[User] Please transcribe this text

[Assistant] The next cookie gives you utility increment of .45, the square root of 3. So now we flip back to the previous page.


[User] Please transcribe this text

[Assistant] We're going from the square root of 4 to- we're going from the square root of 4, I'm sorry, to the square root of 6.


[User] Please transcribe this text

[Assistant] Square root of 6 is only .45 more than the square root of 4. And so on. So each additional cookie,


[User] Please transcribe this text

[Assistant] Makes you less and less happy. It makes you happier. It has to. Because more is better. But it makes you less and less happy. Okay? And this makes sense.


[User] Please transcribe this text

[Assistant] Just think about any decision in life starting with nothing of something and having the first one. Slice of pizza, a cookie, deciding on which movie to go to. The first movie, the one you want to see the most, okay, is going to make you happier than you want to see the one you want to see not quite as much. The first cookie when you're hungry will make you happier than the second cookie.


[User] Please transcribe this text

[Assistant] The first slice of pizza will make you happier. Now, you may be close to indifferent, I mean that second slice of pizza makes you almost as happy as the first. But the first will make you happier. Okay, if you think about


[User] Please transcribe this text

[Assistant] That's really sort of that first step. You were hungry and that first one makes you feel happier. Now, but you gotta remember, you always want more cookies.


[User] Please transcribe this text

[Assistant] Now you might say, wait a second, this is stupid. Okay, once I've had 10 cookies, I'm gonna barf. The 11th cookie can actually make me worse off because I don't like barfing. But...


[User] Please transcribe this text

[Assistant] In economics, we have to remember you don't have to eat the eleventh cookie. You can give it away. So if I say you want the eleventh cookie, you can save it for later. You can give it to a friend. So you always want it. In the worst case, you throw it out. It can't make you worse off. It can only make you better off.


[User] Please transcribe this text

[Assistant] And that's where sort of Moore's better assumption comes from. Obviously in the limit, you know, if you get a million cookies, your garbage can gets full, you have no friends to give them to. I understand the limit, these things fall apart.


[User] Please transcribe this text

[Assistant] Okay, but that's the basic idea of more is better and the basic idea of diminishing margin utility. Okay, any questions about that? Yeah.


[User] Please transcribe this text

[Assistant] Utility function can never be negative because we have, well,


[User] Please transcribe this text

[Assistant] Utility, once again, utility is not an ordinal concept. You can set up utility functions such that the number is negative.


[User] Please transcribe this text

[Assistant] You can set that up. Okay, the margin utility is always positive. You always get some benefit from the next unit.


[User] Please transcribe this text

[Assistant] Utility, once again, the measurements are relevant. So it can be negative, you can set it up, I can write my utility function like this, you know, something like that. So, it can be negative, that's just a sort of scaling factor.


[User] Please transcribe this text

[Assistant] But marginal utility is always positive. You're always happier, or it's not, it's non-negative. You're always happier or at least indifferent to getting the next unit. Yeaah.


[User] Please transcribe this text

[Assistant] Uuuh, I'm sorry, you look, figure two five, no, the marginal continue to go down.


[User] Please transcribe this text

[Assistant] So corner solutions, we'll talk a lot about corner solutions in this class, they get ugly. Think of it starting from one.


[User] Please transcribe this text

[Assistant] Starting with that first cookie, every fraction of a cookie makes you happier, but less and less happy with each fraction. Good question. Alright?


[User] Please transcribe this text

[Assistant] Good questions, alright. So now, let's talk about, let's flip back from the math to the graphics and talk about where indifference curves come from. I just drew them out. But in fact, indifference curves are the graphical representation of what comes out of utility function.


[User] Please transcribe this text

[Assistant] Okay, and indeed the slope of the indifference curve.


[User] Please transcribe this text

[Assistant] We're gonna call the marginal rate of substitution.


[User] Please transcribe this text

[Assistant] The rate essentially at which you're willing to substitute.


[User] Please transcribe this text

[Assistant] One good for the other. The rate at which you're willing to substitute cookies for pizza is your marginal rate of substitution.


[User] Please transcribe this text

[Assistant] And we'll define that as the slope of the indifference curve. Delta P over delta C.


[User] Please transcribe this text

[Assistant] That is your marginal rate of substitution. Literally, the difference curve tells you the rate that you're willing to substitute. You just follow along and say, look, I'm willing to give up. Uhm, so in other words, if you look at figure 2-6, you say, look, I'm indifferent between point A and point B.


[User] Please transcribe this text

[Assistant] Is the same to me as two cookies and two slices of pizza. Why is it the same?


[User] Please transcribe this text

[Assistant] Because they both give me utility square root of 4. Right? So given this mathematical rep- I'm not saying you are. I'm saying given this mathematical representation. Okay? You are indifferent between point A and point B.


[User] Please transcribe this text

[Assistant] So what that says, and what's the slope of the indifference curve, what's the arc slope between point A and point B, the slope is negative 2. So your marginal rate of substitution is negative 2. You are indifferent.


[User] Please transcribe this text

[Assistant] Okay, now it turns out you can define the margin of substitution over any segment of a difference curve. And what's interesting is it changes. It diminishes. Look what happens when we move from two pieces and two cookies to, from point B to point C. Now the margin of substitution is only negative a half.


[User] Please transcribe this text

[Assistant] Now I'm only willing to give up one slice of pizza to get two cookies.


[User] Please transcribe this text

[Assistant] What's happening? First I was willing to give up two slices of pizza to get one cookie.


[User] Please transcribe this text

[Assistant] Now I'm willing to give up, willing to give up one slice of pizza to get two cookies. What's happening? Yeaah. Because of? Exactly.


[User] Please transcribe this text

[Assistant] Diminishing marginal utility has caused the marginal rate of substitution itself to diminish. For those of you who are really kind of better at math than I am, it turns out technically, mathematically, marginal utility isn't always diminishing. You can draw up cases. MRS is always diminishing.


[User] Please transcribe this text

[Assistant] So, you can think of marginal utility as always diminishing, it's fine for this class, we get to higher level math and economics, you'll see marginal utility doesn't have to diminish, MRS has to diminish. Okay, MRS is always diminishing.


[User] Please transcribe this text

[Assistant] As you go along the indifference curve, that slope is always falling.


[User] Please transcribe this text

[Assistant] What we can write now is how the MRS relates to utility function. Our first sort of mind-blowing result is that the MRS is equal to the negative of the margin utility of cookies over the margin utility of pizza. That's our first key definition. It's equal to the negative


[User] Please transcribe this text

[Assistant] Of the marginal utility of the good on the x-axis over the marginal utility of the good on the y-axis.


[User] Please transcribe this text

[Assistant] Okay. Essentially, the marginal rate of substitution tells you how your relative marginal utilities evolve as you move down the indifference curve. When you start at point A,


[User] Please transcribe this text

[Assistant] You have lots of pizza and not a lot of cookies. When you have lots of pizza, your margin utility is small.


[User] Please transcribe this text

[Assistant] Here's the key insight. This is the thing which, once again, it's a light bulb thing. If you get this, it'll make your life so much easier.


[User] Please transcribe this text

[Assistant] Margin utilities are negative functions of quantity. The more you have of a thing, the less you want the next unit of it.


[User] Please transcribe this text

[Assistant] That's why, for example, cookies is now in the numerator and pizza's in the denominator. Flipping from this side. Okay? The more you have the good, the less you want it. So start at point A.


[User] Please transcribe this text

[Assistant] You have lots of pizza and not a lot of cookies. You don't really want more pizza, you want more cookies. That means the denominator is small, the more utility of pizza is small, you don't really want it.


[User] Please transcribe this text

[Assistant] But the marginal utility of cookies is high. You don't have many of them. So this is a big number. Now let's move to point B. And think about your dex decision. Well now, your marginal utility of pizza


[User] Please transcribe this text

[Assistant] If you're gonna go from two to one slice of pizza, now pizza's worth a lot more than cookies. So now it gets smaller.


[User] Please transcribe this text

[Assistant] So essentially, as you move along that indifference curve, because of this, you want, because diminishing marginal utility.


[User] Please transcribe this text

[Assistant] It leads to this issue of a diminishing marginal rate of substitution.


[User] Please transcribe this text

[Assistant] Okay, so basically as you along the difference curve, you're more and more willing to give up.


[User] Please transcribe this text

[Assistant] The good on the x-axis to get the good on the y-axis. As you move from the upper left to the lower right on that indifference map, figure 2-6, you're more willing to give up.


[User] Please transcribe this text

[Assistant] The good on the, on the x axis to get the good on the y axis.


[User] Please transcribe this text

[Assistant] And what this implies is that indifference curves are con- indifference curves are convex to the origin. Indifference curves are convex to the origin. It's very important. Okay.


[User] Please transcribe this text

[Assistant] Let's see, they are not concave. They're either convex or straight. Let's say they're not concave to the origin. Okay, to be technical. Difference curves can be linear, we'll come to that. But they can't be concave to the origin. Why? Well let's look at the next figure, the last figure, figure 2-7. What would happen if indifference curves were concave to the origin? Then that would say moving from


[User] Please transcribe this text

[Assistant] So now I've drawn a concave indifference curve. And with this indifference curve, moving from point A to point B leaves you indifference. So you're happy to give up one slice of pizza to get one cookie. Starting with four slices of pizza and one cookie.


