Tag Archives: economics

Review of THINKING, FAST AND SLOW – Daniel Kahneman

2011, Anchor, 499 pages

I predict time will be unkind to psychologist Daniel Kahneman’s groundbreaking, important, and misguided book. Having heard so many positive reviews of Thinking, Fast and Slow, I had expected to enjoy reading it. But it turns out I am quite allergic this book. Not since reviewing Sam Harris’ The Moral Landscape: How Science Can Determine Human Values has a book frustrated me to this degree. Do you remember doing math quizzes in grade school? Sometimes you would have some diabolical teacher that would put trick questions on the exams. Invariably, you would get some of these wrong. Then, when reviewing the error, at first you would wonder whether the marker was incorrect. Then, looking closer, you would see that it was a trick question, designed to fool. In many cases, you could have done the math. But you were fooled by a diabolical question designed to trip up your brain in the heat of the moment. Well, Kahneman’s book is filled up with trick questions him and fellow accomplice Amos Tversky dreamt up over the years. He presents leading questions that point you towards the incorrect answer. When you get the answer wrong, then he tells you your brain is not reacting rationally.

That the brain is irrational is an argument I accept. E. O. Wilson makes that claim in On Human Nature, a most excellent book. But the way Kahneman demonstrates the fallibility of the brain I absolutely disagree with in the same way as I disagreed with math teachers who set snares for students with trick questions. Who likes being fooled?

Less is More

Take this example that asks volunteers to price out two dinnerware sets. Set A has:

8 plates, good condition
8 soup bowls, good condition
8 desert plates, good condition
8 cups (6 in good condition and 2 broken)
8 saucers (1 in good condition and 7 broken)

Set B has:

8 plates, good condition
8 soup bowls, good condition
8 desert plates, good condition

When participants could see both sets, they valued, on average, Set A at $32 and Set B at $30. When participants were only shown one set–either Set A or Set B–they priced Set A, on average at $33 and Set B at $23. Kahneman (and Christopher Hsee, who came up with this experiment) call this the less is more effect, and, to them, it shows how the brain fails to handle probability. Their explanation is that, when participants could see both sets, they could see that Set A contains more good condition pieces than Set B. Therefore, they made the correct call and valued Set A at $32 and Set B at $30. However, when participants could only see one set, they would determine the price of the set by what the average price of the pieces. The set with intact pieces, therefore nets $33 while the set with the broken pieces nets $23, because the average value of the dishes, some of which are broken, is perceived to be lower.

To Kahneman and Hsee, the less is more effect illustrates the fallibility of the brain: if the eight cups and saucers (which include 7 pieces that are in good condition) are removed from Set A, Set A becomes worth more. To me, however, if I were shown Set A only, I would have also valued it at around $23 and if I were shown Set B only, I would have also valued it at around $33, and not because my brain is fallible (which it is), but because if I am shown in isolation a set of dinnerware with broken pieces, it makes me doubt the quality of the intact pieces! If, however, I can examine both sets, I can quickly see what the researchers are asking, which, to me, is: how much extra would I pay for 6 cups and 1 saucer. So, to me, this is not a case of the less is more effect, but rather the effect of the purchaser having less confidence in the quality of Set A because, out of 40 pieces, 9 are broken! This to me is a rather rational way of looking at Set A.

The Linda Problem

Imagine you are told this description of Linda:

Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in antinuclear demonstrations.

After hearing the description, you are then asked:

Which alternative is more likely?
a) Linda is a bank teller, or
b) Linda is a bank teller and is active in the feminist movement

When asked this question, 90% of undergraduates chose “b,” although by the laws of probability, it is more likely that Linda is a bank teller rather than a bank teller who is active in the feminist movement. The reason for this is that there are more bank tellers than bank tellers who are also feminists. Kahneman takes this as conclusive evidence of “of the role of heuristics in judgment and of their incompatibility with logic. I have a problem with this.

I get that there must be more bank tellers than bank tellers who are active in the feminist movement: bank tellers who are active in the feminist movement are a subset of the total number of bank tellers, which must be greater. But if, in the description of Linda, you tell me that she is “deeply concerned with issues of discrimination and social justice,” I am–if I were a participant in this study–going to try to cooperate with the questioners in anticipating what answer they want me to give. In this case, I would, even though I know that there are more bank tellers than feminist bank tellers, answer “a.” That I answered “a” is not, to me, conclusive evidence that my heuristics are incompatible with logic, as Kahneman argues. I was merely trying to be “helpful” by anticipating how the questioner wanted me to respond. And I was right: the questioner was trying to get me to say, “a.” Only, the questioner was not on my side and was deliberately trying to deceive me. No fair.

As Kahneman himself writes, without the questioner’s diabolical deception, participants could get this question right. Take this question:

Which alternative is more probable?
a) Mark has hair
b) Mark has blond hair

Participants have no problem getting the answer right. The answer is “a.” What I find insulting about the Linda Problem is that “no good deed goes unpunished.” The participant is trying to be helpful, not knowing the diabolical intentions of the questioner. And when the questioner deceives the participant, the questioner takes this to be proof of an impaired logical system in the brain. This adds insult to injury.

Consider also this scenario. Let’s say I am the questioner and that I am twenty-five pounds overweight. I go up to the questioner and ask: “Do you think I should lose some weight?” Let’s say the participant says: “You look great. No need for diet.” Would a smarty-pants psychologist look at this answer as proof that there is something wrong with the participant’s eyesight? I think, if the psychologist thought along the lines of Kahneman, the psychologist would say say yes, clearly there is an issue with the participant’s eyesight. But what I would say is that the participant is trying to be a nice person by anticipating the socially correct answer. There is something rational about saying the socially correct rather than the objectively correct answer as well, and I think Kahneman gives this point less consideration than I would have had.

The Hot Hand in Sports

On basketball, Kahneman debunks the idea of the hot hand:

Some years later, Amos and his students Tom Gilovich and Robert Vallone caused a stir with their study of misperceptions of randomness in basketball. The “fact” that players occasionally acquire a hot hand is generally accepted by players, coaches, and fans. The inference is irresistible: a player sinks three or four baskets in a row and you cannot help forming the causal judgment that this player is now hot, with a temporarily increased propensity to score. Players on both teams adapt to this judgment–teammates are more likely to pass to the hot scorer and the defense is more likely to double-team. Analysis of thousands of sequences of shots led to a disappointing conclusion: there is no such thing as a hot hand in professional basketball.

