TACIT COLLUSION

Many life events have led me to think a lot about collusion lately. Collusion is when two people or organizations come to a secret understanding or conspire. It is often seen as negative. We all collude on a normal basis without realizing. 

TACIT COLLUSION

Tacit Collusion is when two people or organizations come to an understanding without explicitly saying so. The difference between tacit and normal collusion is whether the two people are actually communicating. Think of a sidewalk. Why do people only walk on the right side? No one ever said that all pedestrians must walk on the right side of the sidewalk. We have a mutual understanding with the rest of humanity that if we all walk on the right, we will never have to worry about walking into each other.

The Declaration of Independence states: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."  We all retain a mutual agreement that liberty is a right. This right is "self-evident". No one needs to say that everyone deserves life, liberty and happiness. (However, I notice the irony in the fact that our founding fathers had to explicitly state that everyone is entitled to these rights.)

Let’s get spiritual.

There exist higher and lower laws. Evidence of such laws can be found using the Christ’s teachings and the Law of Moses. Under the Law of Moses were many commandments, even the Ten Commandments. When a lawyer posed the question “Master, which is the great commandment in the law?”, Jesus Responded with the following:

“Thou shalt love the Lord thy God with all thy heart, and with all thy soul, and with all thy mind. This is the first and great commandment. And the second is like unto it, Thou shalt love thy neighbour as thyself. On these two commandments hang all the law and the prophets.”

How can two commandments possibly trump all others? If we understand the importance of commandments and their purpose, silent commandments do not need to be declared to be lived. Tacit collusion. In a perfect society, each would abide by unspoken rules knowing that society is better off as everyone lives them. Murder, rape, and theft need not be spoken because it is self-evident that these are evil.

You can tell how untamed a society has become by the number of laws required to discipline it. We are more free with lesser laws while choosing to abide by principles of righteousness.

It takes one stupid action to change the rules for everyone else. For those interested in economics, we call this a grim trigger strategy. Sometimes we laugh at all the wacky laws adopted by certain states (example: It is illegal to sell your children in Florida), but have you ever thought, “Who was the guy who actually did it, forcing the government to create a law?” One idiot ruins it for the rest of us.

I have one last point.

We cannot force everyone else to tacitly collude with us. And communicating such collusion is essentially what law is. So if we can’t force others to obey with us, and you can’t reach tacit collusion by open communication, what can we do?

We live to be the best people we can be. We strive to look for ways that we can help other people and make society better. Many times this will require us to check our selfish interests at the door, but it is worth it. And maybe if we live in a noble manner, others will notice and tacitly collude with us. 

Signaling

I am a lover of game theory. Game theory studies strategy and interaction between two firms or people. In game theory, signaling is communication before choices are made. Signaling helps to indicate what kind of actions you will take so others can act accordingly.

Signals are preceded with questions, often unspoken: Why should I trust you? What makes you better than everyone else? What's in it for me? The truth is, they have reason not to trust or believe you are better or believe you are acting in their benefit.

The signal is meant to be a indication of your good intentions. Successful signals say "I care about your needs more than mine." For this reason, signaling costs to succeed.

What do we signal to others?

Are we true to that signal?

Stop now and think about your thoughts, words, and actions. What signals are given off through each of those? What non-verbal signals? What do people think you represent? Are these signals you want others receiving?

We must be true to our signals. Honesty is key. Dishonesty hurts those around us and ourselves. False signals show us to be something we are not. One day it will catch up with you.

"When we are honest in every way, we are able to enjoy peace of mind and maintain self-respect. We build strength of character, which allows us to be of service to God and others. We are trustworthy in the eyes of God and those around us." (True to the Faith)

Diminishing Marginal Utility

Diminishing Marginal Utility is a law meaning decreasing gains. More easily understood, imagine eating a hot dog. Imagine eating one more. Imagine eating 5 more. The more you eat, the less pleasure you gain from your hot dog eating.

This phenomenon can accurately portray why we are so excited to do something for the first time, but after repeating the same activity multiple times, we are bored.

Economists have long looked for some activity that breaks this pattern of behavior, but there just simply is no exception. And some of you might be thinking, "What about church? Shouldn't we be able to go to church a million times and still be just as willing to go one million and one times?"

The answer is complex. And the truth is, I don't have the answer. Yes, we should be willing to participate in good things an infinite number of times; however, this is seldom the reality. 

