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?

Prioritizing Public Goods

It's always interesting to juxtapose how various people respond to the same thing.  Take for example the Sandra Fluke - Rush Limbaugh controversy.

• Noah Smith's response: In which Steve Landsburg makes me lose my lunch
• Ira Stoll's response: Sandra Fluke's Amazing Testimony

My response, which I posted on Smith's blog, is probably pretty easy to guess.  If you've read my post on the Ostrich Response to Pragmatarianism...then it should also be pretty easy to guess that Smith has not responded to my response.  But...another reader choose to.  Here's our exchange...starting with my response to Smith...

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Public goods are wonderful...but it's just so bizarre that you never talk about opportunity costs.

Do you think this stems from receiving your college degree in physics rather than economics? It's been so long since I took Econ 101 but I'm pretty sure it covered the part about how economics is the study of scarcity.

Do you think that just because the government can print as much money as it wants that this somehow means that the government can just buy voters whatever they want? Or do you think that if we taxed the rich at a higher rate then the idea of scarcity would somehow lose its relevance?

Who cares if Rush Limbaugh said something that was politically incorrect. What I care about is understanding your perspective on how scarce resources are efficiently allocated.  Please make an economic argument that explains exactly why I should trust congress with my taxes.  Help me understand why they can spend my taxes better than I can.

You could even just critique my own perspective on the efficient allocation of scarce resources...Partial Knowledge and Opportunity Costs. Where am I going wrong?

The bottom line is...if you can't explain how scarce resources are efficiently allocated then Steve Landsburg and Rush Limbaugh will always have the upper hand.  No matter how politically incorrect they are...I'll stand by their argument that less taxes are ALWAYS better than inefficiently allocated taxes.

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JohnR said...
@xeographica: I'm genuinely impressed by your ability to define Limbaugh's (and his enthusiast's) remarks as "politically incorrect". My speculations on your upbringing and socialization success would not serve to advance the discussion so I'll keep them to myself. I do wonder idly what you would regard as "morally repugnant" or "offensive", but of course those are such subjective and indeed loaded terms. At any rate, with regard to your argument, I intend to simply disregard it. Anything that is proposed by someone whose moral structure is so malformed becomes highly suspect to me. It's similar in my opinion to the sort of argument that you hear people propose who find Ayn Rand to be an exciting and important philosopher. In other words, it's like listening to 12-year-olds discuss whether BloedSnaeke or MegaSplatterDethKult was the Greatest Band Of All Time - there's a very strong likelihood that it will be a near-complete waste of time, and God knows I'm already too far behind on things that are important.

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JohnR, obviously I was raised to focus on substance rather than style. Why don't I find what Limbaugh said to be "morally repugnant"? Well, in an Afghan village a distraught woman told us that the Taliban had recently beat her husband to death because he refused to give them his family's meager supply of food. In my book that's what qualifies as "morally repugnant" behavior. Limbaugh's behavior, in comparison, only qualifies as politically incorrect.

"there's a very strong likelihood that it will be a near-complete waste of time, and God knows I'm already too far behind on things that are important."

Oh the irony. If you had gotten off your moral high horse you might have understood that your point forms the basis of my argument. God knows your priorities...and you know your priorities...but does congress have any idea what your priorities are?

Does congress listen to your prayers like God listens to your prayers? Do you think that you are the little sparrow that congress has its eyes on?

Help me understand why you have such strong faith that public funds will be efficiently allocated when congress has no idea what any of our priorities are. In case anybody wasn't aware of this...in economic terms the "opportunity cost" concept helps reveal what our priorities are. Whether you decide to have or eat your cake reveals your priorities. Putting your time/money where your mouth is reveals your priorities. Allowing people to reveal their priorities is what helps ensure the efficient allocation of scarce resources.

Given that you value your limited time...and I'm guessing that you also value your limited money...it might be worth it to at least understand my argument regarding partial knowledge and opportunity costs.

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That's what makes pragmatarianism pretty darn awesome.  If somebody says..."I have better things to do with my time than debate pragmatarianism"...then they automatically prove your point regarding opportunity costs.

The guy who most frequently comments on my blog, Black Flag, likes to remind me that taxes are theft.  Are taxes theft?  Is that really the debate we need to be having?  Maybe it truly is?  But how long has that debate been around for?  Let's try a new debate!  Let's debate how public funds are efficiently allocated.

Sandra Fluke...for some reason...had the opportunity to tell congress what our priorities should be.

Because this is the message that not requiring coverage of contraception sends: a women's reproductive healthcare isn't a necessity...isn't a priority. - Sandra Fluke, Opening Statement

Is this how public funds are efficiently allocated?  One random lady gets to tell congress what our priorities should be?  That wouldn't be a very efficient allocation of public funds if congress decided to spend all of our taxes on women's reproductive healthcare.  So...let's say that Noah Smith also had the opportunity to tell congress what our priorities should be.  If you subscribe to Smith's blog then you could probably guess that he would tell congress that our priorities should be education, research, infrastructure, transportation, healthcare, the environment, national defense and so on and so on.  Perhaps it would save time for Smith to just tell congress what they should't spend our taxes on.

Do you get the sense that public funds would be more efficiently allocated each time somebody else testified in front of congress?

But before you line up for your turn to give congress a piece of your mind...let's consider how effectively Fluke and Smith communicated their priorities.  We know that Fluke cares enough about women's productive healthcare to take the time to testify in front of congress...but...she also argued that she shouldn't be forced to choose between education and healthcare.

Huh.  I guess Fluke didn't read my post on an economy based on wife swapping.  In that entry I argued that  taxpayers should be forced to decide whether they spend their taxes on public healthcare or public education.  Why force people to decide whether they spend their individual taxes on public healthcare or public education?  In other words...why force taxpayers to consider the opportunity costs of their tax allocation decisions?  Because that's exactly how resources are efficiently allocated.

Does anybody have any arguments against the efficient allocation of public funds?  That's the thing about pragmatarianism...it's really not much of a debate.  What's somebody going to say?  Are they going to say, "In these circumstances it's a good idea to flush your money down the toilet."?

That being said...just because I can't think of any good reasons why we would want to waste scarce resources doesn't mean that they do not exist.  Just because I don't believe in god doesn't mean that he doesn't exist.  The moral of the story is tolerance.  You spend your taxes on your priorities and I'll spend my taxes on my priorities.