Alex is unsure of what she should do with her life and she’s avoiding her mom. Jay picks up on the situation and tries to provide some guidance. Alex has been dreaming of becoming a scientist her whole life, but lately she’s dreamed up becoming a singer. She can’t have both and recognizes that to pick a path requires giving up the other option. We’ve seen this indecision with Alex when she was trying to decide whether to spend her summer interning or relaxing. Jay hints that he used to be a daredevil, but he gave it up to become an entrepreneur.
See more: counterfactual, entrepreneurism, opportunity cost, sunk cost, tradeoffs
Manny puts up a fiberoptic Christmas tree because it is better for the environment, but Jay thinks it is ugly and does not want it in his house. This clip highlights both positive externalities of fiberoptic trees (environmental benefits) and negative externalities of the tree (Jay’s psychic costs). Jay decides instead that he and Manny should go out and cut down a tree for reasons of tradition.
Jay and Manny tried cutting down their own Christmas tree for hours, but it is not budging and keeps ruining their tools. Jay has finally had enough and says Pritchetts know when to give up. All their previous effort represent a sunk cost, and it would take too much effort relative to the reward of a half burned tree to keep going.
See more: behavioral, negative externalities, positive externalities, private benefits, private costs, social benefits, sunk cost, technological change
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
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
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