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 Haley 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
Cam and Mitch have decided to get Jay and Gloria a special gift for Gloria’s impending birth. Jay and Gloria have both created a registry of gifts they would like, but Cam has decided to go “off registry” because he believes Jay and Gloria don’t really know what they want. Mitch seems concerned that they will not appreciate it.
One of the issues with gift giving is that the parties have imperfect information about what the other will value the gift at. Economists love to focus on the inefficiency of gift giving and often suggest just exchanging money.
See more: altruism, gift giving, imperfect information, irrationality, rationality
Phil has to decide whether to leave his own firm and start his own with two old co-workers, but he only has a limited amount of time to decide. He remembers that he is not good under pressure by recalling a time that he bought an alpaca because it was the last one and he panicked. Sometimes people may not make rational decisions because of bounded rationality, whereby they have to make a judgement in a hurry and don’t have time to fully weight all of the costs and benefits. Phil appears to fall victim to this fairly regularly, as evidenced by his decision to buy an alpaca once.
See more: bounded rationality, choices, cost benefit analysis, irrationality, rationality, tradeoffs
Phil finds gift certificates to a spa that he and Claire had won in a charity auction in a drawer, but they expire that day. He wants Claire to use them because otherwise their money just goes to charity, but Claire doesn’t know how she will find the time to be able to go. Phil is falling victim to the sunk cost fallacy, while Claire is thinking in terms of the additional costs and benefits of using the certificates before they expire.
See more: altruism, irrationality, opportunity cost, rationality, sunk cost, tradeoffs
Haley works for a lifestyle company with a history of selling dodgy products. The latest one is stickers that improve people’s moods. Haley’s boss wants them tested, but can’t use animals so she uses the next best thing – her assistants.
This clip demonstrates the importance of labor law and regulations. Without enforceable regulations, some employers might require workers to complete dangerous tasks. Even with regulations, this still happens. Haley’s boss may know about the danger of the product and the importance of regulation, but perhaps doesn’t care?
See more: entrepreneurism, incentives, labor law, product differentiation, rationality, regulation, safety, testing
Gloria wants to sell her family’s sauce to a larger company. Jay and Gloria each use a different tactic to make the product more appealing, in essence trying to drive up the demand for the sauce. Unfortunately, they don’t coordinate their strategies in advance and Jay blows the deal.
It turns out 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. When firms normally have a surplus, it means that the price for the product is above the equilibrium price.
This scene is also a good example of adverse selection in exchange. 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 magical.
See more: adverse selection, advertising, asymmetric information, demand, double coincidence of wants, information economics, marketing, preferences, product differentiation, profit, rationality, sunk cost, supply, tastes and preferences
Cameron gets a new job at a greeting card store and loves it because he is able to buy greeting cards with the employee discount. This greatly increases his greeting card purchases, and Mitchell points out that it is not saving them money, but costing them money. The discount represents a price reduction, which causes Cam to increase the quantity of cards he purchases. This can also be seen as a form of mental accounting where Cam prioritizes the savings instead of seeing the cost of each card.
See more: demand, income effect, mental accounting, nonpecuniary benefits, prices, quantity demanded, rationality
Cam and Mitch have been married 3 months, but it seems like their honeymoon will never end. Cam continues to give Mitchell flowers even though he clearly doesn’t enjoy them as much as he used to. He may have loved the first bouquet, but eventually he may start to hate them.
See more: diminishing marginal returns, gift giving, inefficiency, preferences, rationality, utility