[User] Please transcribe this text

[Assistant] You are happy to give up one slice of pizza to get one cookie. Now,


[User] Please transcribe this text

[Assistant] Starting from two and three, you're now willing to give up two slices of pizza to get one cookie. What does that violate? Why does that not make sense? Yeaah.


[User] Please transcribe this text

[Assistant] Yeah, it's large division margin utility. Here, you were, you were, you were only, you were happy to have one slice of pizza to get one cookie. Now you only have two slices of pizza to get one cookie, even though you have less pizza and more cookies. That can't be right.


[User] Please transcribe this text

[Assistant] As you have less pizza and more cookies, cookies, pizza should become more valuable, not less valuable. And cookies should become less valuable, not more valuable.


[User] Please transcribe this text

[Assistant] So a concave to the origin indifference curve would violate the principle of diminishing marginal utility and diminishing marginal rate of substitution. Okay?


[User] Please transcribe this text

[Assistant] What that is saying is that your utility function is really over sets. You're saying utility function isn't over trading cards. It's over sets.


[User] Please transcribe this text

[Assistant] So basically, that's what sort of, you know, what sort of a bit...


[User] Please transcribe this text

[Assistant] You know, our models are flexible. One way is to say they're loose, another way is to say they're flexible. So one, but one of the challenges you'll face on this course is thinking about what is the decision set over which I'm writing my utility function. You're saying it's stats, not trading cards. So that's why it happened. Okay? Other questions? Good question. Yea, in the back.


[User] Please transcribe this text

[Assistant] Yeah, that's, that's a really realistic question. I spent a lot of my research life actually. I do a lot of re-, I did a lot of research for a number of years on thinking about how you properly model addictive decisions like smoking.


[User] Please transcribe this text

[Assistant] And they give decisions like smoking. Essentially, it really is that your utility function itself shifts as you get more addictive.


[User] Please transcribe this text

[Assistant] It's not that your marginatility, the next cigarette's still worth less than the first cigarette.


[User] Please transcribe this text

[Assistant] It's just that as you get more addicted, that first cigarette gets worth more and more to you. So, when you wake up in the morning feeling crappy, that first cigarette still does more for you than the second cigarette. It's just the next day you wake up feeling crappier.


[User] Please transcribe this text

[Assistant] Okay, so we model addiction as something where essentially each day


[User] Please transcribe this text

[Assistant] Cigarettes do less and less for you. You get essentially adjusted to new, you get habituated to higher levels.


[User] Please transcribe this text

[Assistant] And this is why, you know, I do a lot of work, you know, this is why, unfortunately, we saw last year the number, the highest number of deaths from accidental overdose in US history. 72,000 people died from drug overdoses last year, more than ever died in traffic accidents in our nation's history. Okay? Why? Because people get habituated to certain levels, and they get habituated to certain levels, so people get hooked on Oxycontin.


[User] Please transcribe this text

[Assistant] They get habituated at a certain level, they maybe switch to heroin, and they're habituated at a certain level, and now there's this thing called fentanyl.


[User] Please transcribe this text

[Assistant] Which is synthetic opioid brought over from China, which is incredibly powerful. And dealers are mixing the fentanyl in with the heroin.


[User] Please transcribe this text

[Assistant] And the people shoot up, not realizing, at their habituated level, not realizing they have this dangerous substance and they overdose and die.


[User] Please transcribe this text

[Assistant] And that's because they've gotten habituated to high levels, they don't realize they're getting a different product. So it's not about not diminishing large utility, it's about different, underlying different products. Alright? Other questions?


[User] Please transcribe this text

[Assistant] Sorry for that depressing note, but it's important to be thinking about. That's why, once again, we're the digital science. We have to think about these things. Okay, now, let's come to a great example.


[User] Please transcribe this text

[Assistant] That I hope you've wondered about and maybe you've already figured out in your life. But I hope you've at least stopped and wondered about.


[User] Please transcribe this text

[Assistant] Or the next size, whatever the hell they call it, bigger. Okay? You can get for 70 more cents. So $2.25 and you can double it for 70 more cents. Or take McDonald's. A small drink is $1.22 at the Mc-, local McDonald's. But for 50 more cents you can double the size. Okay? What's going on here? It, why did they give you twice as much liquid


[User] Please transcribe this text

[Assistant] Or if you go for ice cream, it's the same thing. Why do you need twice as much for much less than twice as much money? What's going on? Yeaah.


[User] Please transcribe this text

[Assistant] Exactly, that's a great way to explain it. The point is, it's all about diminishing marginal utility.


[User] Please transcribe this text

[Assistant] Okay, when you come in to McDonald's on a hot day, you are desperate for that soda.


[User] Please transcribe this text

[Assistant] But you're not as desperate to have twice as much soda. You'd like it. You're probably willing to pay more for it. But you don't like it nearly as much as that first bit of soda.


[User] Please transcribe this text

[Assistant] So those prices simply reflects the market's reaction to understanding diminishing margin utility.


[User] Please transcribe this text

[Assistant] Now we haven't even talked about the supply side of the market yet. I'm not getting to how providers make decisions. That's a much deeper issue. I'm just saying that this is diminishing marginal utility in action and how it works in the market. And that's why you see this.


[User] Please transcribe this text

[Assistant] Okay, so basically, uhm, what you see is that, uh, that first bite of ice cream, for example, is worth more, and that's why the ice cream is twice as big, doesn't cost, uh, twice as much.


[User] Please transcribe this text

[Assistant] Now, so basically, what this means is, if you think about our demand and supply model, on a hot day, or any day, the demand for the first 16 ounces


[User] Please transcribe this text

[Assistant] Is higher than the demand for the second 16 ounces.


[User] Please transcribe this text

[Assistant] But the cost of producing 16 ounces is the same. So let's think about this, it's always risky when I try to draw a graph on the board, but let's, bear with me, okay? So let's think about this as a simple supply and demand model.


[User] Please transcribe this text

[Assistant] You have this, you have this supply function for soda. And let's assume it's roughly flat. Okay, let's assume sort of the cost of firm producing each, you know, within some range, the firm basically every incremental 16 ounces costs them the same. So that's sort of their supply curve. Okay. And then you have some demand curve. Okay. You have some demand curve, which is downward sloping.


[User] Please transcribe this text

[Assistant] Okay? And they set some price. And this is the demand for 16 ounces. Now, yeaah, what's the demand for the next 16 ounces? Okay? Yeaah, this isn't gonna work. We have to have an upward sloping supply curve. Sorry about that. We have a slightly upward sloping supply curve.


[User] Please transcribe this text

[Assistant] Okay, now we have the demand for the next, so, so here's your, here's your price. Here's your $1.22.


[User] Please transcribe this text

[Assistant] Okay, now you say, well, what's my demand when I sell 32 ounces?


[User] Please transcribe this text

[Assistant] Well it turns out demand doesn't shift out twice as much, it just shifts out a little bit more. So you can only charge $1.72 for the next 16 ounces. Probably if you want to go to the big, if you go to the 7-Eleven where you can get sizes up to, you know, as big as your house. Okay? They keep, these curves keep getting closer and closer to each other. So those price increments get smaller and smaller.


[User] Please transcribe this text

[Assistant] And that's why you can get the monster, you know, ginormous gulp at 7-Eleven.


[User] Please transcribe this text

[Assistant] Is really just not that indi- not that different from the price of getting the small little mini size. Okay? Because of diminishing margin utility.


[User] Please transcribe this text

[Assistant] Alright, and so that's how the market, that's essentially how we can take this abstract concept, this sort of crazy math, and turn it into literally what you see in the store you walk into. Okay, questions about that? Yeah.


[User] Please transcribe this text

[Assistant] Well, I mean, the risk of my going to this model is, you know, once we get non-linear, or we do things in this class, we have to start talking about supply factors I want to talk to. But there's two answers. One is packaging efficiencies.


[User] Please transcribe this text

[Assistant] But the other is, if you actually go to Costco.


[User] Please transcribe this text

[Assistant] And look at their prices. For many things, they're not actually better than the supermarket.


[User] Please transcribe this text

[Assistant] Then, not that much less than a thousand times buying an eight pack, eight granola bars. It turns out, it's less!


[User] Please transcribe this text

[Assistant] But it's not nearly as much less as these examples as Soto's and McDonald's. Which is exactly your point. Utility diminishes less.


[User] Please transcribe this text

[Assistant] So they don't want to charge as much less in multiple packages.


[User] Please transcribe this text

[Assistant] So you can actually, if you compare the gap in perishable product pricing by size, it's much larger than the gap in non-perishable pricing by size. Great point. Yeaah.


[User] Please transcribe this text

[Assistant] Right? That's exactly right. And that comes to this point. It's sort of like, it's non-perishable as you get longer apart.


[User] Please transcribe this text

[Assistant] Uh, so uhm, but you know, it's all this really interesting thing. So at Fenway, okay, you can get, you get like a regular size soda, it's like crazy, it's like six bucks.


[User] Please transcribe this text

[Assistant] Then for like 8 bucks, you get a big soda. Then for 10 bucks, you get a refillable big soda.


[User] Please transcribe this text

[Assistant] Okay, now the question is can you bring that refillable soda back to additional games?


