While Alex is freaking out about her junior year grades, Haley doesn’t need to study because her community college asks her to bring glue sticks. Education may serve as a signal of ability instead of actual skill building, which would be shown by the requirements or competitiveness in the application process.
See more: college, education, human capital, human capital investments, signaling, signals, skill building
It is the first day back to school for the kids, but also Claire’s first day at her new job working for her father, Jay. Claire’s husband Phil tries to be supportive, but refers to the last 20 years that Claire has spent as a stay at home mom as a vacation.
See more: employment, household labor supply, household production, labor force participation, specialization, tradeoffs, unemployment
Lily lost her first tooth and got $100 from the Tooth Fairy. Cam and Mitch are trying to convince her that the Tooth Fairy made a mistake and she should give the money back, but Lily wants to keep the money until Hayley tells her this would almost certainly put her on Santa’s naughty list. Now Lily has to decide what she values more: $100 or Christmas presents.
See more: opportunity cost, rationality, tradeoffs
Kenneth, an old neighbor who idolized Phil, comes back to visit. He tells the Dunphy family that he dropped out of college and bounced around at small jobs until he started an investment company. Haley who is currently evaluating her college options realizes that if he had gone to college, he would have become successful 4 years later. Kenneth’s opportunity cost of college would have been very high making his decision to drop out a good one.
See more: acquisitions, college, education, entrepreneurism, human capital, human capital investments, mergers, opportunity cost, tradeoffs
Haley is at a staff meeting. She’s worried that she hasn’t had enough good ideas lately. Her fear is that this will lead her boss to believe that she isn’t working hard on behalf of the company. Haley signals that she’s a good worker by suggesting that Gloria sell a family recipe to the company (NERP). Gloria has long held the recipe secret. The recipe is an example of private technological knowledge. The recipe is valuable to Gloria because of the family tradition. The recipe is valuable to NERP because it could give them an edge in the lifestyle industry. Will Gloria sell? (Note: Jay also makes a fantastic joke about the value of a bachelor’s degree that can be used for discussion on human capital)
See more: entrepreneurism, human capital, human capital investments, moral hazard, signaling, signals, technological knowledge
Alex is practicing her college interview for Princeton in the mirror when Haley comes in to style her hair. Princeton is an Ivy League school that is very prestigious and gets a lot of applications. Princeton does not know which applicants it should let in so it screens them. Screening is an action taken by an uninformed party in a situation characterized by adverse selection. There are many things that colleges do to screen applicants. They require high school transcripts, a certain GPA, test scores and they conduct an interview. When someone is interviewed, it’s an opportunity for them to send a signal. A signal is an action taken by an informed party in a situation characterized by adverse selection. Alex wants to signal to Princeton that she’s a good candidate for admission into the university. Haley shares her thoughts about the message that Alex is actually sending.
See more: adverse selection, asymmetric information, college, human capital, human capital investments, imperfect information, interviewing, signaling, signals
The Dunphy’s neighbor has a new boat that they leave in the driveway. Many of the family members are impacted by the visibility of the boat. This represents spillover effects and mean that an externality is present in the market for boats. Some family members see the boat as having a positive externality. Others see the boat as having a negative externality. As there is a relatively low number of people impacted by the boat (the Dunphy’s and other nearby neighbors), Coase theorem suggests that an efficient outcome can be negotiated. But will the Dunphy’s be able to get to it? Claire is immediately interested in finding regulations that restrict how residents can store large property like a boat. Many communities, especially home owner associations (HOAs), have rules pertaining to this situation. These rules are designed to lower the transaction costs associated with these externalities by providing a standardized process for dealing with conflicts between neighbors that settles disputes, thereby increasing the likelihood that an efficient outcome is attained. However, often these processes can end up creating problems themselves. What happens, for example, if the neighbors get together and decide that it’s OK to store the boat in a visible place? If they do and the enforcement agency requires a change, it can make things worse.
See more: Coase theorem, externalities, negative externalities, positive externalities, private benefits, private costs, property rights, regulation, social benefits, social costs, spillover effects, transaction costs
It’s Haley’s 21st birthday. She and Claire have decided to get coordinating tattoos. Claire got hers first and now Haley is having a change of heart. In this scene, we see time inconsistency and imperfect information. Haley is concerned that her preferences will change over time so she decides against getting the tattoo. Meanwhile, Claire already regrets her tattoo because Haley won’t be getting one – but it’s too late for Claire. Tattoos do not have a return policy! If Claire had known that Haley would change her mind, she would not have gotten a tattoo (imperfect information). This clip can also be used to compare and contrast two types of games in game theory – sequential games and simultaneous games. If you decide to get a tattoo with a friend but only because you’re doing it with a friend, make sure you get them simultaneously!
