Dear Economist,
I have been invited to give a presentation at a conference. Naturally, I’d like to look as good as possible. I have been given some flexibility over length, topic, timing and so on. What advice can you give me, and is it best for me to open or close the proceedings?
Jeremy L, London

Dear Jeremy,

Anyone can tell you the obvious stuff: don’t use boring bullet-point slides and keep it simple. Obvious, but most people, at the expense of their audience, ignore this advice.

Let me instead focus on a less-obvious insight, discovered by the economist Lionel Page and his wife, the psychologist Katie Page. The Pages looked at years of results from talent contests such as X-Factor and American Idol, in which contestants perform and viewers vote as to who they’d like to see again.

The Pages were able to measure whether it was an advantage to appear first or last, or immediately after a flop or a show-stopper. Because most singers appeared several times, the Pages could take account of the fact that the show’s producers might deliberately open and close with strong performers. In effect, they looked at what happened to the same contestant when they appeared earlier or later.

The bottom line is that it’s OK to go first but better to go last. A partial explanation is that these acts are easier to remember. Obscurity doesn’t seem to attract you, so make sure you’re closing the show.

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Dear Economist,
I am 22 years old with a younger sister. My parents were pretty strict, so I made sure I was a sensible teenager. I didn’t sleep around, didn’t take drugs, never seriously smoked and went on to a good graduate job. But now my 17-year-old sister is getting away with murder: my parents know she smokes, let her boyfriends stay overnight and turn a blind eye to other misdemeanours. It’s just not fair. Did I make a mistake in being such a square as a teenager?
Georgie H, Hertfordshire

Dear Georgie,

The latest Economic Journal presents a simple game-theory model of the problem. All teenagers wish to misbehave but fear parental sanctions. Parents wish to threaten punishment for transgressions, but only some parents are strict enough to do so. Your younger sister’s mere existence skewed the game to your disadvantage. Your parents are evidently soft-hearted, but had a clear incentive to pretend to be strict because every time they punished you, they knew they were also deterring your sister.

Now that you have flown the nest, the gains from “acting strict” are much smaller and discipline has slipped. Your sister pushed and discovered that they did not push back; you would not have found it so easy. But sunk costs are sunk costs, so be content with your graduate job. And if you really want to take drugs and sleep around, I can assure you it is not too late.

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Dear Economist,
The law of comparative advantage suggests people should use their talent, but we’re also told “do what you love”. What if I have no talent for what I love? Is it worth time and effort pursuing a dream career I’m no good at?
Joy

Dear Joy,

Your letter is intelligent, but it is also opaque: you do not reveal what your dream career is. Still, a lack of facts has never been an obstacle to economic analysis, so this is no time for methodological scruples. The principle of comparative advantage states that you should focus on what you do best, relative to the standard set by everybody else. You can do accounts and use the money to hire a cook, or do cooking and use the money to hire an accountant; the correct choice depends not just on whether you are a good bean-sheller and a poor bean-counter, but on whether the world is full of better cooks and worse accountants.

There is no conflict between this principle and the idea that you should “do what you love”. Being good at a job means you will earn more; enjoying a job means you will not mind earning less. Decide whether you prefer money or fun.

But what if you are incapable of doing any job you enjoy? Well, your career is not the be all and end all. Economist Andrew Oswald believes we work too hard and under-invest in friendships. So if my career advice is depressing, ignore it and talk to your friends instead.

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I wrote about the dilemma of passwords here: they must be impossible to remember, change frequently and never be written down. Now a kind fellow called Sean Gilbertson has sent me a pamphlet on his “Cryptogic” system. He suggests combining a fixed password section (eg TimFT) with a variable password. For instance an Amazon password might be 3TimFT3 because Amazon has three syllables and three vowels, while an eBay password would be 2TimFT2 because eBay has two syllables and two vowels. Pick your own simple rule for deriving a variable password.

It’s a nice enough system, and does deal with the important problem of using different passwords for different sites - which was the original question! Still doesn’t help much with the requirement to change passwords constantly, alas…

Dear Economist,
I have fallen in love with a wonderful man, and on Valentine’s Day he proposed to me. We’re planning to marry next summer. The question is: should we live together over the next year, or wait until we’re married? The financial impact is relatively small either way, and I am not afraid of scandal. I am just trying to work out whether some time living together is likely to make our marriage stronger or not.
Elspeth
Boston MA

Dear Elspeth,

For many years, theory pointed in one direction and evidence in the other. The theory – going back to Nobel laureate Gary Becker’s work in the 1970s – is that a period of cohabitation lets you learn more about one another and thus avoid a bad match. Your man may be charming on a date, but if he leaves his underpants lying around or eats toast over the sink to save washing up, forget it.

The overwhelming evidence, on the other hand, used to be that marriages preceded by cohabitation were more likely to break down – in the US, at least. The question is whether this was a causal relationship, or whether the cohabitation and the marital breakdown were caused by a third factor, such as social class or a lack of religious belief.

Fortunately, new empirical research from economist Steffen Reinhold suggests both that the relationship between cohabitation and divorce is not causal, and also that it has faded over time as more educated, middle-class couples choose to live together before marriage.

I recommend following Becker’s theory: learn about the marriage before it is too late by moving in together now. Keep an eye out for discarded underpants.

