Www.antolin-davies.com Find your role and sit at the indicated seat. Do not open the bag at your seat until you are told to do so

www.antolin-davies.com

Find your role and sit at the indicated seat.Do not open the bag at your seat until you are told to do

so.Name Role Name RoleAbdimajid Abdirahman Red Worker 1 Emilie Maes Red Firm 1Adriano Gianturco Gulisano Red Worker 2 Yashua Bhatti Red Firm 2Aida Ibricevic Red Worker 3 Enrique Angulo Red Firm 3Alejandro Komai Red Worker 4 Eric Sosnoff Red Firm 4Allen Mendenhall Red Worker 5 Jens Moens Red Firm 5Anamaria Boioglu Red Worker 6 Joseph Corey Red Firm 6Andrew Seremetis Red Worker 7 Joseph Foutch Red Firm 7Ariel Goldring Red Worker 8 Julia Novitskaia Red Firm 8Arya Morshed Red Worker 9 Julio Padilla Red Firm 9Babatunde Rosanwo Red Worker 10 Kareem Khalaf Red Firm 10Benjamin Eisen Red Worker 11 Kathryn Isaacson Red Firm 11Brandon Peterson Red Worker 12 Lai Xu Red Firm 12Brian Stacy Red Worker 13 Larisa Burakova Red Firm 13Bridgette Richey Red Worker 14 Liliya Leontyeva Red Firm 14Caitlin McLean Red Worker 15 Margaret Gales Blue Firm 1Candice Malcolm Blue Worker 1 Theodore Dasher Blue Firm 2Carlos Ormachea Blue Worker 2 Mark Yager Blue Firm 3Charlotte Rommerskirchen Blue Worker 3 David Hendricks Blue Firm 4Chris Knudsen Blue Worker 4 Michal Kuz Blue Firm 5Claire Litherland Blue Worker 5 Mike Tellier Blue Firm 6Coleman Drake Blue Worker 6 Milko Markov Blue Firm 7Colin Keesee Blue Worker 7 Nicholas Dunn Blue Firm 8Crane Sorensen Blue Worker 8 Oliver Cooper Blue Firm 9Daniel Piedra Blue Worker 9 Patricio Echagüe Blue Firm 10Daniel Suddes Blue Worker 10 Philippe Caeymaex Blue Firm 11Daniel Sockwell Blue Worker 11 Rossen Valchev Blue Firm 12Denis Clijsters Blue Worker 12 Ryan Biese Blue Firm 13Dominic Foppoli Blue Worker 13 Ryan Lynch Blue Firm 14Dustin Robinson Blue Worker 14 Yashua Bhatti Blue Firm 14Eleanor Smith Blue Worker 15


Laws of Economics

• Everything is scarce.

Is there anything you consume that is not scarce?

What does it mean to “consume” something?

• Every choice includes an opportunity cost (tradeoff).

What do you give up in order to get something else?

Mom-Pop shops v. Big Box Retailers

Pollution v. No Pollution


Laws of Economics

• The cosmos is a non-linear place.

Opposing consumption forces: consumption & variety

Opposing production forces: specialization & congestion

• People respond to incentives.

Airplanes and car seats

Entrepreneurship and taxes

Russians and dead light bulbs


Laws of Economics

• Everything is scarce.

• Every choice includes an opportunity cost (tradeoff).

• The cosmos is a non-linear place.

• People respond to incentives.

You want it.

What are you going to do

about it?

You can’t have it.


The Players and the Goals

In this experiment, there are WORKERS and FIRMS.

WORKERS sell labor to the FIRMS.

FIRMS make stuff and sell stuff to the WORKERS.



Two types of worker

• Red workers (know how to make Red stuff)

• Blue workers (know how to make Blue stuff)

Each worker’s goal: Maximize happiness

Three things make you happy: Red Stuff, Blue Stuff, and Leisure



Two types of firm

• Red firms make and sell Red stuff

• Blue firms make and sell Blue stuff

Each firm’s goal: Maximize profit

Profit = Ending $ – Starting $


Labor Market

= 1 hour of Blue labor

= 1 hour of Red labor

= 1 dollar

Labor

$

Labor


Labor Market

Red workers sell some of their labor to Red firms for $.