Kahneman explains the fallacy of the hot hand by a belief in what he calls the “law of small numbers,” the error that ascribes the law of large numbers to small numbers as well.” What that means is that three or four shots is too small a sampling size to demonstrate the presence of the hot hand.

Famed Boston Celtics coach, when he heard of the study, said: “Who is this guy? So he makes a study. I could care less.” I agree with him. Suppose you are coach of the Chicago Bulls in the 1990s. You are down two points with ten seconds on the clock. Michael Jordan has been on fire. Or at least he seems like he has the hot hand, having sunk his last five shots (some of which are high-percentage dunks). Dennis Rodman, on the other hand, is ice cold, having bricked his last five shots. Let’s say, to make this though experiment work, that Jordan and Rodman have the same field goal percentage. Who would you pass the ball to? Maybe “Team Psychology” would pass the ball to Rodman: he does not have the cold hand because such a thing does not exist. But the real-world team would pass the ball to Jordan. I think any coach who does not want to be fired or have the players revolt would pass the ball to Jordan. As they say, in theory there is nothing different between theory and practise, but in practise, there is.

Again, I understand what Kahneman is saying about small sample sizes. Small sample sizes can lead you awry. But what I have to say is this: in the absence of further data or more samples, you have to go with the data you have. That is the real world. In sports, you don’t have the luxury of looking at the player’s ten next shots to see if the player really has a hot hand. If the player seems to have a hot hand, you go with it.

Another objection I have to Kahneman’s debunking of the hot hand is that basketball players do, in real life, increase their field goal percentage. In his fourth year in the NBA, Shawne Williams, a player for the New York Knicks improved his 3-point field goal shooting percentage from 6 percent to 51 percent. If you knew him as a 6 percent shooter, and he hit three or four three-pointers in a row, and you dismissed his hot hand, well, you would be wrong: his field goal shooting percentage did actually move up from 6 percent to 51 percent! That year, he will seem to have had the hot hand and that hot hand is, statistically, real! As players hire shooting coaches and sports psychologists and move their shooting percentages higher, their hot hand will have been a real phenomenon. I don’t see how Kahneman and his friends could argue from a probabilistic and mathematical basis that sometimes players improve and, in the process of improvement, will have the hot hand.

Regression to the Mean

Air force cadets who do well one day will generally do worse the next day and cadets who do poorly one day will generally do better the next day. It is the same with golfers, claims Kahneman. This phenomenon is called the reversion or regression to the mean. Good performances will be balanced by poor performances so that, in the long term, the average is maintained.

Kahneman extends the phenomenon of the regression to the mean to companies: a business which did poorly last year, he claims, because of the regression to the mean, can be expected to do better the next year by the action of probability. Now, this idea can be tested in the stock market. There is a strategy called the “Dogs of the Dow” that works by arbitraging the regression to the mean. Each year, an investor buys the ten “dogs” or poorest performers in the thirty stock Dow Jones Industrials Index. At the beginning of each year, the investor sells the previous dogs and buys the dogs from the previous calendar year. If, as Kahneman claims, businesses obey the regression to the mean, by buying the poor performers, an investor should be able to do better than a buy-and-hold investor who holds all the stocks in the index.

This is not the case. With dividends reinvested, the twenty-year return in 2020 of the Dogs of the Dow strategy has returned 10.8%. Buying and holding all the Dow stocks for the same twenty year period would have also returned 10.8%. If Kahneman is correct about the regression to the mean, one would expect the Dogs of the Dow strategy to have produced a return in excess of 10.8%. It did not. There may be momentum effects at play where winners continue, despite probability, in producing outsized returns and losers, despite probability, produce diminished returns.

The regression to the mean is a real phenomenon. That I don’t doubt. But if Kahneman says it applies to businesses, it must be investable in real life. If it isn’t, then it’s just a fancy sounding term. You know, Kahneman might be right, that businesses revert to the mean. But he talks as though he is sure of the phenomenon without giving a real-world proof. Take the entire Japanese stock market, the Nikkei 225. It had a bad year in 1990. A very bad year. If I had listened to Kahneman, I would have backed up the truck to buy Japanese stocks in 1991. Now, almost thirty years later, the Nikkei is still below its 1991 levels. Regression to the mean?

Regression to the mean may be real, but not as easy as Kahneman puts it. There is a certain momentum in businesses and countries that defy regression to the mean for years, decades, and centuries. It strikes me that regression to the man works if you are looking backwards at the data. Say, after a century, you already know what the average is. You already have the data. Of course regression to the mean will work. But if you are looking forwards and do not have the data already, things change, trends emerge, industries fail: for example, when digital photography came into style, a company like Kodak is not going to revert to the mean! It will go bankrupt.

Prospect Theory

Prospect Theory is Kahneman’s feather in the cap. He won the 2002 Nobel Prize in Economics for Prospect Theory. Prospect Theory looks at how behaviour changes under the psychological loads of loss or gain. For example:

-In mixed gambles, where both a gain and a loss are possible, loss aversion causes extremely risk-averse choices.
-In bad choices, where a sure loss is compared to a larger loss that is merely probable, diminishing sensitivity causes risk seeking.

