Wednesday, January 18, 2006

A utilitarian explaination to the first subject of my last post

Using utility maximizing logic: Lets assume that you and I don't like eachother, you offer me $1.00 for my candybar, which would only offer me about $0.75 worth of utility in the form of something else I desire. Meanwhile the Candy bar will offer you about $1.25 worth of utility. It would seem that the transaction would be a "steal" for both parties, win-win. But I still wont sell you my candybar. What this would tell us is that I consider the opportunity cost of associating with you as an added value on top of the cash value of the transaction. E.g., doing business with you gives me negative utility. In this case, lets say I wouldn't part with my candy-bar to you at least for less than $5.00. Now that's way too much for you to get any utility out of my candybar.

In real world settings we've all ran into this, places that couldn't pay you enough to work for them because the working environment, or your co-workers were so bad. Or people you just refused to do any business with.


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