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Elul and Austrian Economics

Yesterday I listened to a lecture by Rabbi Yisroel Meir Kirzner, famed Austrian economist and talmid muvhak of Rav Yitzchok Hutner.  The lecture was not a typical shiur by one who learned from a Torah giant, but an economics lesson given at the Mises Institute, the libertarian think tank dedicated to the Austrian School of economics.  Nonetheless, the idea he presented struck me just a much religiously as it did academically.

Let me begin by explaining one misnomer – Austrian Economics has nothing to do with Austria.  Rather, is it a school of economic thought focusing on the individual and his or her actions, as opposed to other schools of economic thought which focus on class struggle, utilitarianism, and econometric modeling (if you love economics but hate math, the Austrian School is the one for you!)  It should also be noted that most of the Austrian economists nowadays are not even Austrians, but Americans who follow the teachings of the Austrian economists Menger, Bohm Bowark and Mises.

Rabbi Kirzner’s lecture stressed an important point that reminded me of the primary reason I became interested in economics in the first place: the role of competition and the employment of economic thought.

In traditional economic thought, perfect competition is when a particular market reaches the point where everyone knows everything, all products are the same, and anyone can buy or sell any amount of the same item for the same price.  During this mostly hypothetical situation, prices are at their ideal level, producers and consumers are benefiting and all is right with the world.

But this definition fails to explain one key word, competition.  When we think of competition, we think of different firms battling it out, competing against one another in order to offer a superior product or service to the consumer.  According to the classical economic definition, perfect competition implies the product is perfect and therefore unchanging; according to the regular (and Austrian) definition of perfect competition, products are constantly improving.  In this respect, the classical economic definition of competition as a point on a supply and demand graph symbolizing a specific situation is the polar opposite of the Austrian definition of competition as a process and means.

This is where Austrian Economics comes in.  According to the Austrians, economics is more that just the study of who gets what and why; it tells us what works best, what the tradeoffs are and helps an individual understand the most efficient means for improving his or her current situation.

I am not a financially responsible person because I live on a budget; a budget helps me be financially responsible.  I am not a good father because I spend time with my son; spending time with my son helps me be a better father.  I am not a good Jew because I daven and learn; I daven and lean in order to try to be a better Jew. 

As Ellul begins, we are accustomed to begin introspection.  By Rosh Hashanah we determine what kind of person we truly are and by Yom Kippur we resolve to improve ourselves.  But without a truly economic approach, it is all more or less meaningless.  We must learn who we are in order to help ourselves move in the direction of our choosing.

Chodesh Tov

Game Theory and the Shidduch Crisis

The shidduch business is big bucks.  From JDate to expensive shadchanim, people are willing to pay almost anything to get married.  And it makes sense; who wouldn’t invest a couple of hundred or thousand dollars in order to have a happier, more fulfilled life with the one you love.  Surely the investment is worthwhile.  But if these avenues work, why are less women finding their soulmate?

A year and a half ago, financial write Mark Gimein wrote and article on for slate.com trying to solve the “eligible bachelor paradox” – why it seems there are always more available women than men.

“The problem of the eligible bachelor is one of the great riddles of social life. Shouldn’t there be about as many highly eligible and appealing men as there are attractive, eligible women?

Actually, no—and here’s why. Consider the classic version of the marriage proposal: A woman makes it known that she is open to a proposal, the man proposes, and the woman chooses to say yes or no. The structure of the proposal is not, “I choose you.” It is, “Will you choose me?” A woman chooses to receive the question and chooses again once the question is asked.

The idea of the woman choosing expressed in the proposal is a resilient one. The woman picking among suitors is a rarely reversed archetype of romantic love that you’ll find everywhere from Jane Austen to Desperate Housewives. Or take any comic wedding scene: Invariably, it’ll have the man standing dazed at the altar, wondering just how it is he got there.

Obviously, this is simplified—in contemporary life, both sides get plenty of chances to be selective. But as a rough-and-ready model, it’s not bad, and it contains a solution to the Eligible-Bachelor Paradox.

You can think of this traditional concept of the search for marriage partners as a kind of an auction. In this auction, some women will be more confident of their prospects, others less so. In game-theory terms, you would call the first group “strong bidders” and the second “weak bidders.” Your first thought might be that the “strong bidders”—women who (whether because of looks, social ability, or any other reason) are conventionally deemed more of a catch—would consistently win this kind of auction.

But this is not true. In fact, game theory predicts, and empirical studies of auctions bear out, that auctions will often be won by “weak” bidders, who know that they can be outbid and so bid more aggressively, while the “strong” bidders will hold out for a really great deal… But you can also see how this works intuitively if you just consider that with a lot at stake in getting it right in one shot, it’s the women who are confident that they are holding a strong hand who are likely to hold out and wait for the perfect prospect.

This is how you come to the Eligible-Bachelor Paradox, which is no longer so paradoxical. The pool of appealing men shrinks as many are married off and taken out of the game, leaving a disproportionate number of men who are notably imperfect (perhaps they are short, socially awkward, underemployed). And at the same time, you get a pool of women weighted toward the attractive, desirable “strong bidders.”

