing.

Sure, we were tired after the parade and just a little hungover from all that Irish whiskey that you forced on us the night before, but there just weren't enough 3D dinosaurs in that 3D Dinosaur movie. There were a few, but I don't think there were enough.

There were, instead, a lot of 3D shots of some paleontologist sitting next to a fossilized dinosaur footprint and looking off into the distance, thinking about dinosaurs... If only his thoughts were in 3D, it might have been a good movie...

Oh yeah, and, also, thanks for all that whiskey.

Come to think of it, I guess, maybe, in retrospect, I probably should have listened to that old adage: Don't drink a bunch of whiskey and then expect dinosaurs to solve all your problems.

Truer words are rarely spoken.

CEOs Are People Too. Rich People.

I've had just about enough of this:

CEOs Defend Their High Pay on Hill

In short, the government is holding hearings trying to figure out why CEOs are paid so much, even when their companies are failing.

Is this an intriguing topic to anyone in the Conglomerate? Is everyone thinkin', "Yeah! Why are those bastards makin' 600 times what the average worker makes?!"

I hope so, because otherwise writing about it would pointless and boring.

Here ya go:

Imagine you're on the board of a Fortune 500 company and you're looking to hire a new CEO. How do you attract the best candidate for the least amount of money?

Well, there are two variables (that are important, anyway).

1. Competition.

You and your board of directors are competing with other companies of similar caliber for CEOs. A young, talented CEO on the lookout for a job will compare your salary offer with other companies. Of course.

If your competition is paying $500,000 a year with tens of millions in stock options, you must either do the same or get a second-rate candidate. For the most difficult, most abstract, important and immeasurably stressful job in the entire company, you're going to have a hard time hiring a second-rate candidate and explaining to the stockholders that you "just don't want to pay to hire the best." Individual stockholders, for some wacky reason, don't see a problem with paying an extra million from their multi-billion dollar company's wallets to get a better-than-average candidate. Since so many competing companies are all facing the same problem with similar circumstances, CEO salaries will clearly go up fast, likely to the limit of the stockholders' tolerability level.

Clearly, stockholders can tolerate a lot of money going to their CEOs in salary and bonuses. If not, they'd vote 'em down.

2. Reputation.

If you were that top-tier CEO candidate looking for a job, would you rather work for a company that has a history of short-changing CEOs when their risky decisions turn out badly, or would you rather work for a company that pays their CEOs handsomely even when the company is failing?

Yes, it's a hilarious reality we live in, but not only does paying CEOs when they fail encourage them to make bold, sometimes risky, decisions, but it also acts as a signal to other potential CEOs. Chief Executive Officers don't work at the company forever, you know, and incoming candidates will be clearly more attracted to companies that have shown they pay for risk-taking behavior instead of punish it. Who on Earth would prefer to be punished for enacting [what you believe are] ingenious, but risky, business strategies?



That's it. That's why companies pay their CEOs so damn much. No, it's not technically fair, but they're not really, necessarily being overpaid, either. Just because the incentives are in the wrong place and somewhat hard to keep in check, and competition between companies in a great economy (ours) pushes CEO salary offers to the sky doesn't mean that it doesn't motivate individuals to work much, much harder to be more desirable to these companies. A business culture that pays CEOs millions upon millions of dollars certainly inspires people to want to be CEOs, don't ya think? The more CEOs, the more competition between CEOs, and the more and greater talent we have to choose from.

That's progress, dammit, with the bill paid by shareholders of giant companies. I see no problem here...

Notes to People

Here are some notes I recently wrote to various people that exist:



A note to the guy who's always complaining about being underpaid:

Of course you're underpaid. If you were overpaid, the company would lose money on you, and if somehow you were magically paid exactly what you are worth, they'd break even and then what would be the point? Sure, I get it - you're complaining because you think the company's accounting of your contributions is incorrect, but you fail to realize that your company is a much better accountant than you. I dare you to test the theory that you're underpaid by applying to other companies.

Also, you're whiny and nobody likes you. Actually, that's the real reason you're underpaid.


A note to that hot girl that asked me my opinion on Shapes for Women Gyms:

They supply a preparatory location for women who plan on transferring, once they’re in good [acceptable] shape to the "regular" gym so they can meet men.

Yes, yes, I know - not all women go to the gym to be better looking for the opposite sex… …But most do. So the way Shapes makes consistent money is exactly the same way every gym makes its money: Their customers don’t actually get anywhere with their exercise program. Don't believe me? Well, have you ever met someone that canceled her gym membership because she decided she was finally in perfect shape? Usually people quit the gym because they've decided to be satisfied with their current condition (motivated, of course, by the high cost of gym membership).