[User] Please transcribe this text

[Assistant] Technically not, but I do. Uh, and uhm, and basically they sort of understand. So, so this interesting question of sort of the perishability of things and how that's, and how that's gonna affect, uh, things going on. It's a really, it's a really, it's an interesting question. Other comments?


[User] Please transcribe this text

[Assistant] Okay, I'm gonna stop there. Those are great comments. Thanks everyone for participating. And we will come back next time and talk about the sad reality that we haven't won the lottery and we have limited amounts of money.


[User] Please transcribe this text

[Assistant] As dead as I would have been the last eight and a half thousand times you saved me. Pretty sure I still owe you a few. That's smart.


[User] Please transcribe this text

[Assistant] That's right. The city is in danger. It needs our help.


[User] Please transcribe this text

[Assistant] Well, what matters is, you are both safe.


[User] Please transcribe this text

[Assistant] I don't think you or may have anything to worry about. As long as you stay away from places you're not supposed to be. Well, I should go.


[User] Please transcribe this text

[Assistant] I need to speak to your head doctor. There's no doctors here. Who's running this place? Me, mostly. Oh, okay. It's been a while, but I'll do my best. I'll need masks, gloves, whatever you have to sterile.


[User] Please transcribe this text

[Assistant] I had somebody count the number of books with happiness in the title published in the last five years and they gave up after about 40 and there were many more.


[User] Please transcribe this text

[Assistant] There are several cognitive traps that sort of make it almost impossible to think straight about happiness. And my talk today will be mostly about these cognitive traps. This applies to lay people thinking about their own happiness and it applies to scholars thinking about happiness because it turns out we're just as messed up as anybody else is.


[User] Please transcribe this text

[Assistant] The first of these trap is a reluctance to admit complexity. Turns out that


[User] Please transcribe this text

[Assistant] The word happiness is just not a useful word anymore because we apply it to too many different things. I think there is one particular meaning to which we might restrict it, but by and large, this is something that we'll have to give up and we'll have to adopt a more complicated view of what well-being is.


[User] Please transcribe this text

[Assistant] Being happy in your life and being happy about your life or happy with your life. And those are two very different concepts and they're both lumped in the notion of happiness. And the third is, it's the focusing illusion. And it's the unfortunate fact that we can't think about any circumstance that affects well-being.


[User] Please transcribe this text

[Assistant] And it was absolutely glorious music. And at the very end of the recording, there was a dreadful screeching sound. And then he added, really quite emotionally, it ruined the whole experience. But it hadn't.


[User] Please transcribe this text

[Assistant] What it had ruined were the memory of the experience. He had had the experience. He had had 20 minutes of glorious music. They counted for nothing because he was left with a memory, the memory was ruined, and the memory was all that he had gotten to keep.


[User] Please transcribe this text

[Assistant] What this is telling us really is that we might be thinking of ourselves and of other people in terms of two selves. Uh, there is an experiencing self who lives in the present.


[User] Please transcribe this text

[Assistant] And knows the present. It's capable of reliving the past, but basically it has only the present. It's the experiencing self that the doctor approaches, you know, when the doctor asks, does it hurt now when I touch you here? And then there is a remembering self.


[User] Please transcribe this text

[Assistant] And the remembering self is the one that keeps score and maintains the story of our life and it's the one that the doctor


[User] Please transcribe this text

[Assistant] That is what we get to keep from our experiences is a story. And let me begin with one example.


[User] Please transcribe this text

[Assistant] And the surprise is that patient A had a much worse memory of the colonoscopy than patient B. The stories of the colonoscopies were different and


[User] Please transcribe this text

[Assistant] Because a very critical part of the story is how it ends.


[User] Please transcribe this text

[Assistant] And the one that is worse is the one where pain was at its peak at the very end.


[User] Please transcribe this text

[Assistant] To suffer, but just a little, and much less than before, and if you do that for a couple of minutes.


[User] Please transcribe this text

[Assistant] Continuously, it has moments of experience, one after the other. And you can ask what happens to these moments.


[User] Please transcribe this text

[Assistant] And the answer is really straight forward. They are lost forever. I mean, most of the moments of our life, and I calculated, you know, the psychological present is said to be about three seconds long. That means that, you know,


[User] Please transcribe this text

[Assistant] In a life there are about 600 million of them, in a month there are about 600,000. Most of them.


[User] Please transcribe this text

[Assistant] And yet, somehow you get the sense that they should count. That what happens during these moments of experience is our life. It's the finite resource that we're spending while we're on this earth.


[User] Please transcribe this text

[Assistant] And how to spend it would seem to be relevant, but that is not the story that our remembering self keeps for us. So we have the remembering self and the experiencing self, and they're really quite distinct. The biggest difference between them is in the handling of time.


[User] Please transcribe this text

[Assistant] From the point of view of the experiencing self, if you have a vacation and the second week is just as good as the first,


[User] Please transcribe this text

[Assistant] The two week vacation is twice as good as the one week vacation. That's not the way it works at all for the remembering self. For the remembering self, the two week vacation is barely better than the one week vacation because there are no new memories added. You have not changed the story. And in this way,


[User] Please transcribe this text

[Assistant] Time is actually the critical variable that distinguishes


[User] Please transcribe this text

[Assistant] The remembering self does more than remember and tell stories. It is actually the one that makes decisions.


[User] Please transcribe this text

[Assistant] Because if you have a patient who has had say two colonoscopies with two different surgeons and is deciding which of them to choose, then


[User] Please transcribe this text

[Assistant] The one that chooses is the one that has, you know, the memory that is less bad, and that's the surgeon that will be chosen. The experiencing self has no voice in this choice. We actually don't choose between experiences. We choose between memories of experiences.


[User] Please transcribe this text

[Assistant] And even when we think about the future, we don't think of our future normally as experiences. We think of our future as anticipated memories.


[User] Please transcribe this text

[Assistant] How much do we consume our memories? That is one of the explanations that is given for the dominance of the remembering self.


[User] Please transcribe this text

[Assistant] And when I think about that I think about a vacation we had in Antarctica a few years ago which was clearly the best vacation I've ever had. And I think of it relatively often relative to how much I think of other vacations.


[User] Please transcribe this text

[Assistant] Now that is three weeks and that is at most an hour and a half. There seems to be a discrepancy. Now I may be a bit extreme, you know, in how little appetite I have for consuming memories, but even if you do more of this, there is a genuine question. Why


[User] Please transcribe this text

[Assistant] Do we put so much weight on memory relative to the weight that we put on experiences? So I want you to think about a thought experiment.


[User] Please transcribe this text

[Assistant] Imagine that for your next vacation you know that at the end of the vacation all your pictures will be destroyed and you'll get an amnesic drug so that you won't remember anything.


[User] Please transcribe this text

[Assistant] There is a conflict between your two selves and you need to think about how to adjudicate that conflict and it's actually not at all obvious because if you think in terms of time, then


[User] Please transcribe this text

[Assistant] You get one answer, and if you think in terms of memories, you might get another answer. Why do we pick the vacations we do is a problem that confronts us, you know, with the choice between the two cells. Now, the two cells


[User] Please transcribe this text

[Assistant] Bring up two notions of happiness. There are really two concepts of happiness that we can apply. One per self.


[User] Please transcribe this text

[Assistant] And then you would ask how happy are the moments in the experiencing self's life? And they're all happiness for moments is a fairly complicated process. What are the emotions that can be measured? And by the way, now we are capable of getting a pretty good idea of the happiness of the experiencing self over time.


[User] Please transcribe this text

[Assistant] Anyone who doesn't distinguish those notions is going to mess up the study of happiness. And I belong to a crowd of students of well-being who've been messing up the study of happiness for a long time in precisely this way.


[User] Please transcribe this text

[Assistant] The distinction between the happiness of the experiencing self and the satisfaction of the remembering self has been recognized in recent years and there are now efforts to measure the two separately. The Gallup organization has a world poll where more than half a million people have been asked questions.


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[Assistant] About what they think of their life and about their experiences and there have been other efforts along those lines. So in recent years we have begun to learn about the happiness of the two selves.


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[Assistant] And the main lesson I think that we have learned is that they're really different.


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[Assistant] You can know how satisfied somebody is with their life, and that really doesn't teach you much about how happily they're living their life, and vice versa.


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[Assistant] You know, just to give you a sense of the correlation, the correlation is about .5. What that means is if you met somebody and you were told, oh, his father is six feet tall.


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[Assistant] How much would you know about his height? Well, you would know something about his height, but there's a lot of uncertainty. You have that much uncertainty. If I tell you that somebody ranked their life 8 on a scale of 10, you have a lot of uncertainty about how happy they are with their experiencing self.


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[Assistant] So the correlation is low. We know something about what controls satisfaction of the happiness self. We know that money is very important, goals are very important.


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[Assistant] Spending time with people that we like. There are other pleasures, but this is dominant. So if you want to maximize the happiness of the two selves, you are going to end up doing very different things.


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[Assistant] Another reason we cannot think straight about happiness is that


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[Assistant] So if you ask the simple question of how happy people are in California, you are not going to get


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[Assistant] And that contrast says in climate. Well it turns out that climate is not very important to the experiencing self. And it's not even very important to the reflective self that decides how happy people are.


