Asymmetric Toaster

 

Luke and Manny’s class is having a yard sale to benefit UNICEF, but Jay hates when people haggle. Someone goes into Jay’s house and tries to buy his toaster, but isn’t willing to commit because it’s a used toaster and he’s unsure of its quality.

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College Interviews

 

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.

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A Magic Shop for Phil

 

Claire surprises Phil by purchasing the magic shop of his dreams. The previous owner sold it for very cheap, but then Claire starts to wonder if the magician had information she was unaware of. Despite the concern, this is a unique opportunity for Phil to become an entrepreneur.

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The Sauce Maven

 

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.)

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Selling a Lemon

 

Phil is trying to sell the family’s station wagon, but it has some issues. Phil words the advertisement in a way to make the car seem unique instead of defective.

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Only Bees in the Home

 

Phil is desperate to sell this house. The buyer loves it but is afraid that it is haunted. Phil brings in Gloria to cleanse the house of unfriendly spirits. What they find isn’t spirits – it’s not ghost. It’s only bees! This demonstrates adverse selection and screening. Economics suggests that a market where the buyers know less than the sellers will result in adverse selection. That is, there will be more “bads” (haunted) houses on the market than “goods” (non-haunted). One way the ways that the problem of adverse selection can be reduced is through signaling. Phil (the seller) takes an action (asks Gloria to inspect the home) in order to reveal that this home is a “good” (not haunted) home.

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Gasp in 20 Pages

 

In order to get some alone time from their partners, Mitchell and Jay decide to head to the desert, but they didn’t think they’d run into each other at the same spa. In the middle of reading the same book, Mitchell comes across a shocking detail and spoils part of the book for Jay who is sitting across the pool.

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