Blue workers sell some of their labor to Blue firms for $.

Labor

$

Labor

$


Leisure

Leisure

Red workers turn in their unsold

labor for leisure.

UnsoldLabor


Leisure

Leisure

Blue workers turn in their unsold

labor for leisure.

UnsoldLabor


Evening comes and morning

follows...

The second day.


Labor is Transformed into Stuff!

Labor

Labor

Stuff

Stuff


Goods Market

= 1 unit of Blue stuff

= 1 unit of Red stuff

= 1 dollar

Stuff

$

Stuff


Goods Market

Red workers buy Red stuff and Blue stuff.

Stuff

Stuff

$


Goods Market

Blue workers buy Red stuff and Blue stuff.

Stuff

Stuff

$


How Happy Are the Consumers?

Happiness = (Red Stuff + 1) (Blue Stuff + 1) (Leisure + 1)

...and there was much rejoicing!


How Profitable Are the Producers?

Profit = Ending $ – Starting $


Trading

Firms Workers

$5.00


Trading

Firms Workers


Trading

Firms Workers

$5.00


Trading

Firms Workers


Trading

Firms Workers


Ready to begin…


Labor Market

Red workers sell some of your labor to Red firms for $.

Blue workers sell some of your labor to Blue firms for $.

= Labor



Leisure

Leisure

Leisure

1. Red workers return unsold labor for Leisure.

2. Report your Leisure to moderator.

3. Write down how much Leisure you have.

1. Blue workers return unsold labor for Leisure.




Labor Stuff

Production

1. Red firms report hired labor to moderator.2. Report remaining money to moderator.

1. Blue firms report hired labor to moderator.2. Report remaining money to moderator.

Labor Stuff


Goods Market



= Stuff



Report

1. Red workers report red and blue stuff purchased.

2. Blue workers report red and blue stuff purchased.

3. Red firms report money and unsold red stuff.

4. Blue firms report money and unsold blue stuff.


New Rules

The discovery of the nature of redness enables Red Firms to produce the same amount of Red Stuff using the one-third the amount of Red Labor.

Labor Stuff

Stuff

Stuff


Questions

What will be the effect (if any) on the price of red stuff?

What will be the effect (if any) on the price of blue stuff?

What will be the effect (if any) on the red wage rate?

What will be the effect (if any) on the blue wage rate?

What will be the effect (if any) on red worker employment?

What will be the effect (if any) on blue worker employment?

What will be the effect (if any) on red firm profits?

What will be the effect (if any) on blue firm profits?

Will the red workers be better or worse off?

Will the blue workers be better or worse off?


Ready to begin…


Labor Market

Red workers sell some of your labor to Red firms for $.

Blue workers sell some of your labor to Blue firms for $.

= Labor



Leisure

Leisure

Leisure

1. Red workers return unsold labor for Leisure.



1. Blue workers return unsold labor for Leisure.




Labor

Production

1. Red firms report hired labor to moderator.2. Report remaining money to moderator.3. Triple your quantity of red stuff.

1. Blue firms report hired labor to moderator.2. Report remaining money to moderator.

Stuff

Stuff

Stuff

Labor Stuff


Goods Market



= Stuff



Report

1. Red workers report red and blue stuff purchased.

2. Blue workers report red and blue stuff purchased.

3. Red firms report money and unsold red stuff.

4. Blue firms report money and unsold blue stuff.


Results…


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Red Wage Rate Blue Wage Rate Price of Red Stuff Price of Blue Stuff

Round 1 Round 2


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Red Wage Rate Blue Wage Rate Price of Red Stuff Price of Blue Stuff

Round 1 Round 2


0

20

40

60

80

100

120

140

Avg Red Happiness Avg Blue Happiness

Round 1 Round 2


-

50.00

100.00

150.00

200.00

250.00

Avg Red Happiness Avg Blue Happiness

Round 1 Round 2


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Red Employment Rate Blue Employment Rate

Round 1 Round 2


-$60

-$40

-$20

$0

$20

$40

$60

Red Profits (total) Blue Profits (total)

Round 1 Round 2


$0

$5

$10

$15

$20

$25

$30

$35

$40

Red Profits (total) Blue Profits (total)