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[Assistant] But now, because the reflective self is in charge, you may end up, some people may end up moving to California, and it's sort of interesting to trace what is going to happen to people who move to California in the hope of getting happier. Well, their experiencing self is not going to get happier. We know that.


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[Assistant] And they will feel they made the right decision. It is very difficult to think straight about well-being, and I hope I have given you a sense of how difficult it is. Thank you.


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[Assistant] I think the most interesting result that we found in the Gallup survey is a number which we absolutely did not expect to find. We found that with respect to the happiness of the experiencing self. When


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[Assistant] So it's a large representative sample. Below an income of $600,000 a year.


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[Assistant] $60,000 a year, people are unhappy, and they get progressively unhappier the poorer they get. Above that, we get an absolutely flat line. I mean, I've really seen lines so flat. Clearly, what is happening


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[Assistant] The other self, the remembering self, you get a different story. The more money you are, the more satisfied you are. That does not hold for emotion.


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[Assistant] It is happening and in other countries it is happening. People are recognizing that they ought to be thinking of policy when, of happiness when they think of public policy. It's going to take a while.


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[Assistant] This is going to influence policy, I think, in years to come. In the United States, efforts are being made to measure the experience happiness of the population. This is going to be, I think, within the next decade or two part of national statistics.


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[Assistant] Alright guys, in this lesson we'll go through the installation steps to install Git Bash and Git on Windows. Mac already comes with Bash pre-installed, so if you're working on a Mac you can skip this lesson and head over straight to the next lesson.


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[Assistant] Now the first thing you're going to do is you're going to navigate to Git for Windows and you're going to download the Git SCM.


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[Assistant] Now once that's downloaded, go ahead and open up the installer and select yes.


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[Assistant] And then you're going to agree to the license by clicking next, select the location where you're going to install Git. On this next step, where it asks you to select which components should be installed, make sure that this checkbox next to git bash is selected and is checked as yes.


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[Assistant] Now go ahead and leave the default for the rest and click next.


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[Assistant] Now once installation is completed, let's make sure that it works. So let's open up the S code and open up a terminal and you can find that on the top menu. Click terminal, new terminal, and then in this new terminal,


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[Assistant] Click on that drop down button next to the plus sign and select git bash.


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[Assistant] Now you should see something similar to this with a dollar sign in the terminal.


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[Assistant] Now in order to configure VS code to make git bash your default shell, we have to go to the command palette and we can find that by going to view command palette. And then in the command palette, we're going to search for select default profile. And once that comes up in the dropdown, select it.


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[Assistant] And then select git bash. And this is going to set it so that every time you open up a new terminal, we're working with git bash as the selected terminal.


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[Assistant] So let's try it out. Let's click close down that terminal, select a new one, and you can see bash showing as the profile for our terminal. And there you have it.


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[Assistant] Sable won't listen to me. She has Michaels and the Bowery. They're moving him to a new safe house tomorrow at noon. But she's totally ignoring Grand Central.


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[Assistant] I did wanna quit when I heard. Then I remember what my dad used to say. A hero's just a guy who doesn't give up.


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[Assistant] You want me to beg? Not gonna happen!


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[Assistant] Voxan's really into the constant vigilance thing, huh? For real.


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[Assistant] I gotta start taking notes on all your new powers. So, what's the plan now?


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[Assistant] I guess. Well, good luck. Call if you need me.


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[Assistant] Okay, so, uh, let's continue our discussion of welfare economics. Just to review where we are, the first set of lectures in the course are about positive economics, about understanding where supply and demand curves come from, uh, and what they mean.


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[Assistant] Now, last lecture we turned from positive to normative economics and actually making judgments about whether things are good or bad. And we introduced the concept of welfare, economic welfare or well-being. And we talked about consumer surplus.


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[Assistant] Which is a measure of how well off consumers are made by a given exchange of goods and services. And producer surplus, how well off producers are made. We're gonna start our lecture by proving


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[Assistant] What's modestly called the first fundamental theorem of welfare economics, which is that competition maximizes welfare.


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[Assistant] Taking our positive economics and meeting our normative economics. That is


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[Assistant] We are going to talk about how the model we've derived so far, which is the equilibrium to perfect competition, happens to also be the outcome that delivers the maximum well-being to society. Let's step back. Well-being we called welfare.


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[Assistant] How do we define the well-being of society? Well, we're gonna start with a simple definition, which is we're gonna sadly say that social welfare


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[Assistant] Social welfare, the total welfare of society is simply consumer surplus plus producer surplus.


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[Assistant] That is, we're not gonna put any different weights. We're not gonna say we like somebody better than another. We're just gonna say, look, surplus is produced by a transaction. And we just care about the total surplus that's produced.


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[Assistant] And later we can come down and be about consumers versus producers and we will. But right now let's just say we care about the total surplus that's produced for society. How much benefit is produced by this transaction?


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[Assistant] Okay, well the benefits produced by this transaction is going to be the surplus derived


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[Assistant] Surplus generated for consumers by that transaction, and the surplus generated for producers by that transaction. So our total measure of social wellbeing is gonna be the sum of consumer and producer surplus. And we are gonna prove


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[Assistant] As I said, you don't need to know this, but it's in graduate economics called the first fundamental theorem of welfare economics.


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[Assistant] Which is that under the assumptions we've made, which are many, okay, under the assumptions we've made, the competitive equilibrium where supply equals demand is the point that maximizes social welfare.


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[Assistant] That is the key insight is the point that the market naturally delivers. The equilibrium that's gained by the market naturally happens to be the point that also makes society as well off as possible. A very profound result.


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[Assistant] Okay, that is a positive conclusion, which is that supplying a man will meet a certain equilibrium.


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[Assistant] Now the best way to see this is just graphically. So let's go to figure 10-1. Okay? Figure 10-1 has supply and demand curve.


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[Assistant] Okay, once again, whether these are curved or linear, these are just, you know, it's still the basic idea of supply and demand curve.


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[Assistant] So curves applying a main curve are things which are more sort of constant elasticity type curves, but that doesn't really affect the intuition. Okay?


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[Assistant] We have here the triangles of consumer surplus and producer surplus. So consumer surplus, give me the letter. Somebody raise their hand.


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[Assistant] And tell me which letters on this diagram correspond to consumer surplus and why.


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[Assistant] Exactly, everything above, below the demand curve, above the price consumer surplus. So R plus V. So therefore what's producer surplus? Same person. S plus T plus U.


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[Assistant] Is producer surplus. So consumer surplus R plus V, producer surplus is S plus T plus U. Okay?


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[Assistant] You can see, those of you who are sort of graphically oriented, can immediately see the sum of those two triangles will be maximized at the intersection of the curves and nowhere else. Okay? So, for example, let's think about the case where I say, well look, it's a shame the price is that high, we ought to make the price lower.


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[Assistant] Let's set a new price. Let's have the government mandate a new price at P2. Suppose the government intervenes and says we're gonna set a price ceiling. We're gonna say no one can charge more than P2 for their product.


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[Assistant] And won't that be a good thing because consumers will be better off, they'll pay lower prices. Well, what does that do?


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[Assistant] That does, what does that do to consumer surplus? Well, consumer surplus used to be R plus V.


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[Assistant] It instead becomes r plus s, which is bigger.


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[Assistant] And you gain the rectangle S. But the key point is, at the price E2, okay, at the price P2, uhm, yeaah, that becomes the new consumer surplus. The new producer surplus is what? At that price P2, what's the new producer surplus? So raise your hand and tell me. Yeaah. It's T. It drops to T. Producers just get below the price above the supply curve.


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[Assistant] So what has happened to total social welfare? It has fallen by the amount V plus U. Total social welfare has fallen by V plus U. So in some sense, two things have happened here. We've set this price. The first is a transfer.


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[Assistant] We have transferred the rectangle S from producers to consumers.


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[Assistant] S used to be part of producer surplus, we're now giving it to consumers.


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[Assistant] First thing to have is a transfer. That was probably the idea of this policy. Make consumers better off.


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[Assistant] So we've transferred what used to be producer plus two consumers. That's the rectangle S.


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[Assistant] That's the first thing that's happened. So, thing one that's happened is a transfer.


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[Assistant] A deadweight loss of u plus v. DWL, deadweight loss.


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[Assistant] What is a deadweight loss? That is the net reduction in welfare from trades that are not made.


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[Assistant] The dead weight loss is a key concept. We'll come back to you and expect you to know it in your sleep.


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[Assistant] Okay, is the deadweight loss is the net reduction.


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[Assistant] In social welfare, from trades that are not made.


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[Assistant] The intuition here is that every trade that makes at least one party better off without making the other party worse off is a good trade to do.


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[Assistant] Under the assumptions we've made so far, if you ever trade that increased consumer surplus, or produced surplus, or both, that's a good thing to have.


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[Assistant] Right? If my daughter has any song she wants to buy by Kendrick Lamar, that she values it more than a dollar. She gets them for a dollar. Anything which stops her from buying those songs is bad. She's losing surplus.


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[Assistant] Okay, so basically the key point is that dead weight loss is an inefficiency.


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[Assistant] Okay, we talked about how competition leads to maximally efficient production.


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[Assistant] Because that point is the point which makes society best off, defined as the sum of consumer surplus plus producer surplus.


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[Assistant] That this point, which before today, you knew as the outcome, I showed you in the first lecture, this is what happens when you have supply and demand, you get to this equilibrium. That happens to be the very best place to be. And that's why we call it the first fundamental theorem. It's very important. Okay? Yeaah.