Where have all the most appealing men gone? Married young, most of them—and sometimes to women whose most salient characteristic was not their beauty, or passion, or intellect, but their decisiveness.

… for whatever socially constructed reason, the choice of getting married is one in which the woman is usually the key player. It might be the man who’s supposed to ask the official, down-on-the-knee question, but it usually comes after a woman has made the central decision. Of course, in this, as in all matters of love, your experience may vary.

There may be those who look at this and try to derive some sort of prescription, about when to “bid,” when to hold out, and when (as this Atlantic story urges) to “settle.” If you’re inclined to do that, approach with care. Game theory deals with how best to win the prize, but it works only when you can decide what’s worth winning.”

In short: the greatest factor in a woman’s ability to get married is not her looks, nor her charm, but her ability to be decisive.

Back when I was a teacher in Chicago, one of my colleagues once told me that one of the biggest challenges today is that people do not know how to make a decision.  They judge decisions based on how they will turn out instead of the best decision they can make at the time and put themselves into an endless pool of “what if” that keeps them indecisive and unable to move forward in life.  Perhaps tackling this challenge may help us come closer to solving the Shidduch crisis.

This is surely not a simple issue.  In fact, when this the article quoted above was published, it sparked what I consider to be one of the most interesting and productive conversations I have even seen on the internet.  What do you think?

using game theory to avoid overeating during the Holidays

This post is taken from a post at mindyourdecisions.com. It has been adjusted to fit the upcoming Jewish Holidays.

Do you overeat on the Holidays?  I certainly do.  Usually by Yom Kippur I think to myself “okay Jon, you’ve overeaten two days, but on the other hand you’ve fasted two days as well.”  Now all that’s left is to control yourself over Sukkot.  And we all know how that goes…

But it isn’t all my fault.  As a Jewish man, I am expected to overeat at every Holiday meal.  Even if you don’t want to eat more, the Mother of the house will generously serve me more food. This was great when I was a kid. It’s not so great any more.

Somewhere the Jewish culture of generosity has morphed into a game where the host “wins” by getting you to overeat.  In general, my goal at a Yom Tov meal is to eat well but not stuff myself. I also want to be a good guest; this means I cannot waste food and I have to convince the host that I’ve eaten a lot.

I’ve gone through the game several times. I’ll explain how I used to fail but I now have a somewhat winning strategy.

A few years ago, I used to take a lot on my plate in the first serving. I was confident that I could talk my way out of more food. I would say that I was really full, and that I would not eat more. I would threaten that if the host put more on my plate, I would surely not eat the food. But then more food was put on my plate. Since it’s unacceptable to waste food, I was stuck stuffing myself. Jon 0, Host 1.

So started to change my strategy. I reduced my first serving to a medium-size. What I didn’t figure is that a real Jewish mother is always aware of how much each person ate. When she was servings seconds, I was given more to compensate for my smaller first serving. Again, I could not waste food so I had to stuff myself. Jon 0, Host 1.

After failing many times, I now use a different strategy. I first pile on a sampling of every food item so I can demonstrate I’m eating every thing. I’m active in voicing how much I enjoy the food (so I’m a good guest) and I explain that I’ll help myself to more food. I then serve myself a medium-sized second round, and the trick here is that I eat the food very slowly. Since I am still eating, the Jewish Mother cannot force more food on my plate without looking intrusive. The host is better off by doing nothing. And I finally get to eat a reasonable amount. Yes! Jon 1, Host 0.

What I described above can be graphically displayed in a game tree. Each node is a placeholder for a player to choose an action. Different actions correspond to different branches of the tree. The game ends at terminal nodes with payoffs for each player. In the game tree, my actions and payoffs are colored in blue and the host’s are in orange.

eating

I’ve also drawn in arrows to depict the equilibrium path for each of my first actions. For instance, if I choose “Self-serve lots of food,” the host will respond with “Serve more” and I will have to “Eat,” so I get a payoff of 0 and the host gets 1.

Notice that after a host chooses “Serve more,” I could choose “Waste Food” which gives me a -1 payoff since wasting food is bad. If I instead choose “Eat,” and stuff myself, I get a higher payoff of 0. What this means is once I’m served more food, I would definitely be better off choosing “Eat” over “Waste food.” Or saying it another way, my threat of “I’m not going to eat if you serve me” is non-credible. If I could convince the host I would choose “Waste Food” (say, if I were crazy), then my threat would become credible.

For now, I’m on the right-most path where I eat little and slowly, and the host responds with nothing, so I win the game.

Of course, the game tree has its limitations. In a real dinner setting, the host has many more options, as do I. Nevertheless, I find it useful to stylize the problem into a game tree to see the possible paths. From the tree, it’s obvious why I was failing before and succeeding now. And should the host introduce a new action, I can draw a new tree and hypothesize what might happen so I’m one step ahead of the game