I believe the answer is to differentiate. Each day is new and different. What is exciting about today? Focus on that! 

I WANT TO HEAR FROM YOU! What is the secret to conquering diminishing marginal utility?

HO HO HO

Subject: Charity
Economic Principle: Dead Weight Loss

Christmas is wonderful. Hot chocolate, sweets, music, giving. There is an irreplaceable magic that comes with the season. Now, I hate to rain on the Christmas parade, but it is these times that my inner economist comes out.

Christmas is one of the most inefficient holidays that exists. Economically it's great for vendors and producers, but we, the consumers, are getting crushed. Dead Weight Loss is when purchase happens when it shouldn't or doesn't happen when it should. In the case of Christmas, we have the first. Gifts are purchased when they shouldn't. Now let's breathe a little before everyone thinks I am opposed to giving. This is what happens:

I love board games. Let's say I want a new board game. I am willing to pay $10 for it. It costs $15. My friend knows I want this board game. He buys it for $15 and gives it to me. I am happy. This board game makes me "$10-happy" but not "$15-happy".

Now Let's use the same situation for my friend. He likes ugly t-shirts and is willing to pay $10 for an ugly t-shirt. I buy him a $15 ugly t-shirt for Christmas. The ugly t-shirt makes him "$10-happy" but not "$15-happy".

What happened? We both spent more than the receiver would have spent or would have been happy receiving. We have lost $10 altogether of potential happiness. This is dead weight loss. If you don't quite understand this, remember the story of The Gift of the Magi (Here's a Sesame Street version: http://www.youtube.com/watch?v=o2VFgHGKzx4).

To an economist, there would be lost happiness, but I believe that this happiness actually goes to the giver of the gift.

"Only when you lift a burden, God will lift your burden. Divine paradox this! The man who staggers and falls because his burden is too great can lighten that burden by taking on the weight of another's burden. You get by giving, but your part of giving must be given first."  (Spencer W. Kimball)

Perhaps the giver in this instance is "$5-happy" from giving. 

Merry Christmas

The Captain America Concept

For those who haven't seen Captain America, the moral of the story was that super-human powers do not make someone good or make them a hero. The truth is that powers will only magnify what is already present. (This theme can also be found in Megamind)



So what do superheroes have to do with economics? Capital and Labor.

Capital is defined as sums of money or assets put to productive use. Labor is production that is associated with physical human work. Think of it this way: Santa owns a factory making toys. He essentially has two things, machines/tools and elves. Alone, the machines or tools cannot make toys. These objects are useless alone. The elves could make toys without tools; however, that would be very difficult. Thus a combination of the two is best for maximum production.

Even though you need a little bit of both, it is better to have labor over capital.

How does this relate to the gospel?

Labor is a human soul. Each soul has enormous potential. However, the laborer alone can do very little. With tools and assets production escalates. Which is better assets or character? Just as in the factory example, assets are useless by themselves. It is the human being that gives it life. In this same way, the human spirit gives life to all things physical. Our money means nothing by itself. It is just a cotton blend with ink. But when attached to hard work it takes on the value of that work. Therefore it is not the piece of paper that matter but the labor itself.

(back to Captain America) The building of character is more wise than the obtaining of assets. With assets the person of character can do many great things. However, those of little character will waste the assets. This is similar to comparing a child with money to a parent with money. The child is more likely to spend it all on candy whereas the adult (hopefully) chooses to invest the money to improve lives or society.

President Ezra Taft Benson (1899–1994) said: “The world would take people out of the slums. Christ takes the slums out of people, and then they take themselves out of the slums. The world would mold men by changing their environment. Christ changes men, who then change their environment. The world would shape human behavior, but Christ can change human nature.”

