Cam has setup a panel that includes Alex, Haley, Manny, and Luke. His original goal was to showcase alternative options beyond college for the high school. It turns out the principal isn’t a fan of that idea, but only because he’s more interested in winning the “Golden Apple” award, which is for schools that have 60% of their class going on to college. His self-interest may push some students into a path that they aren’t meant to be on.
At the start of the scene, we learn that Cam’s not sure he believes everyone should go to college, but he isn’t sure how to proceed once he finds out that his principal is encouraging him to only talk about the benefits of college. Midway through the show, Mitch convinces Cam that if he can make it wear the principal doesn’t get the Golden Apple award, Cam may be promoted to Head Principal which comes with more perks. Cam goes along with it, and switches the theme of the panel to focus on non-college options.
See more: college, education, human capital, human capital investments, incentives, self interest, signaling, signals, skill building
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 entry requirements or competitiveness in the application process. Haley, on the other hand, may be completing drawn out tasks that don’t improve her productivity after completion. If Haley isn’t really learning skills at community college, but Phil and Claire are paying for her to go there to learn skills, are they really investing in Haley’s education?
See more: college, education, human capital, human capital investments, signaling, signals, skill building
Claire believes Alex’s boyfriend is gay, but Alex doesn’t think that’s the case. She believes that since he invited her to prom and then they kissed, that it must mean he can’t be gay. Signaling is when one party has more information about a transaction than another, but displays some traits or “signals” to convince the other party of the true outcome.
See more: behavioral, signaling, signals
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
In the United States, Halloween is a popular time for Americans (young and old) to wear costumes, even in a professional setting. Clothes can serve as a signal, but also generate externalities. In discussing signaling, it’s important to identify visible markers that may underscore some “hidden” trait. Often, the clothes we wear in professional settings provides a signal of who we may be trying to portray. The court stenographer, dressed as a spider, may not have chosen the best outfit for this day in course. Had she worn this outfit during her interview, she may not have gotten the job despite her qualifications.
A secondary outcome of her decision to dress as a spider is that it imposes external costs on Mitchel in the courtroom. While trying to defend his case, the jurors are distracted by the stenographer’s appearance. The decision to dress up for Halloween was a private decision and has private costs associated with the costume, but it has imposes additional costs on Mitchell as well. These social costs likely outweigh her private benefits, resulting in a net loss to society.
See more: externalities, interviewing, labor market, negative externalities, private benefits, signaling, social costs
Lily has the tough teacher but Cam and Mitch just learned of an opening in the “nice” teacher’s class. In this scene, the two approach Ms. Plank about transferring their daughter into Ms. Sparrow’s classroom. Education is one market where consumers have little choice. Some critics argue that this creates inefficiencies in the market while others argue that education consumers may not have enough information to make optimal decisions. Critics insist that giving consumers more choice would not necessarily lead to an improvement in efficiency. This sort of problem is discussed at many levels in education – from school choice to book choice. In this scene, it was clear that the Cam and Mitch were ill-informed of even their daughter’s preferences, but assume that Lily would have done better in the other teacher’s class despite not actually knowing Ms. Plank’s ability.
See more: education, human capital, human capital investments, information economics, market failure, preferences, school choice, signaling, skill building, textbook choice, tradeoffs
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 buy the house and to pay a high price for it. But are they good neighbors?
At the end of the scene, you’ll see the other possible new neighbors. It’s clear which family each of the Dunphys would prefer to live nextdoor.
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
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, incentives, human capital, nonpecuniary benefits, opportunity cost, preferences, self interest, school choice, signaling, skill building, tradeoffs, utility
Cam and Mitch are trying to get Lily into the best preschool they can, and preschool admissions are normally very competitive, but they think that being gay and having a minority child will give them a leg up in the admissions process. The market for daycare appears to be a monopolistically competitive environment in which firms differentiate their offerings to appeal to different parents.
See more: allocation, competition, demand, inefficiency, monopolistic competition, prices, product differentiation, rationing, signaling
Alex is hyper-aware of her future path into college and she knows playing an instrument will help her land in a prestigious college. Her parents had recommended she play the violin since it wasn’t as heavy, but Alex believes cellos are in demand in university orchestras, which should help her admission application. Part of the role of playing an instrument or sport (notice Alex’s lacrosse stick) is not necessarily that they are correlated with better students, but rather they serve as signal that students can maintain a rigorous academic load while also balancing extracurriculars.
See more: choices, college, demand, expectations, signaling, supply, tradeoffs
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
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.
See more: adverse selection, asymmetric information, preferences, signaling
Manny is the first member of the family to graduate from high school despite the fact that he has an uncle who “just does orthopedic surgery.” Apparently you only need a degree to do heart and brain surgery.
See more: ability bias, education, human capital, human capital investments, signaling
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, error, forecasting, signaling, statistics, Type II error