Reading About Kids and Economics

A while back, I wrote about the Game Theorist blog, in which my friend Joshua Gans writes about his adventures as an economist-parent (or equally, as a parent-economist). Each role seems to teach him something about the other, and his passion for both is infectious.

He has collected much of this material in his new book Parentonomics, which has recently received international distribution. Finally, those of us living beyond Gans’s native Australia can enjoy his insights and irreverent asides.

On a related note, Tim Harford reminds me that his latest book, The Logic of Life, is now available in paperback. It’s a highly readable account of just how far rational choice theory can take you in understanding everyday life. Of course, I’m biased, as the third chapter reviews much of my own research on marriage and the family. But there’s a heckuva lot more here. Dubner loved it too.

Harford has also been writing/blogging up a storm lately, and I couldn’t resist quoting his suggestion of how to explain the credit crunch to a 5 year old:

Once upon a time, there was a blameless girl called Consumerella, who didn’t have enough money to buy all the lovely things she wanted. She went to her Fairy Godmother, who called a man called Rumpelstiltskin who lived on Wall Street and claimed to be able to spin straw into gold. Rumpelstiltskin sent the Fairy Godmother the recipe for this magic spell. It was written in tiny, tiny writing, so she did not read it, but hoped the Sorcerers’ Exchange Commission had checked it.

The Fairy Godmother carried away armfuls of glistening straw-derivative at a bargain price. Emboldened by the deal, she lent Consumerella –-who had a big party to go to -– 125 percent of the money she needed. Consumerella bought a bling-bedizened gown, a palace, and a Mercedes, and spent the rest on champagne. The first payment was due at midnight.

At midnight, Consumerella missed the first payment on her loan. (The result of overindulgence, although some blamed the pronouncements of the Toastmaster, a man called Peston.) Consumerella’s credit rating turned into a pumpkin and Rumpelstiltskin’s spell was broken. He and the Fairy Godmother discovered that their vaults were not full of gold, but ordinary straw.

All seemed lost until Santa Claus and his helpers, men with implausible fairytale names such as Darling and Bernanke, began handing out presents. It was only in January that Consumerella’s credit-card statement arrived and she discovered that Santa Claus had paid for the gifts by taking out a loan in her name. They all lived miserably ever after. The end.

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COMMENTS: 7


  1. Mike B says:

    Ouch….

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  2. Adam says:

    I very much like the notion of explaining complicated economic concepts through whimsical fairy tales. Here’s an excerpt from another one, “A Children’s Guide to Credit Default Swaps”:

    Billy wants to buy a pack of baseball cards. However, baseball cards are a dollar and Billy doesn’t have a dollar. So Billy goes to his best friend Jamie and says, can I borrow a dollar? Jamie says, sure, but only if you pay me a dollar and a nickel back. Billy says okay, because he plans to sell the cards for two dollars. Jamie writes an IOU because he only has a quarter.

    Jamie isn’t sure that Billy can pay him back, so he decides to sell a credit default swap. Jamie goes to Sally and says, I owe Billy a dollar and Billy owes me a dollar and a nickel back. Can I give you a penny a day in exchange for you signing your name on the IOU I gave Billy? Sally doesn’t know Billy, so to her this proposal looks like a bargain. Besides, Sally just got ten dollars for her birthday so even if Billy can’t pay back she can easily cover Billy’s debt. Repeat this process 70 trillion times.”

    Somehow, phrasing these dreadful woes in stories like these makes our problems seem more surmountable, more mundane, more ridiculous.

    (Anyone who cares can see the rest at
    http://axismonday.blogspot.com/2008/12/childrens-guide-to-credit-default-swaps.html)

    Luckily, Obama is our Fairy Godmother and will magically save us all.

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  3. Pedro F. says:

    Very good, but I don’t believe 5 year old kids can work percentages. ;)

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  4. T Sussman says:

    I took 20 minutes to explained the recession to my six year old son. He thought about it and ‘then the government should just print more money’ . This led to an even longer more difficult discusion about the supply and demand of the monetary supply .

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  5. SHUN-CMS says:

    Haha. Very interesting. It is amazing how using analogies, familiar concepts, and real life examples, allow one to understand very complicated materials. Especially, economics which may seem really confusing with all the calculus, graphs, and lots of reading, though this is true, grasping the basic concepts is actually easy. Economics is made up of everyday life actions that surround you. First year college course begins talking about demand and supply, which is really you buying/wanting something (goods/service) from the producer. (vice versa). Sellers and buyers are both trying to maximize profit, and utility, accordingly. Very easy to understand. Though, I agree with you, Pedro F, it’s not just for 5 year olds – gotta avoid numbers in general!

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  6. Dev says:

    name drop… name drop.. name drop.. come on. I was interested.

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  7. asm says:

    Wow, this is almost exactly how my husband explained it to me!

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