Round 1 Round 2


units of red stuff consumed by the red player

units of red stuff consumed by the blue player

units of blue stuff consumed by the red player

units of blue stuff consumed by the blue player

u

R

B

R

B

R

R

R

B

B

L

nits of labor sold by the red player

units of labor sold by the blue player

units of labor endowed to the red player

units of labor endowed to the blue player

price per unit of red stuff

pri

B

R

B

R

B

L

E

E

P

P

ce per unit of blue stuff

wage per unit of red labor

wage per unit of blue labor

number of red workers

number of blue workers

number of red firms

number of blue firms

output of red indust

R

B

R

B

R

B

W

W

N

N

F

F

R

ry

output of blue industryB


Utility functions

1 1 1

1 1 1

Constraints

Utility maximizing consumption

1 2

3

1 2

3

2 1

3

R R R R R

B B B B B

R R R R B R

B B R B B B

R R R BR

R

R R R BR

B

R R R BR

R

U R B E L

U R B E L

W L P R P B

W L P R P B

W E P PR

P

W E P PB

P

W E P PL

W

1 2

3

1 2

3

2 1

3

B B R BB

R

B B R BB

B

B B R BB

B

W E P PR

P

W E P PB

P

W E P PL

W


Information and Intuition

When it comes to economics, human intuition sometimes fails because the human mind has evolved to wring maximal use out of limited information.

Good for making snap decisions.

Bad for making thoughtful decisions.


Left half of room: Put your heads down.

Right half of room: Write what you read.


The average person in Albania earns an annual income of $600 (in U.S. dollars).


Right half of room: Put your heads down.

Left half of room: Write what you read.


The average person in the U.S. earns an annual income of $32,000.


The average person on planet Earth earns what annual income (in U.S. dollars)?


Anchoring

When we see a piece of information, we evaluate subsequent information in light of the first piece of information.

Information

News interview of a single mother working three jobs to support her family.

Policy Question

Do we need welfare reform?

Problem

How common is this example?


Left half of room: Put your heads down.

Right half of room: Read and answer.


Should we require school districts to pay to install seat belts on school buses?

1 2 3 4 5

Definitely not! Absolutely!


Right half of room: Put your heads down.

Left half of room: Read and answer.


Every year in the U.S., 17,000 children are treated in emergency rooms for injuries sustained in school buses accidents.

Most of these injuries could have been avoided had the children been wearing seat belts.Should we require school districts to pay to install seat belts on school buses?

1 2 3 4 5

Definitely not! Absolutely!


Availability

It’s easier to see what’s in front of us that it is to see what isn’t.

Information

News report showing the benefit of school bus seat belts.

Policy Question

Should we require seat belts in school buses?

Problem

What is the expected benefit and what are the tradeoffs?


So what?

People will make poor decisions due to anchoring and availability.

The question is not whether the government or the market should provide solutions.

The question is which mechanism will more quickly identify and correct errors.


Solutions and Error Correction

How are solutions provided?

Government Design(requires omniscience and omnipotence)

Market Spontaneous order(requires freedom)

How are errors identified and corrected?

Government Design(requires omniscience, omnipotence, and altruism)

Market Self-interest and natural selection(requires freedom)


What are the tradeoffs in requiring seatbelts?


