On the Soapbox

Consider this simple quiz problem:

You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton?

(a) $0
(b) $10
(c) $40
(d) $50

Concerned with the de-emphasis of basic economic reasoning in economics, two researchers asked some Ph.D. economists this question. Surprisingly, only 21.6% answered correctly, which is lower than the 25% that would be expected if everyone simply made a random guess. The question is fairly straightforward and explicit in laying out exactly what the next-best alternative was and any necessary assumptions; this was a problem that one might expect to find in the textbook of an introductory economics course. In case you are not sure, the correct answer is (b).

If people who believe themselves to be economists could not correctly and fully grasp the concept of the opportunity cost, what does this mean for public discourse?

Example: Scientology

What prompted me to recall this particular study was the recent South Park vs. Scientology controversy. I became curious, and a bit of Googling lead me to this text by an ex-Scientologist: (Source)

[A]lmost everything that occurs in Scientology that a Scientologist experiences and believes in comes about as the self-suggested result of a kind of auto-hypnosis. Everything that seems to work or be positive is attributed to Scientology, and everything negative is assigned to personal failure or lack of understanding of Scientology.

One might say that this is applicable to many belief systems in general, whether or not they are religious. A friend once told me that he believes that when good things happen and when inspirations come, it is the result of God. To which I responded, what about the bad things that happen and all the many moments of the day when no inspirations flash by? In a non-religious context, one might apply this to optimism or pessimism. Just as the true cost of an action must also figure in the opportunity cost of not executing the alternative action, it is necessary to consider and account for this alternate point of view in order to make unbiased assessments.

Example: Evolution

This principle of considering alternates can be said in defense of evolution. Those who tout intelligent design are quick to point out how seemingly well-suited everything is. But by doing so, they are turning a blind eye to the alternate perspective of how poorly suited many things are. Why do we have a useless colon? Why are our ears so prone to damage from a wide dynamic range? Why is our environment so fragile? For every wonderful thing in this world that "clicks" perfectly, I am sure that people can think of something that does not "click" together so well. (aside: of course, the best argument against ID is still the anthropic principle, which deals with the huge logical fallacy made by ID-proponents of confusing conditional probability with joint probability)

Example: Google in China

The controversy over Google's entry to the Chinese market is another fine example of this sort of principle at play. Those who opposed the entry were highly critical of the Chinese government and of the notion of an otherwise saintly American company cooperating with Beijing. Through public stunts such as the "breakup with Google" on Valentine's Day, they demonstrated their failure the assess and evaluate the alternate course of action. They failed to grasp that not entering the market would do nothing to change the political infrastructure (by giving more market share to local companies, not competing there would actually strengthen Beijing). The protestors either ignored this critical "what-if" question or fell prey to the delusion that the alternate choice was some sort of liberation when it was really a potentially worse version of the status quo.

Conclusion: Using Relativism

In decision making, the value that is used is not the absolute value of something, but its relative value. If you are sitting in a prison cell and for some odd reason the prison is showing a free opera, you would likely attend. If, however, you were free and the alternative was lounging in your backyard instead of languishing in a cell, then it becomes less likely that you would attend (assuming for the sake of this example that your preferences towards opera are similar to that of the majority of the population). And of course, a good economist would talk about this using opportunity costs. In debate, it is never enough to show that the status quo is flawed (an absolute evaluation); one must also show that a change would be better than the status quo (a relative evaluation).

Unfortunately, not everyone fully considers relative values in every circumstance. If given free opera tickets (or baseball tickets or whatever) that cannot be resold, could you imagine that there would be some people who would go anyway simply because they do not wish to "waste" the ticket and end up being bored out of their minds? People who dogmatically disagree with Google's decision in China often cite the absolute evil of such cooperation, and those who expound arguments for intelligent design fail to evaluate how their evidence weighs relative to the counter-evidence.

Relativism is a very broad term, ranging from cultural relativism to moral relativism to epistemological relativism, etc. The "relativism" that I am advocating here is nothing more than rationality: the evaluation of things not based on their absolute value, but how they stack against alternatives. Unfortunately, this is not something that people always do, and as such, it may be the case that in some circumstances, the best way to argue a point is to get the other side to see beyond an absolute value.