Sunday, March 11, 2012

The Economics of Threesomes

Disclaimer: In case you somehow missed the title of this post...this is a discussion on the "The Economics of Threesomes". If you think it's TMI when your friends talk about sex then perhaps you might want to read something else instead....like perhaps this post on the world's cutest economists.

For as long as I can remember I've been a huge fan of hypothetical situations. My favorite hypothetical situation is...what would happen if taxpayers could choose which government organizations received their taxes? After posing this hypothetical situation to enough people I started to notice a pattern. People's concerns revealed their values. Liberals were concerned that welfare programs wouldn't receive enough money and conservatives were concerned that national defense wouldn't receive enough money. In other words...their concerns revealed how they themselves would allocate their taxes.

Tax choice = revealing preferences = efficient allocation of resources

The idea of revealing preferences is associated with two economic concepts...opportunity costs and partial knowledge. Rather than selecting the extremely boring examples typically used to help illustrate these concepts...I figured I'd try using my second favorite hypothetical situation...the hypothetical threesome.

Let's say that you're at a bar with your best friend forever (bff). All of a sudden the celebrity that you find most attractive walks in and sits next to you. You manage to casually strike up a conversation and after a few drinks the celebrity asks if the two of you would be interested in a threesome. Do you accept the offer? Would your bff accept the offer?

Yesterday I posed this situation to my girlfriend (Rose) and her relatively new bff (Sally). It was pretty darn entertaining. It was especially entertaining because Sally is a lesbian...and she protests a bit too much that she's not attracted to my gf. She is, however, extremely attracted to Stevie Nicks. My gf's celebrity of choice was Joseph Gordon-Levitt.

Chances are really good that most people would not want to share their celebrity of choice with even their best friend...and Rose and Sally were certainly not the exceptions to this rule. So on one hand...they really wanted to sleep with their celebrity of choice...and on the other hand...they really didn't want to have a threesome. Therefore, they were presented with a difficult opportunity cost decision.
Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice". The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs. - Wikipedia
In order for Rose and Sally to make their opportunity cost decisions, they first had to figure out a few things. Which brings us to our second economic concept...partial knowledge.
The problem is thus in no way solved if we can show that all the facts, if they were known to a single mind (as we hypothetically assume them to be given to the observing economist), would uniquely determine the solution; instead we must show how a solution is produced by the interactions of people each of whom possesses only partial knowledge. To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregard everything that is important and significant in the real world. - Friedrich Hayek, The Use of Knowledge in Society
Partial knowledge basically means that everybody has some information but nobody has all the information. When I posed this hypothetical situation to my gf and her bff...all the discussion that followed represented an exchange of partial knowledge.

Given that Rose is straight...she made it clear that she really would not want to have a threesome with Sally and Stevie Nicks. Given that Sally is a lesbian...and swears that she is not attracted to Rose...she made it clear that she really would not want to have a threesome with Rose and Joseph Gordon-Levitt. Yet...after a lot of hilariously awkward/uncomfortable dialogue...they both agreed that they would accept either offer should the opportunities present themselves in the future. Like I told them, it's a good thing that they figured this stuff out now, rather than in some bathroom bar. Because...you never know how long a window of opportunity will stay open for.

If you decide to pose this hypothetical threesome situation to your bff...or to any bffs that you know...please feel free to reply with all the details of your discussion. Personally, when I posed this situation to my bff...he said that there's no way he'd ever have a threesome with me and my celebrity of choice...Jennifer Connelly. It's not that he doesn't find Jennifer Connelly attractive...he says it's just because he wouldn't feel comfortable having a threesome with another guy. The problem for him is...this provides me with the perfect opportunity to encourage him to come out of the closet. There's just no way any straight guy can "win" an argument against this threesome. For example, I asked him whether he pays more attention to the guy or the girl when he's watching porn. From there he's got nowhere to go. So it's a double whammy. He fails the straight test and he fails the ultimate friendship test. But he's put up with me for this long...so I guess that's really the only test that matters. Then again, I think it would be considered justifiable brocide if his squeamishness did actually cost me the opportunity to sleep with Jennifer Connelly.

Hmmm...how can I tie the threesome hypothetical back to the tax choice hypothetical? Well...given that I'm discussing threesomes...would it be totally inappropriate for me to bring Sandra Fluke into the discussion? Maybe? Naw...it's just too perfect to pass up.

The testimony that Fluke offered to congress is a perfect example of the partial knowledge concept. It's also a perfect example of how people do not understand the opportunity cost concept. As I pointed out in my post on prioritizing public goods...Fluke argued that she shouldn't be forced to decide between quality education and quality healthcare. Not only should she be forced to decide between those two public goods...but all taxpayers should be forced to decide whether they spend their taxes on public education or public healthcare.

It's pretty easy to understand partial knowledge and opportunity cost on an individual basis...the challenge is that it's extremely difficult to comprehend the value of these concepts on a national basis. What are the public goods preferences of our entire nation? Nobody can truly know that answer...all you can know is that you don't want your taxes wasted on things that you do not value. You're probably exceptional in a lot of ways...but this isn't one of them. The question then becomes...can you bring yourself to tolerate, if not respect, other people's values?

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