See more: behavioral, game theory, imperfect competition, intrinsic rewards, preferences, sequential moves, tastes and preferences, time inconsistency
Haley auditions for work on a cruise ship. She didn’t get the job but why? Is it because she’s not in the right sorority or was it because she wasn’t as skilled as the others auditioning. If she was equally skilled and not selected because of some other characteristics (like not being in a sorority) then she would have been discriminated against.
See more: discrimination, human capital, interviewing, skills, talent
Luke hires Haley to work for him at the golf club. Sometimes, her service is a little off putting but she is still his best worker and brings in good tips. She’s going through the process so that she can save up and move out of her parent’s home.
See more: incentives, labor market, savings, training
Haley works for a lifestyle company with a history of selling dodgy products. The latest one is stickers. Her boss wants them tested but can’t use animals. So, she uses the next best thing – her assistants. But first, she has some really important questions to ask. This clip demonstrates the importance of labor law and regulations. Without regulations that are enforced, some employers might require workers to complete dangerous tasks. Even with regulations, this still happens. How does this clip show that Haley’s boss knows about the danger and about the regulations but doesn’t care?
See more: entrepreneurism, incentives, labor law, product differentiation, rationality, regulation, safety, testing
Gloria and Jay are looking to sell her family’s sauce to a larger company. They each use a different tactic to make the product more appealing. In doing this, they’re trying to increase the demand for the sauce. Unfortunately, they don’t coordinate their strategies in advance and Jay blows the deal. In fact, there’s a lot of information that Gloria has hidden from Jay. She has long had a surplus of sauce that she has been keeping in storage lockers across town. Gloria has likely paid a lot of money for all of the storage. What do sellers usually do when they have a surplus? Are Gloria’s past actions consistent with traditional economic principles of rationality? Consider sunk cost and marginal costs.
(Note: this scene is an example of adverse selection. Gloria knows that her product is no good but they are trying to signal not only that it’s good but also that it’s special, almost magic.)
See more: adverse selection, advertising, asymmetric information, demand, information economics, marketing, preferences, product differentiation, profit, rationality, sunk cost, supply, tastes and preferences
Andy is Jay and Gloria’s new “manny” (a male nanny). He’s also been hanging out a lot with Haley, which makes Phil and Claire suspect a budding romance. In this scene, Andy approaches Phil because he wants to becoming a real estate agent. He knows that he’s going to need to acquire more human capital before he’s able to do that so he asks to work as Phil’s new assistant. In this scene, we watch Andy interview for this job. We also find out why Haley and Andy have been spending so much time together – they are practicing interview skills. Interviewing is like everything else and requires a special set of skills that we can get by practice. The better someone is at interviewing, the shorter the amount of time is that s/he will be among the frictionally unemployed (unemployment that results because it takes time to match the right worker to the right job).
See more: frictional unemployment, interviewing, labor market, unemployment
Phil is trying to sell the house next door to a couple. In order to make the house as desirable as possible, he wants to put his family’s best foot forward. He wants the buyers to want to live beside his family. So, he has the kids outside gardening. This demonstrates adverse selection, signaling and the importance of spillover effects/positive externalities. Good, helpful neighbors are desirable and can increase a property’s value, especially if they take good care of their yard. Thus, there are positive externalities associated with landscaping. To discuss signaling and adverse selection, consider that someone is less likely to move if the neighbors are good than if they are bad. So, it’s entirely reasonable to consider the housing market as being characterized by adverse selection. Phil is doing all he can to signal that he and his family are good neighbors in order to get the couple to by the house and to pay a high price for it. But are they good neighbors? (At the end of this clip, you’ll see the other possible new neighbors. Which new family would each of the Dunphys prefer to live beside? Why?)
See more: adverse selection, externalities, housing markets, negative externalities, positive externalities, preferences, private benefits, private costs, self interest, signaling, social benefits, social costs, spillover benefits, tradeoffs
Haley, Phil and Luke are participating in a psychology study. Luke has convinced Phil that they should push the big red button that says “DO NOT PUSH” but Haley stops them. She says one in a million college drop outs go on to become Steve Jobs. The other 99 thousand don’t (her math is a little off). She recently dropped out of college and is having a crisis. This demonstrates several economic concepts including the importance of human capital and time inconsistency. Human capital comes from going to college but Phil reminds her that there are other sources of human capital. Time inconsistency occurs when you regret a decision in the past.