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[Assistant] So, so, so let's, I want to come to that. Let's talk about that. Let's go to another example to talk about that. Let's talk about interventions. Let's do it, let's do an example.


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[Assistant] Let's, that was just sort of to teach you the basic idea, but let's go onto a more explicit example of a government intervention.


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[Assistant] That, that uhm, I'm always, I'm always not sure whether, why you want to teach these things, so.


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[Assistant] So let's ask, let's take an example of a market. Let's consider the market for gas. So go to figure 10-2.


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[Assistant] This is the market we talked about before, the market for gas. Imagine the market for gas is initially in equilibrium with supply curve S1 and the domain curve D.


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[Assistant] It's initially in equilibrium at point literal E1. With Q1 gallons of gas being sold at a price P1. That's the initial equilibrium. Now.


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[Assistant] Imagine that there is an oil crisis.


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[Assistant] Because, for example, a little company decided it would be a good idea to drill eight miles underground, horizontally.


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[Assistant] So the supply curve shifts upwards. We talked about this last time.


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[Assistant] So, you move, you shift along the demand curve to the new point E2, which is new equilibrium. And all's well and good. Okay, prices go up, that's what happened after deep water and things like that. Okay? Now, imagine the government doesn't like that.


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[Assistant] Magic government says, well, we don't like that. We don't like the fact consumers have to pay more for gas. Consumers vote us out of office, we'll have to pay more for gas. So we are going to solve this by imposing a price ceiling. We are going to announce the price of gas must remain at its old level P1.


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[Assistant] Figure 10-3 shows what happens when the government imposes that price ceiling. Okay? Well,


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[Assistant] How much actually gets sold in the market? This comes to the question that was just asked.


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[Assistant] Well, this is sort of a new thing, this sort of a new thing we've looked at, which is we have this situation with excess demand. At the price P1, consumers still want Q little d.


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[Assistant] Still are working off the same demand curve. If the government says we still want the price to be P1, they're like, great, we still want as much gas as we had before. Suppliers are like, no way, we're not gonna supply it. If you're gonna keep the price at that level, we're gonna produce less gas because we have a rising marginal cost.


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[Assistant] So if you're gonna force out that same price, we're gonna work our way back down the supply curve and produce less gas. So suddenly, you have a situation of excess demand that doesn't get resolved.


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[Assistant] Now what determines what actually gets sold when there's a price restriction? Here's the way I like to think of it.


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[Assistant] Means that suppliers want, are asked to apply more than they're willing to. So they just say no.


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[Assistant] So you actually get the ultimate quantity in the market is QS. It doesn't matter that demanders want QD. They can't buy stuff that's not produced. Likewise, we'll do examples later with a price floor.


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[Assistant] Where suppliers, where consumers want less than suppliers want to provide, then it's consumers that decide what gets sold. So basically whoever wants less gets to decide.


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[Assistant] So you end up with QS units of gas sold at a price P1. So what the price ceiling does is move you from E1 to E3. You would have moved to E2 without the government intervention. Instead it moves you to E3. Okay? And as a result,


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[Assistant] Well, that's a very deep question. As I said, we don't have a nationalized gas industry. We just have private gas industry. There's a separate issue, you know, a larger issue about


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[Assistant] Whether private or public sector should be producing things, and that's sort of beyond the scope of what we're discussing here.


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[Assistant] But for now, assume the government just has a regulatory role, not a gas production role.


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[Assistant] The government, by the way, does have a little of a gas production role, because the government actually has something called the Strategic Oil Reserve, where they have millions of barrels they can actually release and


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[Assistant] What are the costs and benefits of government intervention? The costs of government intervention are two-fold. What are the costs of this price ceiling?


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[Assistant] If you didn't restrict things, there are people who would have bought gas to the right of Q sub s and to the left of E2. Those units between Q sub s and E2, where E2 intersects the x-axis.


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[Assistant] Those are units where the consumer surplus plus the producer surplus is positive, right? You look at the unit right to the right of Q sub S. That's a unit.


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[Assistant] That consumers would have happily bought at the new higher price, and producers would have happily sold the new higher price, but the government isn't letting it happen. So that's a deadweight loss. That's an inefficiency. Okay? So that's the first cost.


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[Assistant] The cost of society of trades that don't get made. And we call this an efficiency loss.


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[Assistant] Because there are efficient trades. Things are efficient if they make the whole, the joint surplus is positive. If our net people are better off. There are efficient trades which both sides were happy to make, and they can't make, and they can't make. So we call this an efficiency loss. Okay? But that's not the only cost to this policy. What's the other cost? It's a hard question. Yeaah.


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[Assistant] Uh, that's, so there's enforcement, you have to like go around and send regulars around the gas stations to make sure they're not charging the wrong price. That's true, I sort of make that small, I was thinking more sort of a theoretical. Not theoretical, but what's the other big source of, what, yeah.


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[Assistant] So if you think about, let's go back to figure 10-2, it's easy to see there. If you think about,


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[Assistant] Who gets gas at the initial equilibrium at E1? Actually no, but let's go to 10-3, that's fine. So let's say we hadn't interfered, and we'd allowed the price to go to E2.


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[Assistant] Well, fewer people would have bought gas, right? Supply, the quantity would have fallen from QD, would have fallen all the way from E1 to E2. But the people who dropped out would have been who? The people who valued gas the least. The people who got the lowest surplus from it. Okay?


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[Assistant] However, now, suddenly, you only have QS units of gas. And you have QD people who want them. Well now who decides who gets them?


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[Assistant] Before the market did the magic, the market made sure the people who wanted the units got them.


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[Assistant] Now all of a sudden, something else has to decide. So how do you resolve this? Well, we actually have an answer to this.


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[Assistant] We had a gas crisis in the 1970s and the government imposed a price ceiling. And how did it get resolved? How did we decide then who got the gas? Does anyone know? Raise your hand and tell me if you know. Yeah?


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[Assistant] People wait in line. People basically sat in their cars and waited in line. Okay? Now, so essentially, if you think about it, we, goods are gonna get allocated. Somehow.


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[Assistant] If the market doesn't allocate them, there'll be another less efficient allocation mechanism. Okay? And basically, why is it inefficient that people waited in line for gas?


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[Assistant] There's actually two reasons, one's sort of cute, but what's the main reason it's inefficient to be waiting in line for gas? Yeah?


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[Assistant] But certainly something I would have enjoyed more than waiting in line for gas. I think we can all agree that there's something we'd rather be doing with our time than waiting in line for gas. Okay, unless you really like the music in your car stereo and you can't listen anywhere else. I don't know what the story would be, but I can't imagine


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[Assistant] Society is losing out because you are not using your time in the most productive way. In the way that maximizes your welfare. Okay? So there's that, what else? What's the other small, other cost? Yeaah.


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[Assistant] So basically this is the inefficiency from a non-market allocation mechanism.


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[Assistant] Okay, which is that people could be doing more productive things and not wasting gas waiting in line. Yeah?


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[Assistant] No, QD minus, because we fixed the price of P1. So it's QD minus Q, since we fixed the price of P1, people want, what's the demand at that price? QD. What's the supply at that price? QS. So that's the excess demand. Okay? So now, yeaah.


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[Assistant] No, it doesn't. But it does assume that basically the market, and this comes to the trade-off. What's the benefit of this policy? Which you've raised with your question, which is equity.


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[Assistant] Which is, I've defined consumer surplus as simply being what the market delivers. So basically, rich guys have more consumer surplus than poor guys. Okay? That might not seem fair to people.


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[Assistant] Okay, as a result, the benefit is equity, which is that if you, that everyone gets gas at a lower price, rather than the price rising, the people who drop out may actually not be the people who don't need to drive, the people who can't afford to drive.


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[Assistant] So they drop out. Remember, where does the demand curve come from? Comes to utility maximization. That's a constrained maximization.


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[Assistant] So the people who drop out may, may be people we want. Maybe their people have to lose their jobs. Because they can't drive to their jobs anymore. That's unfortunate.


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[Assistant] So basically, the benefit of this is equity, and that raises something we're to come back to over and over again.


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[Assistant] In this class, which is what we call the equity efficiency trade-off.


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[Assistant] Okay, the equity efficiency trade-off, which is there are many government policies which make society more equal, but along the way deliver deadweight loss.


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[Assistant] And I'll actually tell you later in the class how to optimize across that problem. How to optimize across the trade-off between equity and efficiency. But for right now I just need you to understand that there's a trade-off. Okay? Yeaah.


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[Assistant] Exactly. It issues a different kind of inequity. So if you're worried about, so in some sense, the rich guy would say, well that's not fair to me, just because I've got a productive job I could be doing.


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[Assistant] And someone else has extra time, why should they get the gas instead of me? So you're right, there's always sort of an inequity.


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[Assistant] I guess when I say equity, that's a great point. When I say equity, I implicitly mean what we call, that's actually a very important point. Whenever I say equity in this course.


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[Assistant] Vertical equity is rich versus poor. Okay? There are other kinds of equity you might care about. Like, who has extra time versus who doesn't have extra time.