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Alex wrote to me in my Dear Economist guise:

Dear Economist,
When invited to dinner, I am often unsure whether to bring good wine. If I take an expensive bottle, it may go unappreciated – either through lack of appreciation or people not seeing what I’ve brought. Taking plonk means I can get a free ride on others’ largesse, but my tightfistedness could get rumbled – what do you recommend?
Alex, Geneva

My reply is here, but the FT’s Chief Economics Commentator, Martin Wolf, offers his own view:

Adults should never bring wine as a gift in the expectation that it will be served that evening. If your hosts have any discrimination, they will already have chosen suitable wine. The implication that they cannot do so is insulting. If it is bad wine, they will be doubly insulted. If your hosts have no discrimination, why are you visiting them?

The right thing to do is write a thank-you note after you return home. If you enjoyed the evening, send flowers or some other present, perhaps even a good bottle of wine.

That all sounds very sensible to me, but I’d still like to see Martin’s intuition properly mathematically modelled. Meanwhile Dan Ariely’s first “Dear Irrational” is now up.

Dear Economist,
When invited to dinner, I am often unsure whether to bring good wine. If I take an expensive bottle, it may go unappreciated – either through lack of appreciation or people not seeing what I’ve brought. Taking plonk means I can get a free ride on others’ largesse, but my tightfistedness could get rumbled – what do you recommend?
Alex, Geneva

Dear Alex,

A simple bit of game theory will produce the optimal strategy. If this is a repeated interaction with people who know their wine, it’s best to produce a good bottle. Reciprocity for your generosity will make this a good approach in the long run.

You will need to work out whether your dining partners do indeed understand wine. That is easy enough. Bring them something decent and see if they remark upon it. Then observe what they bring the next time you dine together. If your dinners are isolated invitations, or your hosts know nothing about wine, you may cheat with impunity. In short, vary your actions according to circumstance.

There is a deeper point here, though. You need to establish what is giving your fellow diners their utility – good wine, or the pleasure of one-upmanship? My fellow columnist, the economist John Kay, points out that economists “win” gift exchanges by spending less than everyone else, but most people “win” gift exchanges by spending more.

If your fellow diners are economists, then my analysis will apply. Otherwise, as the sole economically minded diner, make sure your wine is a little less assuming than everyone else’s. Everyone is happy, you save money and they feel smug. The moral: never forget to look for gains from trade.

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You will all know that by sending your emails to economist [at] ft.com you will reach me in the guise of “Dear Economist“, where I offer advice on romance, odd socks and intimate waxing, all using the latest economic theory. All perfectly rational.

Now Dan Ariely proposes to offer irrational advice - or advice for the irrational? - instead… check it out here. I am looking forward to seeing the results. It all depends on whether you want to pander to your inner Homer Simpson or your inner Mr Spock!

In a comment on last week’s Dear Economist, Carl Dahlman wrote:

As Axelrod showed many years ago, the most effective incentive scheme is also the simplest: tit-for-tat. Tit: if you do you chore well, I’ll up the ante by doing mine even better. Tat: if you don’t, I won’t either.

This turns out, surprisingly, not to be true, although it is very widely believed (and Carl’s comment is perfectly sensible). For a trenchant discussion, here is a brief essay from mathematician-turned-economist-turned-political philosopher, Ken Binmore. I find Ken’s style a little harsh, but I can’t argue with the man’s conclusions. Here is an important extract:

The two-state finite automaton TAT-FOR-TIT is the simplest example of the type of mean machine that emerges from Probst’s simulations. This strategy begins by defecting and continues to defect until the opponent also defects. At that point TAT-FOR-TIT switches to its co-operative state. It continues to co-operate until the opponent defects, which behaviour it punishes by returning to the defection state in which it started the game. A player using TAT-FOR-TIT therefore begins by trying to exploit his opponent, and only starts to co-operate if he finds that she is trying to exploit him in the same way that he is trying to exploit her.

The whole thing is slightly technical but well worth a read. Or read an old column of mine, which concludes:

In any case, “tit for tat” is not quite as successful as conventional wisdom would have you believe. A team from Southampton University kicked “tit for tat” off the top spot in a rerun of Axelrod’s tournament by entering a collection of team players who colluded with each other. Another successful strategy is “tat for tit,” which first tries to exploit the other person and plays nicely only if that doesn’t work. Another winning approach is even more depressing, punishing cheats with eternal vengeance.

It is known simply as “grim.”

Dear Economist,
I’m an American. As you know, the primary elections are heating up here, and in a few months we’ll have the real thing. Eight years ago I caught flak from my wife for not voting; I tried pointing out the minuscule impact of a single vote (mine). She responded that if everyone thought as I did, no one would vote. However, I don’t make decisions for everyone, just myself. Is it rational for me to vote, considering only the effect of my vote on the outcome of the election, and leaving out (for once) my wife’s lowered opinion of me?
P.B.

Dear P.B.,

I accept that your vote has almost no chance of deciding the outcome. Even in the infamous Bush-Gore contest in Florida in 2000, the chance that a single Florida voter could have changed the outcome seemed minuscule at the time. With hindsight it was zero, since the official margin of victory was more than one vote.

For this reason, nobody votes hoping that his vote will change the outcome. We vote instead because we like to feel involved, out of a sense of duty, or – importantly – to avoid being criticised by our friends and loved ones. These motives are enough to get about half of us out to the polls, but not enough to persuade us to engage in pointless research into the details of each candidate’s policy platform. All of which explains why many people vote, but few do so in an informed fashion.

None of this changes the fact that democracy is useless without a decent number of voters. That is why your wife is right to put you under pressure. It should go without saying that ignoring her would be highly irrational.

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