$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

HIV

blo

od t

est

for

sex

wor

kers

Mid

wife

tra

inin

g in

Thi

rd W

orld

Mal

aria

tre

atm

ent

Miti

gate

glo

bal

war

min

g

Sm

okin

g ce

ssat

ion

inte

rven

tion

Mal

aria

pre

vent

ion

PA

P s

mea

r ev

ery

3ye

ars

Col

onsc

opy

ever

y 10

year

s

Hea

rt t

rans

plan

t

Airb

ags

Sea

t be

lts in

sch

ool

buse

s

Co

st

pe

r L

ife

Sa

ve

d


$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

HIV

blo

od t

est

for

sex

wor

kers

Mid

wife

tra

inin

g in

Thi

rd W

orld

Mal

aria

tre

atm

ent

Miti

gate

glo

bal

war

min

g

Sm

okin

g ce

ssat

ion

inte

rven

tion

Mal

aria

pre

vent

ion

PA

P s

mea

r ev

ery

3ye

ars

Col

onsc

opy

ever

y 10

year

s

Hea

rt t

rans

plan

t

Airb

ags

Sea

t be

lts in

sch

ool

buse

s

Co

st

pe

r L

ife

Sa

ve

d


$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

HIV

blo

od t

est

for

sex

wor

kers

Mid

wife

tra

inin

g in

Thi

rd W

orld

Mal

aria

tre

atm

ent

Miti

gate

glo

bal

war

min

g

Sm

okin

g ce

ssat

ion

inte

rven

tion

Mal

aria

pre

vent

ion

PA

P s

mea

r ev

ery

3ye

ars

Col

onsc

opy

ever

y 10

year

s

Hea

rt t

rans

plan

t

Airb

ags

Sea

t be

lts in

sch

ool

buse

s

Co

st

pe

r L

ife

Sa

ve

d


$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

HIV

blo

od t

est

for

sex

wor

kers

Mid

wife

tra

inin

g in

Thi

rd W

orld

Mal

aria

tre

atm

ent

Miti

gate

glo

bal

war

min

g

Sm

okin

g ce

ssat

ion

inte

rven

tion

Mal

aria

pre

vent

ion

PA

P s

mea

r ev

ery

3ye

ars

Col

onsc

opy

ever

y 10

year

s

Hea

rt t

rans

plan

t

Airb

ags

Sea

t be

lts in

sch

ool

buse

s

Co

st

pe

r L

ife

Sa

ve

d


$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

HIV

blo

od t

est

for

sex

wor

kers

Mid

wife

tra

inin

g in

Thi

rd W

orld

Mal

aria

tre

atm

ent

Miti

gate

glo

bal

war

min

g

Sm

okin

g ce

ssat

ion

inte

rven

tion

Mal

aria

pre

vent

ion

PA

P s

mea

r ev

ery

3ye

ars

Col

onsc

opy

ever

y 10

year

s

Hea

rt t

rans

plan

t

Airb

ags

Sea

t be

lts in

sch

ool

buse

s

Co

st

pe

r L

ife

Sa

ve

d


But, we’re talking about saving children’s lives.

You can’t put a price on that!

If it saves just one life, no price is too much! Bring it on!


Spending $2.75 million on bus seat belts will save 1 life.

Spending $2.75 million on malaria prevention will save 275,000 lives.

Cost of 1 life saved via seat belts is 275,000 lives lost via malaria.

Everything is scarce.

Every choice includes a tradeoff.


Laws of Economics

Given that everything is scarce, every choice will involve a tradeoff.

Who decides what tradeoffs are acceptable?

Deciding by vote allows everyone an equal say.

Should everyone have equal say?

Should we weight each vote based on how strongly the voter feels about the tradeoff?

How do we know how strongly the voter feels?

Voter has incentive to lie!


Laws of Economics

Prices are much more than “how much something costs.”

Prices signal how strongly the community feels about things.

All other things equal…

• The more people want something, the higher the price.

• The greater the opportunity cost of bringing something to market, the higher the price.


Economic Models

20.000135 0.0011 0.000024

stopping distance (feet)

velocity (mph)

mass (lbs)

d m v v

d

v

m


Economic Models

60 ft.d

1,750 lbs.m

50 mphv


Economic Models

60 ft.d

1,750 lbs.m

50 mphv

2

2

0.000135 0.0011 0.000024

1,750 lbs.

50 mph

1750 0.000135 0.0011 50 0.000024 50 201 ft.

d m v v

m

v

d


Economic Models

Criticism: Ignoring factors that impact model results

• Is the driver cautious?

• Does the driver have good reaction time?

Criticism: Issues that invalidate the model

• The car isn’t moving.

• The car has no mass.


Economic Models

The point of the economic model is to strip away:

• Irrelevant information (e.g., the color of the car),

• Relevant but individual specific information (e.g., the reaction time of the driver), and

• Relevant but negligible information (e.g., the mass of the driver).

Documents

Www.antolin-davies.com Find your role and sit at the indicated seat. Do not open the bag at your seat until you are told to do so