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[Assistant] Okay, but, and, and that's a good point. But for now, when I say equity, I'm gonna think about rich versus poor. We think about government policy, equity efficiency, trade-off. We really think about vertical equity. Okay? Other questions about that? Okay, so let's do a couple more examples to drill this intuition home. Okay, let's do a couple more examples. Because this is a very important point.


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[Assistant] Okay. Example A, let's talk about ticket scalping. Okay. I love going to.


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[Assistant] I love going to music concerts, one of my 51st concerts of the year last year.


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[Assistant] Uhm, last night, sorry, went to my 51st concert this year. I love going to music concerts, so I know a lot about the music business.


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[Assistant] Uhm, and ticket scalping at concerts is a big deal. For those who don't know the term, this is the idea of buying tickets essentially on a secondary market. So let's use the example of Adele.


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[Assistant] So Adele, about two years ago, went on tour for the first time in four years to back up an incredibly successful album. And folks really wanted to see her live because she had a big fan base, she was quiet for a while, she made an album, people really wanted to see her live. She wanted to make sure her fans could afford to see her. So what she did is she said,


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[Assistant] Uh, but she's saying, I want to deliver consumer surplus to my fans. I want to make sure my fans can really enjoy this, enjoy this, uh, get surplus. But what happened?


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[Assistant] Well what happened is that the tickets sold out instantly, like literally, instantaneously.


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[Assistant] And the major purchasers were what we call scalpers.


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[Assistant] Who are essentially professionals who buy tickets and then resell them.


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[Assistant] On what we call the secondary market. You might have heard of StubHub. Or other sites like that. Where essentially you go on and buy tickets to sold out events.


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[Assistant] And the prices on StubHub were much higher. It was about $1,500 for a good ticket. About 10 times what she'd set the price at. So basically, who's getting the surplus? Not the fans. The scalpers.


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[Assistant] The people who are quick enough to get online who said bots set up.


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[Assistant] So the second it went online, they went online and got the tickets. They had thousands of bots set up essentially. Somehow they got around to click this if you're human box. I don't know how they do that.


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[Assistant] But essentially, I'm sure smart programmers, you guys can probably do that in an hour, it's an extra credit project.


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[Assistant] Okay, they got around it and they bought, and so essentially Adele actually didn't create surplus for her fans. She created surplus for scalpers. Okay. Now, it didn't used to be this way.


[User] Please transcribe this text

[Assistant] When I was a kid, we didn't have a secondary market, we weighed it online.


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[Assistant] So, when I saw my first concert in 1981,


[User] Please transcribe this text

[Assistant] You guys believe that? 1981 I saw the cars. How many of you guys heard of the cars?


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[Assistant] Anyway, so the cars, I had to wait online for hours to get tickets. Because that was the allocation mechanism. So let's think about whether life is better or worse. Because on the one hand,


[User] Please transcribe this text

[Assistant] Scalpers get money. On the other hand, people don't waste time waiting on line.


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[Assistant] So it really comes out of the same equity trade-off we talked about before.


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[Assistant] Now, as a, as a 16 year old, 1981, I could not have afforded to pay probably the secondary market price. So I, but I was just 16, I had nothing to do with my time. So I was happy to spend hours waiting online. Okay?


[User] Please transcribe this text

[Assistant] But, on the other hand, you could say someone who's very productive, who's a big fan, who's very productive and could be out inventing new products, if they weren't standing on line, they might say that's really inefficient, I'm happy to pay 1500 bucks and spend my time inventing new things, rather than have to sit around waiting on line. So it's not clear which is the better,


[User] Please transcribe this text

[Assistant] Or, uh, or, or, or the worst system. It's hard to say. Yeaah.


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[Assistant] No, here's the point. That's a great point. Which is that, in some sense, what the scalpers do is undo Adele's action and create a truly efficient market. So think of the scalpers as essentially undoing Adele's action, which distorted the market. So you have a market for Adele tickets, which is an equilibrium of $1,500. Adele tried to set a price ceiling at $150.


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[Assistant] Seemingly selfishly saying, look, I'm willing to give up my surplus.


[User] Please transcribe this text

[Assistant] Okay, for my, for my fans. But unfortunately it shouldn't work out that way.


[User] Please transcribe this text

[Assistant] What happened was the market reclobated $1,500, but that extra surplus didn't go to a dell. The consumer surplus still remained above $1,500.


[User] Please transcribe this text

[Assistant] The difference was that extra gaps, 150 and 1500, didn't go to Dell, it went to the scalpers. So, it's probably more efficient than waiting online.


[User] Please transcribe this text

[Assistant] Because waiting in line has inefficiency, whereas this instantaneous spinning is more efficient.


[User] Please transcribe this text

[Assistant] But it, in some sense, is delivering that if the efficiency gain is being delivered not to consumers as Adele wanted, it's being delivered to scalpers. Okay? So basically, now, there's another alternative. What could Adele have done instead?


[User] Please transcribe this text

[Assistant] What, what, what, what, what, what's, what's another way Adele could have approached this? Well, she could have auctioned her tickets online. She could have said, look, I know.


[User] Please transcribe this text

[Assistant] That I can't manage to deliver $40 tickets to my fans. I just can't defeat the scalping system. But why should the scalpers have the money? I'm gonna auction my tickets.


[User] Please transcribe this text

[Assistant] And essentially, she could have set up an efficient market online. We will bid.


[User] Please transcribe this text

[Assistant] And then you would have gotten the efficient outcome. And you wouldn't have waited on line, you would have bid. Now it would have been an inequitable outcome.


[User] Please transcribe this text

[Assistant] But basically the same fans would have gotten the tickets as in the end got them from the scalpers. But instead of paying $1,500 to the scalpers, they'll pay $1,500 to Adele. And probably that's a better outcome. I mean, you know, Adele doesn't need the money.


[User] Please transcribe this text

[Assistant] But at the end of the day, if Adele's generating that amount of goodwill from her fans, it seems like she should get the money, not a bunch of scalpers.


[User] Please transcribe this text

[Assistant] Okay, so I guess probably I'd rather have her have it than the scalpers.


[User] Please transcribe this text

[Assistant] Now, ticketmasters try to set up auction systems, recognizing this problem, and they're not really taking off. And it just, it sort of speaks to the fact that people don't really like to think about economics.


[User] Please transcribe this text

[Assistant] Okay? So, there was, that basically people were like, yeah, but if you auction that's ripping off the fans, that's no fair. And take my answer, I say, well you're getting ripped off anyway just by scalpers. And they said, no, I can still get online first and get my ticket. And people just didn't like it. Thought it was unfair. Even though it's almost certainly a better outcome for society if you think of Dell should have the money rather than the scalpers.


[User] Please transcribe this text

[Assistant] Which speaks to the fact that, you know, morals matter in markets. Okay, we like to think of these markets as abstract amoral concepts. But morals do matter.


[User] Please transcribe this text

[Assistant] Okay, and that basically it sort of matters, you know, uh, you sometimes can't do the right thing because it might not be the thing that makes consumers willing to participate. Okay, so that's one example, scalping. Another example, food banks. Okay, food banks are organizations which provide, oh yeah, go ahead.


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[Assistant] In my, if I could do anything I wanted in life, I'd be a rock star.


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[Assistant] And I thought if I was a rockstar, it'd be cool, I'd like, have a concert for like, my mega fans. Where like, they'd have to prove who they were, and I'd have a bracelet and stuff. It just seems like it's too hard. Seems that technology is just too hard. So actually, there's a really cool example of this. I was on the phone this morning with a, with a, with a rock and roll promoter, who's doing a super cool thing.


[User] Please transcribe this text

[Assistant] Uhm, so as the election approaches, I will nag you guys to vote. Voter turnout among the young is an enormous problem in the US. So she is running a series of concerts around the country.


[User] Please transcribe this text

[Assistant] Where if you show a picture of yourself outside a polling place, you get into the concert for free.


[User] Please transcribe this text

[Assistant] They try to promote voting among young people. It's super cool. It's called I Voted. You can look it up on the web. It's kind of a cool thing. There's a couple concerts here in Boston. They're all over the country.


[User] Please transcribe this text

[Assistant] Uhm, so you could think about things like that. The question is ultimately, you know, do people...


[User] Please transcribe this text

[Assistant] Photoshop, the picture in front of the bowling place, you know, it's all, it's just a question of enforcement. Okay, so let's talk about food banks.


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[Assistant] Feeding America has food banks all over the nation, and they provide free food to the poor. Okay?


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[Assistant] Then all of a sudden the price for turkey goes up, all of a sudden the store runs out of turkey, it says wow I can charge more for turkey, it raises the price, and it equilibrates the market.


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[Assistant] So a market solves for sending the right food to where people want it. But the problem with feeding America


[User] Please transcribe this text

[Assistant] It was very hard for them to figure out where to send the food exactly what people wanted the most because they didn't have the market mechanism.


[User] Please transcribe this text

[Assistant] But they didn't really know, they didn't have the market to tell them where folks wanted which foods. In the real market if you want real foods you bid the price up. In their market you couldn't. So Feeding America came up with a really clever solution. They made a virtual market. They said to each food bank


[User] Please transcribe this text

[Assistant] We are going to give you a fake budget of X hundreds of thousands of dollars. And you bid for which foods you want, based on what the people in your area want. And we will then allocate it according to those bids.