So women go to Shapes, buy a membership, go there with lower-than-expected frequency (as they would to a regular gym) and never "graduate" to the preferred level. Unfortunately, this substantially reduces Shapes' women's odds of meeting men at the gym (since there are none) and reduces men's odds of meeting nice, but somewhat self-conscious, women at regular gyms. Totally, totally unfair. To the customers of Shapes Gyms I say just stay home, meet other fatasses on Craigslist, climb the stairs and lift paint cans. It'll be cheaper and it involves far less self-deception.


A note to the guy who says immigrants took his job:

Immigrants can’t actually take your job. If you were first fired and then replaced by an immigrant it means you were over-skilled for the job (judging by the pay requested), and you can get a better job.

If you think I’m wrong about this, and if you think you were not over-skilled, then why are you asking for so much more money in wages than someone else with equal (or greater!) skills as you? You’ll say, “Well, because his (the immigrant’s) standards are lower, he’s happier with being poorer, etc…” And I’d say, well, then, it seems you’re terrible at managing your costs. Is it really fair that because you’re greedier than those immigrants you deserve to be paid more?

Besides, if we somehow prevented all those immigrants from taking your job, we'd still have to worry about all those unskilled high school dropouts. You're screwed, man. Unless, of course, somehow, some way, you learn some sort of marketable skill or something... Though that seems like a lot more work than whining and bitching and masking racism...


A note to misguided movie producers:

We need more 3D movies about dinosaurs. You know why.




If anybody knows any other people that are wrong and need to be corrected via note, just let me know.

The Dating Game, Part Two

Here's your weekend reading assignment, 4ECon:

Three things related to pairing up that I'm going to bullsh... er, talk about, I mean, in this post:

1. People are generally unaware how to maximize their dating success - Many people are often too hopeful, decreasing their odds of a landing a successful relationship, while others are "settling" too often.

2. Your instincts on who to date must, by definition, lead you in the wrong direction.

3. There's a way, possibly, that you can override your instincts, extract brutal honesty from yourself and solve the problems in #1 and #2.



First, some background:

Without being too obvious, I'd say there's a difference between getting a date and finding a mate. Dates only require some version of some form of attraction to go forward, but pairing up for longer periods - finding a mate - will succeed or fail based on a wider variety of prerequisites: Desire to start a family, age, expectations of future dating success (desperation, really), and very importantly, your perceptions of the dating pool.

A lot of the people I know that are paired up did so with minimum conscious strategy and maximum luck - even my parents who've been married for 33 years. Almost entirely before any of the prerequisites I listed set in, they'd already started dating. As far as I know, the desire to start a family was not consciously why they initially got together. They were young, not desperate, with high expectations of both themselves and, I'm sure, their possible alternatives (the dating pool.)

So the way it worked for my parents was that they coupled, they liked each other, and the bigger reasons for staying together kicked in over time, after years of dating. This is a pretty common story, I think.

But what are the odds that relationships between these types of couples last for as long as, say, a highly calculated and formulaic match between two people with similar perspectives on things like starting a family, age, dating alternatives, etc? Well, the filtering process in the first case happens like this:

You date one person and then you break up if it doesn't work. You date another, end it if it's bad. You date another and end it if it's not "meant to last," etc. You keep dating until you find someone that either has the same perspective as you or morphs into the preferred perspective along the same time frame as you.

Filtering partners this way has a problem. I would compare it to trying to find the answer to a math problem by guessing and checking - only in this scenario checking involves significant bias. In other words, it's hard to rationally compare your current choice of mate to alternative options after you've invested so much time in him or her. ...In econospeak: the transaction costs of switching partners are high enough to prevent efficient allocation. (Sorry, couldn't resist.)

But does this really mean the probability of success using this method is lower than it otherwise could be? Consider a possible second method:

You take a test, determine your personality traits, your desire to start a family, your perception of the dating pool, your level of desperation (essentially) and then a computer uses a complex algorithm to match you with a partner that should maximize your probability of long-term success. This is also known as eHarmony - though I'm not sure they come right out and ask how desperate you are (but I'd bet they can get at it indirectly).

Now how could an algorithm that knows more information about you than you'd normally release by the 15th date, that sufficiently solves the problem of getting information into a centralized location, that takes potential pairs from the largest [possible] pool and matches them possibly offer you a lower probability of success than the first method, the guess-and-check?