And we will end with Captain America because I can:
Steve Rogers: Can I ask a question?
Abraham Erskine: Just one?
Steve Rogers: Why me?
Abraham Erskine: I suppose that's the only question that matters.
Abraham Erskine: [Displaying a wine bottle] This is from Augsburg, my city. So many people forget that the first country the Nazis invaded was their own. You know, after the last war, they... My people struggled. They... they felt weak... they felt small. Then Hitler comes along with the marching, and the big show, and the flags, and the, and the... and he... he hears of me, and my work, and he finds me, and he says "You." He says "You will make us strong." Well, I am not interested. So he sends the head of Hydra, his research division, a brilliant scientist by the name of Johann Schmidt. Now Schmidt is a member of the inner circle and he is ambitious. He and Hitler share a passion for occult power and Teutonic myth. Hitler uses his fantasies to inspire his followers, but for Schmidt, it is not fantasy. For him, it is real. He has become convinced that there is a great power hidden in the earth, left here by the gods, waiting to be seized by a superior man. So when he hears about my formula and what it can do, he cannot resist. Schmidt must become that superior man.
Steve Rogers: Did it make him stronger?
Abraham Erskine: Yeah, but... there were other... effects. The serum was not ready. But more important, the man. The serum amplifies everything that is inside, so good becomes great; bad becomes worse. This is why you were chosen. Because the strong man who has known power all his life, may lose respect for that power, but a weak man knows the value of strength, and knows... compassion.
Steve Rogers: Thanks. I think.
Abraham Erskine: [Gesturing toward the wine] Get it, get it. Whatever happens tomorrow, you must promise me one thing. That you will stay who you are, not a perfect soldier, but a good man.

Gambling

What's so bad about gambling?

Being from the Las Vegas valley, I am no stranger to gambling. With the first step taken off a plane one can hear the tune of the slots in McCarran Airport. As members of the church, we refrain from gambling. But why? Isn't life a gamble? We take risks all the time. Sometimes resulting in loss, other times in gain.

My first thought always considers how gambling is very similar to investment. The New York Stock Exchange is probably one of the biggest casinos. Where are the differences between the two? You put money in, maybe get it back, and do pretty much nothing.

Here is the difference between the NYSE and a casino. When an individual chooses to invest, they are making an economic contribution. The money involved can be used to further production and efficiency of a company. This contributes to the general welfare.

Risk is not inherently evil. Neither is money. They are amoral. The evil comes from the intention behind it.



If I put a quarter into a slot machine, I am not adding to society. I act out of a selfish or an naive desire for money. This is money that grows on trees except that I'm pretty sure a money tree requires more diligent labor and contributes more to society!

Here is what True to the Faith has to say:

"The Church of Jesus Christ of Latter-day Saints is opposed to gambling, including lotteries sponsored by governments."

"Gambling is motivated by a desire to get something for nothing. This desire is spiritually destructive. It leads participants away from the Savior’s teachings of love and service and toward the selfishness of the adversary. It undermines the virtues of work and thrift and the desire to give honest effort in all we do."

Risk and Preparation

The past few weeks I have thought much about the economics of risk. It may have been spurred by the fact that we are studying it in Price Theory right now. I think what really triggered these thoughts was an idea proposed by a student in the econ lab this week. His argument was something along these lines:

Is college really worth it? Of the top 10% of the richest people in america, most never graduated from college or high school. I'm only here because my wife wants me to be. I don't need to be here to be successful. By staying here, I'll probably end up working for one of those top 10%'s.

I don't know if those stats are true, and his whole argument hinges on money being the only incentive to get a college degree. Personally, I disagree. The facts are clear. A college degree gives me greater probability of a better-paying job. I am happier avoiding risk when possible. Economists would say that a degree has a greater "expected utility" or that on average the happiness of those with college degrees are happier financially. [For the nerds reading this, I have to point out that I am assuming that people are risk averse meaning they don't like risk]

While college and high school dropouts may have better chances at earning serious cash, they also risk a lot more. They pretty much can have one extreme or the other. They may end up mopping floors the rest of their lives, or they may be the one hiring the college graduates.

The restored gospel teaches all to be self sufficient and ready for emergencies. We avoid risk when possible. We are advised to keep food storage, avoid debt, and live worthily. Each of these acts as a form of insurance against the storms of life. Why are we advised to do so? Because we are more likely to succeed under most circumstances

“We encourage you wherever you may live in the world to prepare for adversity by looking to the condition of your finances. We urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt. … If you have paid your debts and have a financial reserve, even though it be small, you and your family will feel more secure and enjoy greater peace in your hearts” (lds.org/topics/finances?lang=eng).

“He has lovingly commanded us to ‘prepare every needful thing’ (see D&C 109:8) so that, should adversity come, we may care for ourselves and our neighbors and support bishops as they care for others... We ask that you be wise as you store food and water and build your savings. Do not go to extremes" (lds.org/topics/food-storage?lang=eng).

Even worthy living can be seen as a safer "investment" than careless living. Should loss occur, we are prepared. This is the principle behind Expected Value and Expected Utility.