Buckeyes or Wolverines?

Suppose a student athlete has two options: Play football for the Ohio State University or play football for the University of Michigan. The athlete anticipates that if he stays healthy he will play in the NFL and his salary will be $1,700,000 if he attends OSU and $1,250,000 if he attends UM. If he does not make it to the NFL, the athlete anticipates his salary will be $85,000 per year if he attends UM and $65,000 if he attends OSU. Finally, the student anticipates the odds of a career-ending injury at UM are 15% whereas at OSU the odds are 6%. Given this information, which school will the student attend, all else equal? Show all of your calculations which lead to your answer.

Congratulations to Xiaotian (Eric) Ma for being the first to figure out this week's question. In making the decision over which college to attend, a simple decision rule might be to choose the college that, on average, provides the higher expected income. The probability of injury will govern the likelihood that the young athlete will ever play professionally or settle for a regular career with his bachelor's degree.

Thus, the expected value of attending each college can be calculated as:

EV(OSU) = (0.94)($1,700,000) + (0.06)($65,000) = $1,601,900
EV(UM) = (0.85)($1,250,000) + (0.15)($85,000) = $1,075,250

As Eric points out, OSU provides the young athlete with the better income potential.

Name That Economist

One of the brightest up-and-coming young economists, this scholar made headlines when she published a paper that contradicted an earlier published paper that she had written based on her dissertation. The daughter of two economists, she was the subject of several research papers on account of her unusual bedtime behavior while a two-year old.

Who is she and what topic caused her to write a paper contradicting her dissertation work? Also, what was her unusual bedtime behavior?

Congratulations to Yang Yang for correctly identifying Emily Oster as the mystery economist. Read more about Dr. Oster here. See her in action here.

Forecasting the Nobel Prize in Economics

The Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel (aka the Nobel Prize in Economics) will be announced on Monday, October 12, 2009. Of the 62 men who have won the award outright or shared in it since the prize began in 1969 (no woman has yet to win it), 42 have been Americans. The leading university homes of the winners include the University of Chicago (10), followed by Columbia (4), Harvard (4), University of California-Berkeley (4), and Cambridge University, England (4).

Now, let's see how well you can forecast. Who will be awarded the 2009 Nobel Prize in Economics? Your educated guess must be posted as a comment to this post before the Nobel Prize announcement is made. In the event that more than one person submits identical guesses, the earlier timestamp of the comment will determine the winner. The bonus points will be added to the winner's next exam score following the Nobel announcement on October 12.

No one guessed the 2009 winners of the Nobel Prize in Economics. Congratulations to Elinor Ostrom (Indiana University) and Oliver Williamson (Cal-Berkeley) on this year's award

They're in Hot Water Now!

Last year Antoine and Antawn occupied separate apartments; each consumed 300 gallons per month of hot water. This year they are sharing a larger apartment. To their surprise, they find that they are consuming 1000 gallons per month. Explain.

Dallas Cowboys Stadium

The new Dallas Cowboys Stadium got me thinking: At a football stadium where some fans live nearby and others travel great distances to attend, where would you expect to find a higher percentage of long-distance travelers: in the cheap seats or in the expensive seats? Why?

Farm Decisions

An economy consisting of farms has the unusual production function for each farm as described in the table below. Apparently with an even number of workers, they play cribbage.

Number of Workers	Marginal Product
1	20
2	15
3	19
4	14
5	18
6	13
7	17
etc.	etc.

If you had 10 farms and 40 workers, how would you allocate them among the farms? How much total output would your farms produce? Explain.

Congratulations to Qi Wu for being the first to come up with a correct answer to this week's question. Read her answer (spread over two comments) in the comments section.

By the way, thanks to the late George Stigler for the above question.

Marietta Armory Square

The city of Marietta is currently debating the future of the old Armory building on Front Street. Suppose that the mayor has proceeded with his plans to refurbish the building and use it as a transportation hub and visitor center. The estimated cost to complete the museum was initially $1.6 million. The mayor also believes that the transportation hub will generate an estimated benefit of $2.4 million.

The benefit estimate appears to be correct, but costs to date total $2.7 million, and the transportation hub still is not ready. The cost of completing the transportation hub, X, is uncertain.

City Council member Flintstone wants to stop now: "Whatever the value of X, it is clear that the transportation hub will yield negative net benefits." Council member Rubble wants to continue: "If we stop now, we will have wasted $2.7 million."

Comment. How should the decision depend on the value of X?

Congratulations to Kaitlin Huck for being the first of three to submit a correct answer. Using marginal analysis, the decision on whether to continue the project or not hinges on the value of X, the cost of completing the project. The $2.7m costs to date are sunk costs and should not affect the decision to continue or stop the project.