Well, maybe because the type of people who put themselves in the centralized database are exactly the kind of people who have given up in the real world. The type of person that has not given up in the real world is most likely young, optimistic, confident and believes (likely with sufficient reinforcement) that the real world dating options are acceptable. These are exactly the kind of people that other people want to date, and thus they have not given up on the real world - it is not incredibly obvious that your dating options are severely limited when you're getting easy dates, albeit with second rate partners. ...Not to mention the fact that people often date, and even get married, for reasons of claiming (or pinning down, if you will) the best partners, regardless of overall "fit."





So what's the lesson to be learned here, Dave?

Let's get technical. EMH - Efficient Market Hypothesis, in finance, states that prices of assets will reflect all available information and it is therefore impossible for a single person to beat the market. The same rule should apply for all markets provided there is no barrier or limit on information.

The way this applies to the dating market is that it suggests that, within the multiple realms of date-matching (the real world or online), you will be paired with someone who is equally as "dateable" as you, in theory, over the long term. If you have the same information about the dating market as everyone else, you can't really exploit the market to your advantage - or, in relevant terms - you can't trick a '10' (from our scales in Part One, and from the "general scale" too) into a long term relationship with you if you're a '5', at least for any considerable amount of time.

There are, of course, exceptions to this general rule. One of them is that as long as divorce is socially or literally expensive, we'll get distortions. This is a lot less common now than it was 50 years ago, but it's still there, obviously.

Another exception is apparently (according to Tim Harford and others) a person's perception of the overall dating market, mostly due to the size of the available dating pool. If someone perceives their options as severely limited, they will be more likely to "settle." If this isn't obvious, here's a long argument that seems to prove it. Basically, people really do respond to supply and demand in the dating marking, and they decide to date and get married using the information available to them at the time. Perfectly normal.

So this means that a '5' could conceivably trick a '10' into a longer-term relationship for some amount of time given a significant and relatively permanent imbalance of the dating pool. Provided the '10' is not aware that he or she could be dating other '10's, the relationship should and probably would continue without too many problems.

Here's the more important question, though: If your goal is a long term relationship - even marriage - is it really the best strategy to try to exploit the market? Even if a '10' is actively choosing partners from a sea of '5's, the probability that a '10' will discover his or her error at some point and try to undo the deal (AKA breakup or divorce) is substantially higher than the probability of a '6' (dating a '5') discovering his or her potential.

So, assuming that the goal is a long-term relationship, doesn't it make sense to avoid your natural instincts - to not chase the best available mate, AKA avoid people who are "above" your dateability level?

I know, I know, it's an vague idea, but there is some way to figure out whether or not you are matched with your partner in terms of overall desirability to the opposite sex.

This is, in fact, one of those things that people just know. For a small example, if you're constantly worried about your partner cheating on you then it means the odds that you've unknowingly (or knowingly) exploited a dating market loophole are quite high. It's not a sure thing, of course - you could just be completely paranoid. But then being completely paranoid is also a sign that your partner might be more well-adjusted (less crazy/paranoid), and perhaps therefore more desirable than you.


(This post's link is unrelated, like usual, but I think it's pretty interesting)


All this might be pretty obvious to you. It also might just be useless if you're happily dating/engaged/married/dying of cancer. Otherwise it just may be helpful - if you're looking for that perfect match, or if you're just really desperate for a "LTR" (See: Any Craigslist ad in a random city for women in their late 30s), taking the scientific approach - the economic approach - just might be the best strategy.

If eHarmony and other online dating algorithm-based databases can, in theory, maximize your probability of a long-term success with a partner in the second-rate online world, shouldn't there be a way to do it in real life - where the first-rate people have yet to give up - as well? If all the most desirable people are facing substantial bias and asymmetrical information about their alternatives in the real world, shouldn't there be some way to find the "perfect" match that takes into consideration your individual market circumstances?

There should be - and maybe I'll be able to make some crap up by the next excruciatingly long post.

For now, arrivederci.

The Dating Game, Part One

Boy, everything seems to be a game of some sort these days at the 4ECon, doesn't it? This one really is a game, though... of some kind... I'm not lying this time...
...For the most part...

Let's pretend you're single. I think this applies to a little more than half of my known readers, so this should be easy. If you're not single, pretend that your current partner suddenly became your ex-girlfriend or ex-boyfriend.

First, think of the last (or current) girl/guy you dated and score him or her on a scale of 0 to 10, with 10 being the best of whatever it is you think you're looking for in a partner. You should put some thought into all the dimensions that define best or worst, of course. For example, If the last person you dated was the most amazing person you could imagine in terms of intellectuality or emotional stability (10 out of 10 on this scale), or something along those lines, but was also completely disgustingly physically repulsive (0 out of 10 on this scale), you could rate him or her a 5 out of 10, or weight one proportionally more than another, etc. Make sense? Average some numbers, think of all the important dimensions, make some crap up - you'll figure it out. We're basically looking to translate your opinion of your ex's overall attractiveness into a number. Remember this number.