[User] Please transcribe this text

[Assistant] Okay, so in that way, they massively reallocated food. They suddenly said, hey, the one from Idaho is bidding really high for turkey and not all for potatoes. Maybe we should send them more turkey and send potatoes elsewhere.


[User] Please transcribe this text

[Assistant] So they essentially got market signals from a non-financial transaction. It was a super cool idea.


[User] Please transcribe this text

[Assistant] And the amount of, and there was a huge benefit, they were able to effectively reallocate about 50 million pounds of food.


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[Assistant] Through this mechanism. Making sure that food got to the folks that needed it.


[User] Please transcribe this text

[Assistant] So there's an example how you can use a market mechanism without actually, while, while not violating equity. The food was always free. But by setting up these virtual prices,


[User] Please transcribe this text

[Assistant] They manage to get the food delivered to where people want it the most. They let the market send its allocative signals. They let the market be allocatively efficient, send its signals of where people wanted the food, without actually violating equity. Okay? Questions about that. Okay. Now let's go to the hardest, but my favorite example. Which is taxi medallions.


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[Assistant] This is a hard example, but it's a really cool one, and it ends with a great story. Okay. Taxi cabs, now cast your mind back pre-uber. Okay, go back ten years. Or even, I don't know, yea, about ten years.


[User] Please transcribe this text

[Assistant] Taxi cabs were the only way you could get around town if you didn't have, you know, if you wanted to get from point A to point B in a car you didn't own one. You took a taxi. Okay? And,


[User] Please transcribe this text

[Assistant] This was a great example of an economist's perfectly competitive market, in theory. It's an identical product. You want to go from point A to point B.


[User] Please transcribe this text

[Assistant] Okay, it should have been a very effective, perfectly efficient, perfectly competitive market. Okay, but it wasn't.


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[Assistant] Because every city limited the amount of taxicabs that were allowed in their city. Every city had a system where to be a taxicab, you had to have what was called a medallion. It wasn't really a medallion, it was an original medallion, it was just a piece of paper actually.


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[Assistant] They said we're only going to allow X many taxi cab drivers in the city and every city did this. Now.


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[Assistant] We're gonna do both a positive and normative analysis of this policy.


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[Assistant] Let's start with a positive analysis. What did this policy do? Okay, now I'm gonna go to figure 10-4. Figure 10-4 will be


[User] Please transcribe this text

[Assistant] One of the most complicated figures to do in this class, so I'm gonna go through it as slowly as I can, but please stop me if it's not clear.


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[Assistant] Okay, this one of these figures will go back and forth between the two sides.


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[Assistant] So on the right hand side is the market, on the left hand side is a cab firm. We're gonna start by assuming all cabs are identical.


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[Assistant] We assume all cabs are identical. So one representative firm tells us about every cab firm. Okay.


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[Assistant] Now, we start with the market. We have an initial demand, which is D.


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[Assistant] The line D, the blue line, is the demand for taxicabs. Okay? And initial supply curve, S1.


[User] Please transcribe this text

[Assistant] Okay, anybody can just grab a cab and start driving. Once again, in a cab market without medallions, anyone can throw, can throw a taxi sign in the car and start driving around picking people up.


[User] Please transcribe this text

[Assistant] So it's a perfectly competitive long run market, therefore flat supply at S1. So our initial equilibrium is at point big E1.


[User] Please transcribe this text

[Assistant] Okay, we have Q1 rides, big Q1 rides per month.


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[Assistant] And that amounts to, so, so you have Q, that's the equilibrium. Now, how many firms are there? Well, we know how many firms there are because we say, okay, at that price P1, we go to the left.


[User] Please transcribe this text

[Assistant] We know that firms will produce where marginal cost equals average cost at the minimum of long run average cost. We proved that a couple lectures ago. Therefore, if the price is E1, we know each efficient firm will produce little q1. If there's, if each firm can produce little q1,


[User] Please transcribe this text

[Assistant] And the total amount of rides is going to be big Q1, then that implies little N1 firms. So let me go through it again. Supply equals demand at big Q1. That gives you a price P1. Now we shift to the left. At that price P1, we know that each firm


[User] Please transcribe this text

[Assistant] We'll choose to produce little q1 rides, because that's where price equals marginal cost equals average cost. Now we go back to the right.


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[Assistant] We know if there's little, each firm's phrasing little q1 rides, and you need big q1, then there must be n1 firms. Okay? Questions about that? That's the initial equilibrium. Okay.


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[Assistant] And at that point, there are long run zero profits.


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[Assistant] Consumer surplus is A plus B plus both C plus C. C, by the way, is the gray area on either side of the dashed line.


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[Assistant] A plus B plus C. We mark it twice because it's confusing the dashed line there.


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[Assistant] So the blue area, the green area, and the gray area are the consumer surplus. And what's the producer surplus? What's the producer surplus? Raise your hand and tell me. Yeah. Zero because?


[User] Please transcribe this text

[Assistant] Remember, profits are price minus average cost, but price equals average cost. Okay?


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[Assistant] So there's no profit. So it's all consumer surplus, all well and good.


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[Assistant] Only little n2 cabs are allowed in the market. Little n2 are the only number of cabs allowed in the market.


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[Assistant] What's the new market supply curve? Well, up to little n two times q one. Nothing's changed.


[User] Please transcribe this text

[Assistant] Each cab company used to provide little Q1 rides at a price P1.


[User] Please transcribe this text

[Assistant] So up to the point little n two little q one, we're on the same supply curve we used to be on. But then things change. Why do they change?


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[Assistant] Because now let's say riders want more than little N2Q1. Well, you can't deal with that by entry.


[User] Please transcribe this text

[Assistant] You have to deal with that by the existing cab drivers working more. But if they work more, supply curve is upward sloping.


[User] Please transcribe this text

[Assistant] Because now marginal cost could be rising. Before the resupply curve was flat, it's when you went to the right of little n2, little q1. As you move to the right, you just got more entry, and everyone still produces their efficient level of little q1. Now, when you can't allow more entry, firms have to produce more, and suddenly they're not at the cost minimizing point. They're riding up their marginal cost curve.


[User] Please transcribe this text

[Assistant] So the supply curve becomes flat to that point and then becomes upward sloping. And that's S2. S2 is the red line.


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[Assistant] That is flat to the left of little n2, little q1 and then becomes upward sloping. And the new equilibrium is at point e2.


[User] Please transcribe this text

[Assistant] With N2 firms, by law you can only have N2 firms, producing little Q2 rides each. Okay, and your new equilibrium is big Q2, and that new equilibrium price is, uh, the new equilibrium price is P2. The new equilibrium price is P2. Okay, now P2,


[User] Please transcribe this text

[Assistant] Is the point, if you look at the price is P2. But forget the AC2 curve, focus on the AC1 curve.


[User] Please transcribe this text

[Assistant] Okay, average cost, the average cost function hasn't changed, it's still AC1. So if their price is P2, and their average cost curve is AC1,


[User] Please transcribe this text

[Assistant] Firms produce where price equals marginal cost, right? Price equals marginal cost at a quantity little q2.


[User] Please transcribe this text

[Assistant] So firms produce a little Q2 because that's the point at which price equals marginal cost.


[User] Please transcribe this text

[Assistant] They produce a little q2, well if they're making little q2 units at a price p2, they're earning profits of pi, the shaded area.


[User] Please transcribe this text

[Assistant] Because they are producing units at price above marginal cost. And they're producing little Q2 units.


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[Assistant] So every unit they produce, they're earning profits on. So the taxi medallion workers are, the taxi companies are now making money. They're making profits. Okay? Questions about that? Yeah.


[User] Please transcribe this text

[Assistant] Then you'd see, basically, more firms would enter you and drive the price down to P1, but we don't allow that. So there's profits. It's a barred entry.


[User] Please transcribe this text

[Assistant] Which creates profits, which breaks us from our long run flat supply curve. We talked about one of the reasons why that loop won't be flat. So now let's move to the normative. Is this a good idea or not? Well, let's look at the welfare implications. What's happened? What's happened is consumers used to have a surplus as A plus B plus C. Now their surplus is what? What's the new consumer surplus? Raise your hand and tell me. Yeah. Just A.


[User] Please transcribe this text

[Assistant] Because the line below the demand above price is just A. Producers used to have zero surplus. What's their new surplus? Behind you, yeaah. B. Because it's the area above the supply curve below the price line. And C is what? The deadweight loss. Those are transactions no longer happening. Okay. The deadweight loss.


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[Assistant] Okay, so basically, normatively, you can pose the problem as the following. Is it worth society losing the area C?


[User] Please transcribe this text

[Assistant] In order to transfer the area B from consumers to taxi cab drivers. That's the way to think about this problem. Let me say it again, it's very important.


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[Assistant] Essentially what the government policy doing is saying, I'm gonna transfer B from consumers to producers, even though it's gonna cost me C in deadweight loss. That's what the government's saying. That's the government's position. Okay? Now, why is the government wrong? Why in fact is that not the proper statement of what happens? Very complicated. What does the government miss?


[User] Please transcribe this text

[Assistant] When it says, hey look, I've made the drivers better off. Sure, I've created dead weight loss, but at least, and I've made consumers better off, at least I've made these drivers better off. They live terrible lives. There's articles in the paper all the time about suicides, attacks against drivers. It's terrible. What did they miss? Yeah.