Prospect Theory explains why people buy insurance (even though it is an irrational practise that is money losing, in aggregate and in the long run), why people buy lottery tickets, why people pay lawyers too much to settle instead of fight it out in court (the large “structured settlements” industry), and the psychology that drove a con man like Bernie Madoff to seek more and more risk to avoid loss. To draw its conclusions, Kahneman would ask test participants questions such as:

Problem 1: Which do you choose?
Get $900 for sure OR 90% chance to get $1,000

Problem 2: Which do you choose?
Lose $900 for sure OR 90% chance to lose $1,000

His questions are designed to “tell us about the limits of human rationality. For one thing, it helps us see the logical consistency of Human preferences for what it is–a hopeless mirage.” I agree with Kahneman that human rationality is severely limited. Even free will, in my view, could be an illusion. E. O. Wilson, in a series of books including On Human Nature, has laid out an argument that convinces me of the limitations of the mind, which, Wilson argues, is a product of evolution conditioned to Stone Age rather than Space Age environments. Kahneman’s arguments fail to persuade me because his arguments presuppose that, should the participant confront the question in real life the participant would react in the same way as the participant answered the question, which, in the experiment, the participant knows is not real, is only a question in a study. That is a big jump that has been demonstrated conclusively to be false. There are, for example, ongoing litigations involving the “Know Your Client” (KYC) form that investment banks use. Financial advisors gauge their clients’ appetite or aversion to risk by asking them questions such as the ones Kahneman asks the participants in his studies. As it turns out, some clients said, on paper, that they had great appetite for risk. But when loss happened, they found that, in real life, this was not true. So they sued. Others said, on paper, that they had little risk tolerance. When, however, in real life, they saw how they missed the boat on outsized investment returns, they found out that they actually have a propensity for risk. And they sued. The Achilles’ heel of Prospect Theory is that Kahneman asks participants questions on paper and draws far-reaching conclusions on the assumption that this transfers over to real life. People do not behave the same way in real life as they do on paper. You cannot ask people paper questions and construct a real-world theory from their paper responses. No, no, no!

His method, in my eyes, would be like an anthropologist who polls different tribes. So, instead of observing what a tribe actually does, this anthropologist would give the tribespeople a poll. For example, the anthropologist would ask:

Problem 1: One year, your crop yield goes down 25% Would you:
a) attack the neighbouring tribe or
b) increase hunting activities

Then, if the participants answer “a,” this anthropologist would conclude that “the tribe is aggressive” or some other far reaching conclusion. But if the participants answer “b,” the anthropologist would conclude that the tribe is pacifist. This would be ludicrous. But this seems to be what Prospect Theory is based upon.

As they say, in theory, there is no difference between theory and practise but in practise, there is.

Government Spending

During the year that we spent working together in Vancouver, Richard Thaler, Jack Knetsch, and I were drawn into a study of fairness in economic transactions, partly because we were interested in the topic but also because we had an opportunity as well as an obligation to make up a new questionnaire every week. The Canadian government’s Department of Fisheries and Oceans had a program for unemployed professionals in Toronto, who were paid to administer telephone surveys. The large team of interviewers worked every night and new questions were constantly needed to keep operations going. Though Jack Knetsch, we agreed to generate a questionnaire every week, in four color-labeled versions. We could ask about anything; the only constraint was that the questionnaire should include at least one mention of fish, to make it pertinent to the mission of the department. This went on for many months, and we treated ourselves to an orgy of data collection.

That Kahneman mentions this I find disturbing. From what I gather, times are tough. There are many unemployed. So then the Canadian government hires three top-gun economists (because purse strings must be tight), two of which are American (because Canadian economists do not need the work) to conduct surveys which are meaningless to the participants, the government, and Canadian citizens. The government, however, markets this program as being relevant to Canada’s fishing industry: after all, each question must involve the mention of a fish. Of course, after the brilliant economists get the data they want for their pet experiments, they publish this in a book and throw the Canadian government under the bus: the survey, they say, really helped them and had nothing to do with fisheries and oceans. They had gamed the taxpayer money for their own benefit. This so smacks of elitism. It also strikes me as being deeply ironic: the study they were working on was “fairness in economic transactions.” Yikes.

That he printed this makes me wonder if he understands the real world. He talks of Davos, the party place of the billionaires. He goes through his book like some hero-psychologist, looking at everyone else’s blind spots. He talk about how he mentions one story at Davos, and someone overhearing says “it was worth the whole trip to Davos just to hear that,” and that this person who said this “was a major CEO.” Wow. It would have been good if someone in another book had said that about Kahneman. But for him to say this about himself in his own book?

Spider-sense Tingles “Danger”

Thinking, Fast and Slow is a book I had wanted very much to like. I had hoped to learn more about mental biases that would have been of use in the new book I’m writing on a theory of comedy. The more I read Thinking, Fast and Slow, however, the more my spider-sense was tingling “danger.” I voiced my disapproval of the book to friends and to my book club. People said: “You don’t like the book because you probably weren’t smart enough to answer his questions.” Other people said: “But he has won a Nobel Prize. Who are you to disagree?” It makes me laugh a little bit that people will say that I am irrational while themselves using ad hominem attacks, the rationality of which itself is doubtful.

I remember a story about two other Nobel Prize winners, also, like Kahneman, in the economics category. In 1997, Myron Scholes and Robert C. Merton won the Nobel Prize in Economics. A few years prior, they had started up one of the largest hedge funds in the world, Long-Term Capital Management. While they were winning the Nobel Prize, a journalist looked into the workings of their hedge fund. He called them out for being overleveraged: with 4 billion in their own and investors’ capital, they had borrowed in excess of 120 billion. The journalist called them out for “picking up pennies in front of a bulldozer.” Scholes and Merton shot back: “Who are you to question us, lowly journalist? We are Nobel Prize winners.” A year later, Long-Term Capital Management collapsed, taking the global economic system itself to the brink of collapse. How the mighty are fallen.

Kahneman comes across as the hero-psychologist pointing out others’ errors. But I wonder if he ever looked at the beam in his own eyes? I did a quick search on Google for the robustness of psychological experiments, the sort that are published in respected peer-reviewed journals. I found that less than half of such studies can be replicated. What sort of “science” is this? It’s like if you had a theory of gravitation that was published in a leading journal such as Science that predicted the moon would be at this place on this time. You “proved” it once and published it. But no one else can replicate it. And your theory is still accepted as canon, not to be questioned? I wonder, down the road, how robust many of Kahneman’s findings will be. Time will tell.

2015 Reproducibility Project study finds only 39 out of 100 psychology experiments able to be replicated, even after extensive consultation with original authors:

https://www.nytimes.com/2015/08/28/science/many-social-science-findings-not-as-strong-as-claimed-study-says.html

2018 Reproducibility Project study finds that only 14 out of 28 classic psychology experiments are able to be replicated, even under ideal condition:

https://www.nature.com/articles/d41586-018-07474-y

– – –

Don’t forget me, I’m Edwin Wong, and I do Melpomene’s work.
sine memoria nihil

A Risk Theatre Reading of Arthur Miller’s ALL MY SONS

I don’t know why it is, but every time I reach out for something I want, I have to pull back because other people will suffer. (16)[1]

In the mid-1940s, the American century was dawning. The daybreak of Pax Americana had arrived. From January to November 1947, All My Sons ran for 328 performances.[2] Arthur Miller went from being a famous person nobody knew, to being a famous person everybody knew. In dramatizing the possibilities and problems of an upstart world order, Miller became an overnight sensation.

