The model of contingent behavior is based on the assumption that people react to what others are doing. This is more the domain of psychology than of economics. This clip shows a famous psychological experiment demonstrating that people have a strong tendency to conform. Economists argue that people base decisions on costs and benefits. How could conformity be justified on cost-benefit grounds?
This short film clip shows what was fashionable to wear to the office in 1955. Would the same clothing be fashionable today? Why or why not? Would the clothing that is fashionable to wear to the office today have been acceptable in 1955? Why or why not?
In this clip from 1978, a student questions Milton Friedman about economics and morality. Friedman points out that the
question involves trade-offs, something the questioner is
not ready to hear. In this case the tradeoffs involve human
life. It is not just Friedman who asks questions such as,
"What is the value of a human life?" When you make decisions
involving safety, these questions are answered either
explicitly or implicitly.
When do you make trade-offs that involve
putting a value on your life?
(The exchange in the video reminds me of
a story of a conversation Winston Churchill supposedly had
with a high-born lady at a dinner party.
Churchill: Would you sleep with me for a
million pounds?
Lady after some thought: Yes.
Churchill: Would you sleep with me for twenty pounds?
Lady, indignantly: No! What do you think I am, a
prostitute?
Churchill: We have already established what you are. Now we
are just haggling over the price.)
In this five-minute video, which has very low production values, ten students are randomly given gifts and then allowed to trade among themselves. After trade, they value the items more than before trade. In terms of economic efficiency, they have gone from a less efficient distribution to a more efficient distribution. How does this exercise show that exchange is positive-sum?
