Thursday, October 17, 2013

The Choosening

Tuesday's post invited some commentary from The Cowboy Economist (ecownonmist? No, that's terrible). His challenge:
Is the use of earbuds really euvoluntary? While they lower negative externalities, my putting them in my ears is irrespective of whether you like them or not. Indeed, my action is even irrespective of you actually being in my vicinity. I just want to tune out the rest of the ambient noise, which may be caused by birds or hungry mountain lions. Doesn't it take two to do the EE dance?
 I didn't have a great off-the-cuff answer. I mentioned the initial exchange, where the customer buys the iPod or whatever, but that still doesn't really get at Tony's criticism. To be more accurate, I'd refer to Buchanan's timeless classic Cost and Choice. Here is its heart:
Cost is that which the decision-taker sacrifices or gives up when he makes a choice. It consists in his own evaluation of the enjoyment or utility that he anticipates having to forego as a result of selection among alternative courses of action. The following specific implications emerge from this choice-bound conception of cost:
1. Most importantly, cost must be borne exclusively by the decision-maker; it is not possible for cost to be shifted to or imposed on others.
2. Cost is subjective; it exists in the mind of the decision-maker and nowhere else.
3. Cost is based on anticipations; it is necessarily a forward-looking or ex ante concept.
4. Cost can never be realized because of the fact of choice itself: that which is given up cannot be enjoyed.
5. Cost cannot be measured by someone other than the decision-maker because there is no way that subjective experience can be directly observed.
6. Finally, cost can be dated at the moment of decision or choice.
When I first read this before I started grad school, it blew my mind. I had spent all this time fretting that value was subjective without even considering for a moment that cost was also subjective. And here was James Buchanan saying precisely that--all costs are opportunity costs. And that cost and choice were inextricably bound. If there's any idea that I'd want to impart to someone seriously considering studying economics, this would probably be it.

But what does that have to do with being a jerkface on the bus? I'm glad you asked. If you take Buchanan's reading of Robbins & Hayek seriously, you'll be able to model the iPod as a series of choices. There's the big ex ante initial purchase (and if you want to chase it down the rabbit hole, the web of production decisions that got it to the shelves in the first place) and then there are a series of unilateral choices along the way of "should I listen to Doctor P's Flying Spaghetti Monster on the way to the gym?" You might think of it as the buyer and the seller collapsing into the same person, so BATNA disparity considerations aren't part of the deal, though BATNA desperation certainly could be. Mind you, just because I've never seen a claim that a person could exploit herself doesn't mean that some enterprising academic might not make the effort.

Most of the time when we talk about euvoluntary exchange, it's a matter of a one-off bilateral trade, but there's no reason I can see not to use the six conditions to adjudge unilateral economic choice decisions.

And now for your bass-dropping pleasure.

Seriously you guys, running around Steelport like Neo in The Matrix while this is playing represents the pinnacle of gaming in the modern era. Saints Row y'all.

No comments:

Post a Comment

Do you have suggestions on where we could find more examples of this phenomenon?