Pax Americana brought peace to the conquered by releasing the animal spirits of the economy, long bottled up in wartime rationing and a decade of depression and dust bowl. No more gloom. Opportunity and prosperity lay on every horizon line. Amidst the go-fever of a new superpower firing on all cylinders, one voice dissented. It was the voice of Miller asking whether the American dream was a zero-sum game.

In All My Sons, money is the measure of success. Money is everywhere. It represents the American dream. The choice to make money, however, comes at a cost. When one chooses to make money, one loses the next best alternative that one could have pursued, had one chosen otherwise. The negative part of choice is known as opportunity cost. Opportunity cost illustrates the cost of choice because it presents choice as an either/or rather than a both/and proposition.

All My Sons dramatizes the cost of the American dream, its entry fee, the yearly dues, and the ongoing expenses. It does so by following characters as they make choices in pursuit of the dream. By making, through opportunity cost, the characters pay for their decisions, Miller exposes the true price of Pax Americana.

The minor characters understand opportunity cost. Having chosen, they reflect on the forsaken alternatives, and are left with “a wisp of sadness” (6). Their tragedy anticipates, augments, and amplifies the tragedy of the Keller family—Joe Keller, or simply Keller, Kate Keller, otherwise known as Mother, and Chris Keller. The Kellers fail to understand opportunity cost. They are the sort of people who think that they can have their cake and eat it too. In the end, however, Miller destroys them. In their destruction, they pay for their devotion to the ideals of the American century.

For the orthodox interpreters who consider that the fall of heroes through hubris brings about a catharsis of pity and fear through pity and fear, or, that the tragic arises when irreconcilable ethical positions collide, All My Sons could take a position of pride alongside the tragedies of old. But, for the young guns who understand the opportunity cost concept, who seek farsighted interpretations for the new century, tragedy is, first and foremost, a valuing mechanism. To the rebel interpreters, patriotism goes through a price discovery process. It is on sale. Its price is measured in terms of the opportunity cost of all the things that are left behind in choosing it. The emotional effect of tragedy is wonder and awe. Wonder at how much Keller pays. And awe over how faraway, so close he was to pulling off a fast one. To the new interpreters, pity and fear were barbaric relics left over from past ages.

Show Me the Money

The Second World War is over. America has won. In the postwar boom, new industries, professions, and opportunities rise up:

Keller [shakes his head]. All the kind of business goin’ on. In my day, either you were a lawyer, or a doctor, or you worked in a shop. Now…

Frank. Well, I was going to be a forester once.

Keller. Well, that shows you; in my day, there was no such thing. (7)

It is a time of rapid urbanization and rising social mobility. The young move to the new metropolises of Cleveland and New York to stake their claims. On stage right, the baby boom that will redefine demographics and drive demand for the next century is taking place: in the space of three years, Frank and Lydia Lubey have three babies. In the postwar boom, the business of America is business. To partake in this world of business, money is the currency of exchange, the symbol of the dream, the projection of Pax Americana.

In All My Sons, money is ubiquitous. Money seals the deal between men and women: “Oh Annie, Annie,” says Chris to his fiancée, “I’m going to make a fortune for you!” (36). “You wanted money,” says Keller to Mother, “so I made money” (76). Money is the sign of social approval. “He’s got money,” says Sue to Ann when she finds out Ann is engaged to Chris (44). Money makes all the difference. When she met Jim, her future husband, his wallet was threadbare. She was, however, already a nurse. Money laid the groundwork for future strife:

Sue. It makes all the difference. I married an interne. On my salary. And that was bad, because as soon as a woman supports a man he owes her something. You can never owe somebody without resenting them. (44)

Money is how fathers demonstrate their love to sons. “What the hell did I work for?” Keller asks his son Chris. “That’s only for you, Chris,” says Keller, referring to his factory where everything from aircraft cylinder heads to pressure cookers and washing machines are built, “the whole shootin’-match is for you!” (17).

In the postwar boom, money is the new measure. Net worth is the measure of an individual and gross domestic product the measure of a nation. How much has one contributed to society? The answer lies in the bankbook. The bigger the better. Public projections of the bankbook start with the family house. In the opening description of the set, Miller describes the monetary attributes of the Keller house alongside its physical attributes: it is a two-storey, seven-room structure hedged in with tall poplars and a porch that extends into the yard six feet. To build it cost fifteen thousand (5). Like the height of the poplars and the porch that extends six feet, money has a dimension. It is measured in dollar units. In addition to the family house, secondary projections of the bankbook include the new cars and fridges (36). To own a house with a driveway, a new car, and fridge is the sign of a made man.

To comport oneself to life in the new dream, one must understand how money works. Besides the obvious material applications, money can buy human, all-too-human values. It can buy allegiances. Keller finds out that, not only has Ann returned after a three-and-a-half-year absence, her brother George is also on the way, and unexpectedly. George could be a danger: Keller had ruined his father. To win his allegiance, he proposes to fast-track George on the road to riches. George, having just joined the bar, is a new lawyer. He is in the beginning stages of building a clientele. Keller can help:

Keller. You say he’s not well. George, I been thinkin’, why should he knock himself out in New York with that cut-throat competition, when I got so many friends here; I’m very friendly with some big lawyers in town. I could set George up here. (48)

The allure of money may entice even Steve Deever, Ann and George’s father, the man Keller ruined:

Keller. I like you and George to go to him in prison and tell him. … “Dad, Joe wants to bring you into the business when you get out.”

Ann [surprised, even shocked]. You’d have him as partner?

Keller. No, no partner. A good job. [Pause. He sees she is shocked, a little mystified. He gets up, speaks more nervously.] I want him to know, Annie … while he’s sitting there I want him to know that when he gets out he’s got a place waitin’ for him. It’ll take his bitterness away. To know you have a place … it sweetens you. (49)

Relationships are defined by money, and Keller has figured out how to create winning relationships.

