Tuesday, February 27, 2007

Worst Adverse Selection Problem EVER

There's a theory in economics called "adverse selection" which basically states that if a deal is too good to be true, you'll get the wrong people signing up for it. The classic example used to illustrate this theory is insurance. Let's say you want to set up a very low cost car insurance policy but only for drivers who never get into accidents. Unfortunately, bad drivers are more likely to sign up since good drivers probably have cheap insurance anyhow. Another related economic theory is "moral hazard" which states that entering into a transaction changes behavior. In this case, having insurance actually causes people to drive more carelessly.

Anyhow, I was at the airport security line today when I noticed a piece of luggage with a Hedonism bag tag. For those of you who don't know, Hedonism is an adult-oriented all-inclusive vacation resort where people basically go to hook up with strangers. I quickly scanned the surrounding area to discern whose bag it was. The candidates were either a hippie woman in her late 40s who looked like the love-child of Sheryl Crow and a California Raisin or a sweet old grandmother in her 70s. I just assumed it was the hippie and thought to myself, "Adverse selection in action."

I started wondering if there's also moral hazard at work at Hedonism. Do people just lower their standards and really just start hooking up with strangers they normally wouldn't? As I was thinking about this, I saw the Sheryl Crow/California Raisin woman walking to the gates without the Hedonism bag! I guess there's some fire left in grandma after all!

Comments:
There's now a "European sunbathing" pool at Casears. I don't know if it was open last weekend, but I was curious. Generally in my experience, if they're showing for free you don't want to be seeing it.
 
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