The Grilled Cheese

Let me ask you a question: have you ever wondered why star athletes go for the biggest contract, even when that team has no shot at winning? Me too, but I think I finally understand why, and it has to do with the strange things going on with money.

Money (dollars in the US) has two main functions. First, it is a unit of currency, traded for goods and services. Second, it is a measure of the value of every aspect of life; how happy we are, how healthy we are, how good we are, and more. In technical terms, it is a measure of utility. On one level, that we use dollars as units of both currency and utility makes a lot of sense. We spend currency based on how much goods or services are worth to us (just another way of saying how much utility they provide us), so why not use units of currency to describe utility? And in a world where everything can be measured precisely, this method might just work.

But we don't live in that world, and we never will. And even if we did, some things are simply impossible to buy or sell: you can't buy your parents, you can't sell your neurons, and you can't purchase friends off the Wal-Mart shelf. And as long as some things remain outside of the realm of currency, then fall solely into the realm of utility. This might not be a big issue. Couldn't we learn to distinguish between the two uses? Maybe, but there is one difference between currency and utility that makes all the difference. 

It has to do with scale. Since currency is a theoretical construct, separate from the physical world, it operates on a linear scale: the amount of stuff a dollar can get you is always the same (not counting inflation, of course). But utility is a direct representation of our physical world, and in our physical world we face diminishing marginal utility. In other words, more stuff is good, but not quite as good as the last stuff. After a certain point, making one more friend is not going to add as much to our happiness as the last friend we made. 

We are so used to dealing with dollar amounts and currency sums that they are more prominent in our minds than the utility they represent. And we are not very good at translating currency into matters of utility. This is especially true when the utility-granting goods or services are far outside our experience, like when dealing with large sums--it's not easy to imagine what $50 million really means in terms of utility. Therefore we often forget about the utility side of things, only taking currency into account. And because currency is on a linear scale, we forget about the diminishing returns to the utility aspect of money, which leads us to take too much money and not enough of the things we want but cannot buy.

This has been a complicated post. So complicated that I've had to rewrite it four times so that it makes sense to me. Let's recap:

1. Money has two functions: currency and utility
2. There are many things in this world that can only describe with utility since they can neither be bought nor sold.
3. Currency operates on a linear scale, while utility faces diminishing returns
4. Currency is more salient than utility, so we often base our financial decisions on matters of currency over utility
5. We are not good at translating currency into utility
6. And so we often don't take diminishing returns into account in our financial decisions
7. Therefore we can end up with too much money and not enough of the things we really want but can't buy

Coming up, I want to talk about what this might mean for the field of economics.

The human vocal system must be essentially the same across cultures, races, and regions, so I would think that lip readers would be able to pick up on differences between accents. Surely strong accents should confuse some lip readers, but can skilled and experienced ones actually recognize the differences?

I did a quick search, and I couldn't come up with anything more reliable than forum anecdotes. Thoughts?

Making a macro difference through micro donations.

That's the mission of a new non-profit that aims to increase online charitable giving. Beanstalk Giving hopes to take advantage of the same principle that I've discussed before, that people are more likely to give when their donation is a small sum on top of a purchase they are making. And, thanks to an API that will integrate easily into online retailer's checkout processes, I think it will succeed.

I believe that one of the best ways to make a true difference in the world is by helping others find a way to make a difference. In my opinion there are not enough organizations in the world that do this, and I am excited to see another one sprout up (no apologies for that pun; it was damn good and you know it). 

Find Beanstalk Giving on their website, Facebook, and Twitter pages.

A couple years ago (in my very first blog post!) I had an idea to give retail consumers the chance to round up their total and donate the difference to charity. Cash payers would not have to deal with lame coins, and plastic payers would see a nice flat charge on their bill.

Now it looks like somebody has implemented this idea online. Change Round-Up rounds online purchases to the nearest dollar and donates the rounded amount to charity. I'm glad that somebody else has had the idea, and I'm not surprised that the first implementation is online given the relative ease of augmenting online retail infrastructure. I hope to see Change Round-Up at more online retailers soon.

I am still interested in making this happen for brick and mortar stores. If you want to help, let me know and maybe we can get something going!

Speeding fines are designed to reduce speeding by increasing incentives to not drive over the limit, which is presumably set to optimize the balance between safety, time savings, and gas costs. In theory, drivers wanting to avoid paying a hefty sum will keep to a lower speed. But that can only happen when drivers believe they will be fined for speeding, when the punishment is a credible threat. And that pretty much can only happen when there are cops around. So people speed when there are no cops, and don't speed when there are cops. I do it, you do it, everybody (with the exception of old Ft. Lauderdale Jews who can't see out the windshield) does it.

So one issue is that drivers speed when there are no cops around. Some attempts have been made to fill those gaps with other enforcement technologies (i.e. radar and plane observation), but my guess is that little signs on the side of road are not terribly effective. Additionally, cops often position themselves out of easy sight. While probably a tactic to help them reach their monthly ticket quotas, this strategy could potentially smooth out the differences in speed by creating a variable schedule.

But there is another issue at hand, rising from the following question: how do drivers determine whether or not there is a cop around? The answer is simple (they look around), but the implications are significant. Anything that distracts drivers from giving their full attention to the road and prevents them from concentrating on safe driving practices is bound to cause undesirable effects. In this way, by trying to avoid cops so they can travel at unsafe speeds, drivers can become even more unsafe! To the extent to which this effect is more unsafe than high speed driving, perhaps we have too many (or is it too few?) cops on the road.