A fundamental relationship is the one between husband and wife. Here too, the successful relationship is grounded on an understanding of money. Jim, learning that Ann is engaged, offers monetary advice:

Jim [To Ann]. I’ve only met you Ann, but if I may offer you a piece of advice—When you marry, never—even in your mind—never count your husband’s money. (25)

Those who understand the advantages of money in the postwar world are lauded and those who fail to understand censored. Money is the basis of a new morality:

Keller. Goddam, if Larry was alive he wouldn’t act like this. He understood the way the world is made. He listened to me. To him the world had a forty-foot front, it ended at the building line. This one, everything bothers him. You make a deal, overcharge two cents, and his hair falls out. He don’t understand money. Too easy, it came too easy. Yes sir. Larry. That was a boy we lost. (77)

The goal of this new morality is to have children and pay off the mortgage. “That big dope next door,” says Mother, “who never reads anything but Andy Gump has three children and his house paid off” (61). Social causes, politics, and standing up for one’s beliefs are impediments, unwanted distractions to the patriotic goal of making money and babies:

Mother [reading his thoughts]. She got pretty, heh?

George [sadly]. Very pretty.

Mother [as a reprimand]. She’s beautiful, you damned fool!

George [looks around longingly; and softly, with a catch in his throat]. She makes it seem so nice around here.

Mother [shaking her finger at him]. Look what happened to you because you wouldn’t listen to me! I told you to marry that girl and stay out of the war!

George [laughs at himself]. She used to laugh too much.

Mother. And you didn’t laugh enough. While you were getting mad about Fascism Frank was getting into her bed. (61)

Against the monetization of all values is a competing ideal. But it lies offshore on the distant fronts. Chris saw a fleeting glimpse while he commanded a company in the war:

Chris. Everything was being destroyed, see, but it seemed to me that one new thing was made. A kind of … responsibility. Man for man. You understand me?—To show that, to bring that on to the earth again like some kind of monument and everyone would feel it standing there, behind him, and it would make a difference to him. (36)

But, as Chris adds, back at home there was no place for the things that come “out of a love a man can have for a man” (36). Before his company could come back from the war, they were already all dead. They had not been selfish enough. When, on the distant fronts, the dream of the brotherhood of man died, the American dream lost its last adversary.

The American dream is the dream of prosperity. It is the dream that tames the proud. It channels the grief of the widows and orphans, the frustrations of the veterans, and the energy of the emerging nation to create the wealth of nations. It is transacted in greenback dollars. It recorded its successes privately in bankbooks and publicly in the proliferation of factories, stone houses, automobiles, refrigerators. It sees material abundance as its highest good, and, in doing so, eschews brotherhood, the “love a man can have for a man.” Instead, it elevates self-interest as its new good.

Self-interest became the new creed because it creates prosperity. So argues the Scottish economist and philosopher Adam Smith. “It is not,” says Smith, “from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”[3] In Smith’s economic philosophy, the formula to maximize national prosperity in the aggregate is for each individual to maximize individual prosperity. The greater good of a unit is dependent on all the butchers, brewers, and bakers thinking about themselves first. When individuals put others’ interests before their own, frictional losses diminish the aggregate potential of the unit. So the air mask procedure on an airplane: individuals maximize the group’s welfare by putting on their own masks first. So the zipper merge in traffic: when two lanes coalesce into one, the whole queue moves faster if each driver, in an act of self-interest, advances to the head before merging. In crucial applications, self-interest draws a line between life and death:

Chris. You remember, overseas, I was in command of a company?

Ann. Yeah, sure.

Chris. Well, I lost them.

Ann. How many?

Chris. Just about all.

Ann. Oh, gee!

Chris. It takes a little time to toss that off. Because they weren’t just men. For instance, one time it’d been raining several days and this kid came up to me, and gave me his last pair of dry socks. Put them in my pocket. That’s only a little thing … but … that’s the kind of guys I had. They didn’t die; they killed themselves for each other. I mean that exactly; a little more selfish and they’d’ve been here today. (35)

While Chris’ company died because they put self-interest second, Keller takes the opposite approach. He champions self-interest. While others wind one another up like tinker toys, Keller gets ahead by considering his own interests. When, for example, Ann expresses her appreciation to Keller for offering to help set George on his feet, Keller corrects her:

Ann. That’s awfully nice of you Joe.

Keller. No, kid, it ain’t nice of me. I want you to understand me. I’m thinking of Chris. [Slight pause] See … this is what I mean. You get older, you want to feel that you … accomplished something. My only accomplishment is my son. I ain’t brainy. That’s all I accomplished. Now a year, eighteen months, your father’ll be a free man. Who is he going to come home to, Annie? His baby. You. He’ll come, old, mad, into your house.

Ann. That can’t matter any more, Joe.

Keller. I don’t want that hate to come between us. [Gestures between chris and himself] (48-9)

Keller thinks of his self-interest first and foremost. He is the ideal citizen, the new model patriot showing the others how to live the dream. Or is he? That is the question Miller considers.

The Opportunity Cost of Choice

Opportunity cost is the notion that choice involves a negative component. The negative component is that, when the best alternative is chosen, the next best alternative is forsaken. Choice is decision and, embedded in the etymology of the term decision, is the opportunity cost concept. The English term comes from the Latin verb decidere, itself a combination of the prefix de– in its privative sense of “removal” and the verb caedere “to cut.”[4]When one decides one literally “cuts off” or “cuts away” the flotsam of competing alternatives.

Economists, in examining the problem of scarcity, have formulated the clearest exposition of the opportunity cost concept. Economics is called the dismal science because it sees an impoverished world, a world where there are too many mouths, and too little to eat. There are too many sick, and too few cures. There are too many kings, and too few crowns. The task of economists is to manage resources that are in a perpetual short supply. To do this, they developed opportunity cost as the basis of an economic theory of choice to allocate inadequate resources.