See more: behavioral, counterfactual, education, entrepreneurism, human capital, sunk cost, time inconsistency
Alex is graduating from high school soon so Phil, Claire and the kids are visiting Cal Tech. Claire thinks Cal Tech is the perfect place for Alex but she’ll find out soon that she and Alex have different preferences. College is one of the ways that we build human capital. As we learn more things, we become more productive and our labor is more valuable. Alex is already really bright and loves academics so college is a good fit to set her up for doing impressive things in the future.
Claire wants a great school that’s close. Alex wants a great school that’s far away. We also learn that Cal Tech has 5 Nobel Laureates on staff, suggesting that Cal Tech itself has a lot of human capital, making it a highly productive college.
Alex learns why Cal Tech might be a better choice for her than an East Coast school. What is more important: the quality of the program or proximity to home? Choices are tough and everything has a cost. Here’s Alex’s current dilemma: stay close to home and attend the best program in the country OR go to a college on the east coast with a weaker program.
See more: cost benefit analysis, human capital, opportunity cost, preferences, school choice, signaling, skill building, tradeoffs, utility
Claire is going to meet an old friend from work, but her kids are surprised to find out that she once had a job. She describes why she chose to leave the workforce.
See more: comparative advantage, division of labor, labor force, labor force participation, labor supply, preferences, specialization, tradeoffs
When Claire and Phil cancel Christmas after finding what looks like a cigarette burn in the sofa, Alex suggests she and her siblings all confess so that their parents will reinstate Christmas and go easy on them for protecting their siblings. Unfortunately there is an incentive to cheat, but Luke isn’t smart enough and ends up confessing to something he didn’t do.
See more: game theory, incentives, prisoner’s dilemma
The Dunphy’s call Phil’s parents in the sweaters they were given as gifts. The call goes awry when Claire sees what looks like a cigarette burn in the sofa. In her anger she calls the sweaters ugly while still on the phone with Phil’s dad.
Claire is trying to get the kids downstairs for breakfast and is shouting across the house. Hailey doesn’t understand why Claire won’t just text them, but Claire refuses. Improvements in technology should make everyday life more efficient, but Claire wants to stick with tradition.
See more: efficiency, technological change
Haley is interviewing for a job and it isn’t going well. The labor market is often characterized by adverse selection – there are more candidates who are not suited for a particular job than who are well suited and it’s tough to tell them apart. Screening is an action taken by an interviewer to determine whether or not a candidate will be a good fit. Signaling is action taken by the candidate in order to demonstrate that s/he is a good fit. What examples of signaling and screening are in this scene?
See more: adverse selection, interviewing, labor, product differentiation, screening, signaling, signals
While at work, Haley meets a leisure lover searching for a new husband who will die soon. The woman offers Haley a position as her personal assistant that includes getting paid for leisurely activities. Luke tries to convince Haley to stick with work because it’s better for her future, but she chooses the life of leisure.
See more: employment, labor, leisure, nonpecuniary benefits, tradeoffs, wages
On their way to Phil’s father’s wedding, Phil asks his family to dress like 1920 gangsters, but it seems like they are the only guests their in costume. Phil is notorious for embarrassing his family and each member relates a time Phil did something that made him happy, but imposed social costs on others.
See more: externalities, negative externalities, private benefits, private costs, social costs
Rainer proposes to Haley at dinner, but then the weather turns outside and he’s unsure if he made the right decision. In his back-and-forth about whether this was the right move, he brings up the fact that he’s already messed up one marriage. He notes that messing up one marriage is okay, but if you mess up two marriages then it sends a signal that he’s the problem in the relationship and it will lead to losing a potential sponsorship.
See more: causation, correlation, signaling
The Dunphys are having their house fumigated so they have to squeeze into a small hotel room. The neighboring dogs are barking all night and a train runs through around night time. Luke tries to set off a cologne bomb and ends up stinking up the whole room.
See more: externalities, negative externalities, private benefits, private costs, social costs
Mitch gets sick on his honeymoon, but spreads it to everyone else in the family. Each member goes through the pain they endured because Mitch didn’t quarantine himself. Only later in the episode do they find out that Mitch isn’t patient zero.
See more: externalities, gift giving, health care, negative externalities, private benefits, social costs, substitutes
The Dunphys are having a great summer while Alex is away building houses for the less fortunate, but as soon as she returns everything takes a turn for the worse. Everything seems to think Alex is the cause of the tension and as soon as she leaves then things start to look better. While these actions may be correlated with Alex’s presence in the house, she certainly can’t be the cause of the tension, could she?
See more: causation, correlation