Saturday, January 31, 2004

The Economics of Ecstasy (not the drug)

Wow, so interesting and so timely. This paper by Hugo Mialon looks at the signaling embedded in the (sometimes faked) human orgasm. In my money and banking class this week we were discussing examples of asymmetric information and what clearer example of private information is there then if a women's orgasm was real or fake? Of course Austin Powers would say "Who cares?", but Mialon produces a nice theoretical model to predict when and how often a woman or man - yes man- will fake an orgasm. This is also a brilliant example for my ECO120 class where I was arguing economics is as much about a way of thinking as it is a field of study. Certainly few people would think this topic falls under the traditional areas of economics.

From the Marginal Revolution:

The Economics of Orgasm
I've been an economist for so long that I don't flinch when the paper abstract starts as follows:

"This paper models love-making as a signaling game. In the act of love-making, man and woman send each other possibly deceptive signals about their true state of ecstasy. Each has a prior belief about the other's state of ecstasy. These prior beliefs are associated with the other's sexual response capacity..."

Or if that is not enough for you: "In this paper, love is formally defined as a mixture of altruism and possessiveness. Love is shown to alter the man and the woman's payoff functions in a way that increases the equilibrium probability of faking, but more so for the woman than for the man."

Here is the full paper. I could go on with quotations, but why don't we look at the empirical results, drawn from an extensive data set and questionnaire:

1. 72 percent of women admit to having faked it in their current or most recent relationship, for men the number is 26 percent.

2. You are more likely to fake an orgasm if you are in love. "It was the men I deceived the most that I loved the most," said Marguerite Duras.

3. Being in love and faking are less positively correlated for men than for women. Perhaps men want to look like studs, regardless of the seriousness of the relationship.

4. Women mind less if their partners fake orgasm. (Might some be positively relieved to have it over?)

5. Faking is correlated with age, but in complicated ways. It depends on whether you love your partner, whether you are a man or woman, and how old you are.

6. The more education you have, the more likely you are to fake orgasm. I found this to be the most interesting result.

The author, Hugo Mialon, is on the job market right now and he has a forthcoming co-authored AER piece, plus a revise-and-resubmit at the Rand Journal. His dissertation is "Five Essays on the Economics of Law and Language."

OK, the orgasm stuff is not his most marketable side, but Hugo seems to be a guy with both ideas and good technical skills. Hire this man. If we had a slot at GMU I would be pushing for him, even though he probably fakes his orgasms.

Thanks to Newmark's Door for the initial pointer to the paper.

Update: It looks like Steven Landsburg has picked this up.

Keywords: ECO301, ECO120, signaling, asymmetric information

Friday, January 30, 2004

Asymmetric Information and eBay

I just finished the lecture in money and banking where I talk about the importance of asymmetric information. In fact I always use the quote:

"The secret of success is to know something nobody else knows" -Aristotle Onassis

Well it looks as though, despite great spell checkers (which I'm sometimes too lazy to use), knowing how to spell can be the secret to success. From the Marginal Revolution:

A whole group of people trolls eBay looking for items that are "misplaced" because their descriptions are spelled incorrectly. If you list your "Haitian" painting as a "Hatian" painting no one will find it with a key word search. In essence this means that no one will find it at all, except of course for these noble entrepreneurs, these enforcers of spelling correctness.

I haven't sold much on eBay, but I've often wondered how important the listing info is to the final selling price, and clearly its very important. I bet there are a lot of other arbitrage opportunities. Even just from the different ways people classify things. If I have some old cycling stuff do I post it in sporting goods or in memorabilia? While you can currently cross list things, you pay full price for the second listing. So you want to try to list the item in the category that is going to attract the largest number of buyers, but if you're not a collector, and only selling one of these items, you might not hit the right category or key words. Then the arbitragers step in to profit from your lack of information...

Keywords: ECO301