Smith proposes opportunity cost as a basis for decision making in his 1776 treatise The Wealth of Nations. To find the underlying framework for decision making, he peels away the complexities of developed economies by reconstructing the primitive economy of early hunter-gatherers. Exchange, he finds, is informed by the opportunity cost of production. He illustrates the concept by the example of the one beaver and the two deer:

In that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer. It is natural that what is usually the produce of two days’ or two hours’ labour, should be worth double of what is usually the produce of one day’s or one hour’s labour. (1.6.1)

When a hunter prepares a beaver, the hunter has lost the opportunity to prepare two deer. The opportunity cost of preparing a beaver is the loss of two deer. Conversely, should the hunter prepare two deer, the hunter loses the opportunity to prepare one beaver. With this simple example where there is one input (labour) and two outputs (beaver and deer), cost enters into the theory of choice: with a given input, it is either one beaver or two deer. In the real world, the inputs are more, the outputs are more, and the costs more grievous than animal skins. But the results are the same: you cannot have your cake, and eat it too.

If economics is the dismal science, then tragedy is the dismal art. Tragedy, like economics, sees a world of privation where, to gain x, one gives up y. In All My Sons, the characters confront opportunity cost. Take Ann. In the prehistory of the play, she had been engaged to Larry Keller, an army pilot. He died in the war. At the same time, her father, Steve, and Larry’s father, Keller, were tried for selling cracked airplane cylinder heads to the Army Air Force. They were accused of welding over hairline fractures and passing off the heads as good. Twenty-one pilots died. Keller was exonerated. Steve, however, was convicted. Ann is incredulous that her father should have been so base:

Keller. Annie, the day the news came about Larry he was in the cell next to mine … Dad. And he cried, Annie … he cried half the night.

Ann. [touched]. He shoulda cried all night. (33)

She disowns him:

Keller [to Ann]. The next time you write Dad …

Ann. I don’t write him.

Keller [struck]. Well every now and again you …

Ann. [a little ashamed, but determined]. No, I’ve never written to him. Neither has my brother. (31)

Her indignation comes at a cost, the cost of her shame. Her awkward interaction with Frank, who enquires about her father, highlights the price she pays. She cannot answer his simple question: she has no idea how he is (28-9). Polite society questions one who has disowned one’s own. She buys her indignation at the cost of her shame.

Economists use opportunity cost to price out goods and services. In the primitive economy, the cost of a beaver is two deer because two deer represent the opportunity cost of one beaver. In the developed economy, the cost of a house call is ten dollars because it compensates Jim for the next best thing he could have done, had he passed on the house call, which, in a moment of levity, would have been to drive Sue to the beach. While economists use opportunity cost to price out goods and services, Miller uses opportunity cost to price out the human. In the mad money world of All My Sons, it is either your money or your life.

From the perspective of opportunity cost, the case of Jim is illuminating. He is an early prototype of Willy Loman in Death of a Salesman, a play which would come out two years later. Willy, after getting lost in the dream, exposes the brutal paradox of opportunity cost in complex economies. In a brutal insight as he chats about life insurance with Charley, Willy realizes that it is his money or his life:

Charley.  I’ve got some work to do. Take care of yourself. And pay your insurance.

Willy. Funny, y’know? After all the highways, and the trains, and the appointments, and the years, you end up worth more dead than alive.[5]

Willy can have the dream, but at the cost of his life. Jim is not there yet, but he is getting there. In All My Sons, Jim wants to be a good husband. He also wants to follow his calling. He discovers that his wants present him with an either/or proposition:

Jim. One year I simply took off, went to New Orleans; for two months I lived on bananas and milk, and studied a certain disease. It was beautiful. And then she came, and she cried. And I went back home with her. And now I live in the usual darkness; I can’t find myself; it’s even hard sometimes to remember the kind of man I wanted to be. I am a good husband. (74-5)

When Jim reflects on his choice, he realizes the value of all he left behind. In this way, Miller makes opportunity cost the dramatic pivot through which characters pay the price.

Miller specifies the price Jim pays. From Sue, we learn that medical researchers make twenty-five dollars a week and doctors ten dollars per house call (10 and 44). During the course of the play (which takes place on a Sunday), Jim calls on at least three patients—Mrs. Adams, Mr. Hubbard, and an unnamed patient with a headache. He has made, at minimum, thirty dollars. In one day, Jim makes more than he would have in a week as a researcher. At this rate, he could make $210 a week, over eight times the amount of a researcher.

From an opportunity cost perspective, an inference may be drawn: $185 dollars per week—the difference in pay between a researcher and a doctor—is the remuneration Jim receives each week for having given up his dreams. Put another way, $185 per week is the price he pays to be a good husband. To add insult to injury, it appears that his services as a doctor are superfluous. His patients—who think they are dying—are, in fact, well. “Money,” says Jim in a moment of resignation, “Money-money-money-money. You say it long enough it doesn’t mean anything” (73). In complex economies, it is no longer the opportunity costs of beavers and deer, but rather those of dollars, cents, and dreams.

Jim’s domestic tragedy sets the scene for Keller’s tragedy. One evening during the war, Steve—Keller’s erstwhile partner—rang, frantic. They were manufacturing aircraft cylinder heads. There was a fault in the process. A batch came out with a hairline fracture. To Keller, it was either his business or his integrity. He has a choice: disclose that the process is faulty or weld the fracture. The former could put them out of business. The latter could endanger lives. He instructs Steve to pull out his tools.

The next morning, Keller calls in sick. But he does not have the flu. He is sick with the enormity of his decision. He is worried. When worried, he sleeps (41). By the time he returns to work, the heads have shipped. He thinks that the army quality control will catch the defect. By that time, he will have corrected the process. Before he can blink, however, 121 heads have gone in and 21 Curtiss P-40 Warhawks have crashed. The defect is traced back to the shop. Keller and Steve are arrested.

If Keller is convicted, he will lose his business. If he is exonerated, he will save his business. In his mind, he has done wrong by instructing Steve to cover up the cracks. But he knows a loophole: the evidence of telephone conversations is inadmissible in court:

George. Dad was afraid. He wanted Joe there if he was going to do it. But Joe can’t come down … he’s sick. Sick! He suddenly gets the flu! Suddenly! But he promised to take responsibility. Do you understand what I’m saying? On the telephone, you can’t have responsibility! In a court you can always deny a phone call and that’s exactly what he did. They knew he was a liar the first time, but in the appeal they believed that rotten lie and now Joe is a big shot and your father is the patsy. (54-5)

Keller is confronted with a choice. The opportunity cost of his business is forsaking the next best alternative, the ties that bind him to his neighbour and business partner. For the sake of his sons, he chooses the business.