[User] Please transcribe this text

[Assistant] They've missed the fact that the taxicab drivers have to buy the medallions.


[User] Please transcribe this text

[Assistant] That the limited number of dallions aren't just given to taxi cab drivers, they're bought.


[User] Please transcribe this text

[Assistant] And the taxi cab drivers, what is a taxi cab driver willing to pay for a medallion? They are willing to pay, in the limit, the total surplus they get from driving the cab minus a dollar. Or minus some amount, you know, that they need to eat.


[User] Please transcribe this text

[Assistant] So if suddenly, in a world with no restrictions,


[User] Please transcribe this text

[Assistant] With no taxicab medallions, if you said we're gonna give you a piece of paper to drive a taxi, but anyone can have it for free, what would it be worth? Zero.


[User] Please transcribe this text

[Assistant] But in a world where you say, you can, if you have this paper you can drive, and drivers earn profits pi, what will the taxicab medallion sell for? Pi minus some small amount. So actually who wins? The taxicab medallion owners. And who are they?


[User] Please transcribe this text

[Assistant] They are random folks who happened to get these things in 1920 when they were issued and their descendants and people who bought them.


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[Assistant] Okay, so this leads to my great story. The Taxicab Medallion King of Long Island.


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[Assistant] Was a guy who happened to have a bunch of these tax cabinets and as they went through the roof, they got worth a lot in New York.


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[Assistant] And that number did not change since they originally sold for $10 each in 1937.


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[Assistant] 937, you could have bought it for $10 and they issued 12,000. They've never increased it.


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[Assistant] Right now a tax cap in New York is worth $400,000.


[User] Please transcribe this text

[Assistant] Okay, well the tax cab king of New York is the guy who lives in Long Island, who made so much money,


[User] Please transcribe this text

[Assistant] Not only had rented out a hotel, a whole basketball theme bar mitzvah, but hired Nicki Minaj. Okay? This was paid for by area B.


[User] Please transcribe this text

[Assistant] Okay, this was paid for. So in fact, it's not the taxicab drivers that make out of this policy. It's a taxicab medallion king of New York. Now, here's what happens.


[User] Please transcribe this text

[Assistant] Okay, here's what happens. What happens then when Uber comes in? Who's the big loser? Not the taxicab drivers, the taxicab medallion owners.


[User] Please transcribe this text

[Assistant] So everyone that tells you Uber's a bad thing because these poor tax cab drivers are starving, tax cab drivers were always starving.


[User] Please transcribe this text

[Assistant] It was always a terrible life. The difference, the difference is price of medallions is down like 50%.


[User] Please transcribe this text

[Assistant] And I cry no tears for the Nicki Minaj hiring class of America. Okay?


[User] Please transcribe this text

[Assistant] So basically, when you think about people saying Uber's bad, it steals jobs, tax cab drivers, no it doesn't. Okay, it steals money from tax cab medallion owners. And that is something we might be okay with. So feel fine taking your Uber. Uh, it's a great, it's a great thing.


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[Assistant] Aye Miles, spill it. Give me the whole situation.


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[Assistant] Here. Little project your dad and I started back in the day. Our mixtape.


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[Assistant] But you can finish what we couldn't. Plus, it'll take your mind off work.


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[Assistant] I set up holograms to guide you. Scan the source.


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[Assistant] Why so interested? Cause you got a target on your back the size of Jersey.


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[Assistant] You don't have to protect me. Someone should


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[Assistant] Trinity Church, remember, Tinker is yours. But leave the boy alone.


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[Assistant] Adventure 4 The Adventure of the Solitary Cyclist


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[Assistant] From the years 1894 to 1901 inclusive, Mr. Sherlock Holmes was a very busy man.


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[Assistant] It is safe to say that there was no public case of any difficulty in which she was not consulted during those eight years, and there were hundreds of private cases, some of them of the most intricate and extraordinary character, in which she played a prominent part.


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[Assistant] Many startling successes and a few unavoidable failures were the outcome of this long period of continuous work.


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[Assistant] As I have preserved very full notes of all these cases, and was myself personally engaged in many of them, it may be imagined that it is no easy task to know which I should select to lay before the public.


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[Assistant] I shall, however, preserve my former rule, and give the preference to those cases which derive their interest not so much from the brutality of the crime as from the ingenuity and dramatic quality of the solution.


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[Assistant] For this reason I will now lay before the reader the facts connected with Miss Violet Smith, the solitary cyclist of Charlington, and the curious sequel of our investigation, which culminated in unexpected tragedy.


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[Assistant] It is true that the circumstance did not admit of any striking illustration of those powers for which my friend was famous


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[Assistant] But there were some points about the case which made it stand out in those long records of crime from which I gather the material for these little narratives.


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[Assistant] On referring to my notebook for the year 1895, I find that it was upon Saturday the 23rd of April that we first heard of Miss Violet Smith.


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[Assistant] Her visit was, I remember, extremely unwelcome to Holmes, for he was immersed at the moment in a very abstruse and complicated problem concerning the peculiar persecution to which John Vincent Hardin, the well-known tobacco millionaire, had been subjected.


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[Assistant] My friend who loved above all things precision and concentration of thought resented anything which distracted his attention from the matter in hand.


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[Assistant] And yet, without a harshness which was foreign to his nature, it was impossible to refuse to listen to the story of the young and beautiful woman, tall, graceful, and queenly, who presented herself at Baker Street late in the evening and implored his assistance and advice.


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[Assistant] It was vain to urge that his time was already fully occupied, for the young lady had come with a determination to tell her story, and it was evident that nothing short of force could get her out of the room until she had done so.


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[Assistant] With a resigned air and a somewhat weary smile, Holmes begged the beautiful intruder to take a seat and to inform us what it was that was troubling her.


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[Assistant] At least it cannot be your health," said he, as his keen eyes darted over her. So ardent a bicyclist must be full of energy.


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[Assistant] She glanced down in surprise at her own feet, and I observed the slight roughening of the side of the sole caused by the friction of the edge of the pedal. Yes, I bicycle a good deal, Mr. Holmes, and that has something to do with my visit to you today.


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[Assistant] My friend took the lady's ungloved hand and examined it with as close an attention and as little sentiment as a scientist would show to a specimen.


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[Assistant] You will excuse me, I am sure. It is my business," said he as he dropped it. I nearly fell into the error of supposing that you were typewriting. Of course, it is obvious that it is music.


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[Assistant] You observe the spatulate finger-ends, Watson, which is common to both professions. There is a spirituality about the face, however. She gently turned it towards the light, which the typewriter does not generate. This lady is a musician. Yes, Mr. Holmes, I teach music. In the country, I presume, from your complexion?


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[Assistant] Yes sir, near Farnham, on the borders of Surrey.


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[Assistant] A beautiful neighbourhood and full of the most interesting associations.


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[Assistant] You remember, Watson, that it was near there that we took Archie Stanford, the forger.


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[Assistant] Now, Miss Violet, what has happened to you near Farnham on the borders of Surrey?


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[Assistant] The young lady with great clearness and composure made the following curious statement.


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[Assistant] My father is dead, Mr. Holmes. He was James Smith, who conducted the orchestra at the old Imperial Theatre.


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[Assistant] My mother and I were left without a relation in the world except one uncle, Ralph Smith, who went to Africa twenty-five years ago, and we never had a word from him since. When father died we were left very poor


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[Assistant] But one day we were told that there was an advertisement in the Times inquiring for our whereabouts.


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[Assistant] You can imagine how excited we were, for we thought that someone had left us a fortune.


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[Assistant] We went at once to the lawyer whose name was given in the paper.


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[Assistant] There we met two gentlemen, Mr Carruthers and Mr Woodley, who were home on a visit from South Africa.


[User] Please transcribe this text

[Assistant] They said that my uncle was a friend of theirs, that he had died some months before in great poverty in Johannesburg, and that he had asked them with his last breath to hunt up his relations and see that they were in no want.


[User] Please transcribe this text

[Assistant] It seems strange to us that Uncle Ralph, who took no notice of us when he was alive, should be so careful to look after us when he was dead.


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[Assistant] But Mr Carruthers explained that the reason was that my uncle had just heard of the death of his brother, and so felt responsible for our fate. Excuse me, said Holmes, when was this interview? Last December, four months ago. Pray proceed.


[User] Please transcribe this text

[Assistant] Mr Woodley seemed to me to be a most odious person.


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[Assistant] He was forever making eyes at me. A coarse, puffy-faced, red-moustached young man, with his hair plastered down on each side of his forehead.


[User] Please transcribe this text

[Assistant] I thought that he was perfectly hateful, and I was sure that Cyril would not wish me to know such a person. Oh, Cyril is his name? said Holmes smiling. The young lady blushed and laughed. Yes, Mr. Holmes, Cyril Morton, an electrical engineer, and we hope to be married at the end of the summer.


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[Assistant] Dear me, how did I get talking about him?


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[Assistant] What I wish to say was that Mr Woodley was perfectly odious.


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[Assistant] But that Mr Carruthers, who was a much older man, was more agreeable.


[User] Please transcribe this text

[Assistant] He was a dark, sallow, clean shaven, silent person, but he had polite manners and a pleasant smile. He inquired how we were left.


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[Assistant] And on finding that we were very poor, he suggested that I should come and teach music to his only daughter, aged ten.