Next, try to figure out the third-person perspective of that person. How do you think your former girl/boyfriend does on the dating market? Are other people clamoring to date this person, or are they desperately and permanently single? More importantly, how would other people rate him or her on our scale of 0 to 10? Put some thought into this. If it helps, try to think of your "average person," (of your gender) and imagine how he or she would rate your ex.

Before we continue, I should point out that it will help if you're honest. If the last girl or guy you dated was below average looking or intelligence, you should probably end up with numbers below 5. I know there's a propensity to use numbers greater than 5 on 0-to-10 scales, so just try to be honest. If your ex was an ugly moron, don't take it personally and give 'em a 2.

So, are the two numbers the same? Did you score your ex a '7' on your personal scale, but a '5' on the public perception scale, or is it reversed? Whatever your answers were, take the first number and subtract the second. (In my example, that would be 7 - 5 = 2). I'm going to call this new number your "Ex Perception Differential."


Now the hard part:

First, try to rate yourself on your personal scale. Whatever you think your obvious good parts are, or whatever the benefits of your ability to hide your flaws, rate your personality, your looks, your intelligence, your temperament, all of it on a scale of 0 to 10. Get a 7 on looks, did ya? Get a 8 on intelligence, did ya? Give yourself a 6 on honesty, did ya? It sounds like you'll end up averaging to a 7, then. Get the picture? Try to think of all the important spectra of your personal dateability, weight the ones you believe are more important higher, and figure out a number.

Second, you need to rate yourself from a new perspective: Imagine a member of the opposite sex that is gorgeous, intelligent, decent and interested in things that matter - basically, imagine a '10' on the public-perception-of-overall-attractiveness scale, especially in the looks department. Is the image of this person firmly in your head? Good - now here's the question: How would this person rate you on a scale of 0 to 10 if he or she had four minutes to meet you/get to know you? In other words, how would the best-looking and most attractive person you and your friends and family have ever seen in your lives rate you on an attractiveness scale after a four-minute speed date? Try to use averages here, if necessary, and be brutally honest.

OK, now are those two numbers the same? Wildly different? Did you rate yourself higher than or lower than the imaginary hottest-person-in-the-world did? Again, take the first number and subtract the second. If you gave yourself a '6,' for example, and your imaginary critic gave you '3', or something along those lines, you'd get a +3 for the "Self Perception Differential."





Now it's time to play with the numbers. There are a lot of blanket claims I could make, but I'm going to try to limit them (like the fact that single people are more likely to have negative differentials - or so I would say if I weren't avoiding making too many claims... Besides, I could be proven wrong by some anomalous but vocal reader.)

First, remember your Ex Perception Differential. This is the difference between how you rated your ex-girl/boyfriend and how the public does. Positive numbers mean you thought your ex had good qualities that your Average Joe or Jane wouldn't see. Negative numbers mean the opposite; that your ex was hiding her negative attributes from the public, which only become obvious after some amount of dating... (This is why I'd assume people who are actually single will get negative Ex Perception numbers and people who are just pretending to be single for the sake of the game will get more positive numbers. There is some bias, obviously, when it comes to who you are or are not stuck with.)

Now the "Self Perception Differential." A negative number (rating yourself lower than a super-attractive person would rate you) is probably pretty uncommon. I can't think of anyone who really thinks they are, personally, more attractive on "the outside" than they are "deep down." If you got a negative number on this, I'd be interested to hear your reasoning.

However, a large positive Self Perception Differential - say 2 or greater - should signal one, or both, of the following:

A) You are relatively unattractive physically and/or are extremely shy (and people know it.)

B) You are lying to yourself, at least a little, about your overall attractiveness.

...

These are my claims.

Any arguments?


(This link is relevant this time, by the way)

We'll save the implications for Part Two, after I've had some time to figure 'em out. For those who may be interested, I'm trying to figure out some sort of algorithm that'll determine exactly what kind of person you should "resign yourself" to date. In other words, some of our standards (mine, specifically) may be too high, all things considered, and maybe your standards are too low - I figured it's time to be honest with ourselves, and if we're going to be honest, we might as well include some quantitative sociology and develop some strategies, right?

If anyone can develop any kind of formula based on any sort of numerical ranking (the numbers in this post included or not) that can somehow extract honesty and determine what type [ranking] of person (based on the same scale[s]) someone "should" be dating before I do, they will get a prize. Don't worry, you can be pretty vague and make a lot of assumptions - that's how I do things.

Also, if anyone is curious, my Ex Perception Differential is -3 and my Self Perception Differential is +2. How about you?