Whereas Ann and Jim make their choices and pay, Keller thinks that he can have both his money and his integrity. He believes that, without repercussions, he can ship out the heads. He believes, that, without repercussions, he can make Steve the fall guy. For some time, he succeeds. After his exoneration, he comes back into town the cock of the walk, with the result that “fourteen months later I had one of the best shops in the state again, a respected man again; bigger than ever” (30). He brags of his bravado to Ann: “Every Saturday night the whole gang is playin’ poker in this arbor. All the ones who yelled murderer takin’ my money now” (30).

In the world of tragedy, it is a crime against the natural law of opportunity cost to have your cake and eat it too. There may be free lunches in comedy, a world of abundance.[6] But this is no comedy Keller is in. He is in a tragedy, the dismal art regulated by the dismal science. In the ancient world, the gods would ensure that the price is paid. In the modern world, the new gods are the forces of economic science. Opportunity cost is the avenging god. With bravado, Joe “McGuts” Keller can delay nemesis, but, like the tragedies of old, only for so long.

Masters of Reality

The Kellers are the masters of reality, manipulating reality to avoid paying their existential dues. Each of the Kellers—Mother, Chris, and Keller—pursues a complementary strategy that, while cunning, falls short. Opportunity cost is there lurking, biding its time, like the neighbourhood kids:

Keller [laughs]. I got all the kids crazy!

Chris. One of these days they’ll all come in here and beat your brains out. (13-4)

Mother knows the truth, knows that Keller ordered Steve to ship the cracked heads, knows that Keller framed Steve. She knows that, for his choices, there is a price to be paid. Three years ago, her son Larry flew on a mission. He never returned. Even though he never flew a P-40—the airframe into which the heads were mounted—in her calculus, if Larry were dead, Keller is the murderer. But no. God is on her side. God would not allow it. “God does not,” she says, “let a son be killed by his father” (68). God will lift the burden of opportunity cost from her.

If God exists, Larry will return. That is a mother’s faith. Until his homecoming, she devises alternate means to sustain her faith. Her neighbour, Frank, is an astrologer. In astrology, there is a prodigy known as a “favorable day.” On one’s favorable day, death looks away. “The odds are a million to one,” says Frank, “that a man won’t die on his favorable day” (66). Larry had went down on November 25th. To find out if November 25th was Larry’s day, Mother has Frank cast his horoscope. It turns out that it was his day. The chances are 999,999:1 that he is alive. The apple tree further validates her. The morning of the play, it was blasted down by the wind. It was blasted down because it was an abomination. Memorials are for the dead.

But Mother only buys time. She is fooled by randomness, confusing the static in the starways and the blasts of wind for a signal. God is not on her side. The universe feels no sense of obligation. In a show of dramatic irony, it is her insistence that Larry is alive that forces Ann to produce Larry’s suicide note. It is this note that undoes the Kellers’ mastery of reality.

Chris, unlike Mother, does not know the truth, does not know Keller ordered Steve to ship the heads, does not know Keller framed Steve. He is a dreamer, has not reached the jaded age. He weighs reality in the scales of his inexperience. In his inexperience, the only measure he knows is that of the responsibility of “man for man,” and so he judges all hearts (36). Into his heart will not enter that Jim could choose a bigger bankbook over being a better benefactor to humanity. Into his heart will not enter that Keller could choose the business over his responsibility to fellow human beings.

With his depth of conviction, Chris is persuasive. Every few years, he tells Jim he would be happier helping the sick by being an underpaid researcher rather than an overrated doctor. His persuasiveness alarms Sue, who, worrying about the size of Jim’s bankbook, asks Ann to move away with Chris (44). His persuasiveness also convinces George to disown his own father:

Chris [sits facing George]. Tell me, George. What happened? The court record was good enough for you all these years, why isn’t it good now? Why did you believe it all these years?

George [after a slight pause]. Because you believed it … That’s the truth, Chris. I believed everything, because I thought you did.

His conviction casts a reality distortion field. Keller cannot be guilty because he is the best of fathers. If he were guilty, the court would have determined so. But he is fooled by his goodness. The depth of his conviction never penetrated below the surface simplicity of his inexperience.

Now Keller: not only does he know the truth, he has fabricated the truth. He is the interior dramatist. If the neighbourhood kids have heard disturbing rumours, he will create a spin:

Keller. Actually what happened was that when I got home from the penitentiary, the kids got very interested in me. You know kids. I was [Laughs] like the expert on the jail situation. And as time passed they got it confused and … I ended up a detective [Laughs.]

Mother. Except that they didn’t get it confused. [To ann] He hands out badges from the Post Toasties boxes. [They laugh.] (29)

What federal penitentiary? Nothing is amiss. He manipulates reality: he is a detective, the cellar his jail.

So too, when George questions Keller’s innocence, Keller distorts reality. He reiterates how Steve was a small man who “never learned how to take the blame” and reinforces his position with a litany of examples (63). There was the time Steve almost burned down the shop and blamed the mechanic. There was the time Steve lost money on an oil stock and blamed Frank (64). There is a pattern here, argues Keller: Steve did wrong in shipping the heads and, because he was a small man, blamed Keller. Though Keller can win over some of the people most of the time, he cannot win over the iron law of opportunity cost.

Opportunity cost rears up in the explosive conclusion to act two when the Kellers’ contrasting realities collide. Chris finally tells Mother that, come hell or high water, he will marry Ann, Larry’s fiancée. Mother, however, cannot accept Larry’s death. Cornered, she says things to Chris it were better not to say:

Mother. Your brother’s alive, darling, because if he’s dead, your father killed him. Do you understand me now? As long as you live, that boy is alive. God does not let a son be killed by his father. Now you see, don’t you? (68)

She draws her line in the sand. If she loses hope, she will kill herself (22). Her last ditch gambit, however, comes at a tremendous cost. She preserves her hope by admitting, in so many words, that Keller has been guilty all along.

After her burst, she exits, leaving Chris to confront Keller. Keller confesses. He was responsible for the heads. He knew lives were at risk. But he did it for Chris, did it to save the business. Chris rebukes him and, having surfeited his rage, exits in despair.

Keller and Mother regroup. She suggests that it is time for him to pay. Between the horoscopes and revisionist narratives, the past is catching up:

Mother. I think if you sit him down and you … explain yourself. I mean you ought to make it clear to him that you know you did a terrible thing. [Not looking into his eyes] I mean if he saw that you realize what you did. You see?

Keller. What ice does that cut?

Mother [a little forcefully]. I mean if you told him that you want to pay for what you did.

Keller [sensing … quietly]. How can I pay?

Mother. Tell him … you’re willing to go to prison. [Pause.] (76)

Keller will have none of it. Chris will forgive him. “I’m his father and he’s my son,” he says, “and if there’s something bigger than that I’ll put a bullet in my head” (77). Family will lift the burden of opportunity cost from him.

As Mother draws her line in the sand, Ann will not stand by idle. She has come 700 miles to marry Chris. She will prove to Mother that Larry is dead. She has a letter, a letter from Larry, his suicide letter. It is the atom bomb of letters. In it, Larry tells Ann not to wait. Larry has heard Keller and Steve have been charged. “Every day three or four men never come back,” he says, “and he sits back there doing business.” “I could kill him,” writes Larry (83). But instead of killing Keller, he kills himself, flying into the void.

After Chris reads the letter to Keller, Keller realizes the game is up. Keller had been put out when he was ten years old. He had lived through the Great Depression and the Dust Bowl. To ensure his sons would have an easier life, he has avoided paying his opportunity costs. He avoided the cost by framing Steve, by perjuring himself, and by distorting reality. He tried to get around the cost by making money, passing the business on to Chris, helping George set up, and welcoming Steve back into the business. He came so close to having his cake, and eating it too.

When it started unravelling, Keller could still count on the support of his good son, his dead son, the younger, perfecter son who understood the cost of a buck. But the letter strips him of his final hope. After he reads the letter, Mother, with a dark premonition, cuts in:

Mother. Larry was your son too, wasn’t he? You know he’d never tell you to do this.

Keller [looking at letter in his hand]. Then what is this if it isn’t telling me? Sure, he was my son. But I think to him they were all my sons. And I guess they were, I guess they were. (83)

The letter brings the masters of reality back down to earth. The Kellers thought they could dream the dream, and live it too. But they could only delay the day of reckoning. Mother loses her religion. Her faith that Larry would return was bought at the cost of God and the stars. For her, the stars will forevermore wander random pathways, silent, dumb. Chris, on the other hand, buys experience at the cost of his worldview where the money is clean, the courts are just, and the fathers are like Jesus. Then, there is Keller. He buys a better future for his family at the cost of his integrity. In the dog-eat-dog world of tragedy, it is either responsibility to family or responsibility to humanity, but not both. The Kellers were only mortal gods, building houses of cards.

The Dismal Art

Tragedy, like economics, is a dismal art. Tragedy is an economics of the final resort that examines the opportunity cost of being alive. While participants in hunters’ markets, farmers’ markets, and stock markets come together to value beavers and deer, fruits and vegetables, and stocks and bonds by the opportunity cost concept of one beaver for two deer, patriots come together on the marketplace of the tragic stage to value their devotion to the new ideals of Pax Americana. Economists price goods. Dramatists price dreams. To define the price, both identify what is given up in exchange.

To price out intangible assets, one turns to tragedy because tragedy is a valuing mechanism for human assets. Economists can tell you a gallon of milk is worth $4.99, but not how much the milk of human kindness costs.[7] To find out how much the milk of human kindness is worth, one turns to tragedy. In a world of privation, where the shortfalls are perpetual, there are no free lunches, only opportunity costs. Because of the opportunity cost mechanism, tragedy establishes the price of the all-too-human as the next best alternative that is given up in exchange.

The function of drama as a valuing mechanism is unique to tragedy. Miller could not, for example, have priced out the cost of the dream if he had set the action in a comedy. Comedy is a world of plenty. There is no opportunity cost in comedy: it is a world of free lunches. Compare the father Micio in The Brothers, by Roman comedian Terence, to Keller:

Micio. He dines and wines and reeks of scent: I pay for it all. He keeps a mistress: I shall pay up as long as it suits me, and when it doesn’t, maybe she will shut his door on him. He has a broken door-lock; I’ll have it mended. He has torn someone’s clothes; they can be repaired. (344)[8]

Both Micio and Keller provide for their sons. In the world of comedy, the limit of Micio’s largesse is whether “it suits me.” Micio, flush with cash, effortlessly provides for his son. For Keller, however, to provide for his sons in the world of tragedy, he must feign illness, lie, perjure himself, put his reputation on the line, throw his neighbours to the wolves, and endanger the lives of others’ sons. The brutality of tragedy is what makes it a great valuing mechanism.

As a valuing mechanism, Miller uses it to explore the price patriots pay to live the American dream. What is the cost of being a good husband? To become a good husband, one gives up the dream of true research. What is the inverse cost, the cost of being a researcher? That cost works out to be the additional income of $185 per week that is lost when one gives up the general practice. What is the cost of a mother waiting for her son? Her other son picks up the tab. “We’re like at a railroad station,” says her other son, “waiting for a train that never comes in” (21). What is the cost of solidarity with fellow human beings? The cost of solidarity is life; the war kills those not greedy enough of their lives. What is the cost of standing up for justice? The cost is the ties that bind together families. What is the cost of saving an engagement? The cost is turning a blind eye to a father-in-law’s crimes. What is the cost of becoming practical? The cost of practical society life is to watch “the star of one’s honesty” go out (74). What is the cost of money? Money, in All My Sons, comes at the price of integrity. What is the cost of being a good father? The cost is your life, all your sons will spit you out.

In All My Sons, each time the subsidiary characters are confronted with several alternatives, they choose one, eliminate the others, and are left with a certain “wisp of sadness” (6). The wisp of sadness is the surface manifestation of the invisible hand of opportunity cost at work. Keller, however, wants it all, choosing—simultaneously—the best of every alternative. Every time the future proliferates and forks, he is there having his cake, and eating it too. But opportunity cost is an iron law. It will find a way through the sliding door of chance.

By the efficient mechanism of opportunity cost, Miller asks how much runaway patriotism costs. Uncle Sam had made it the patriotic duty of each American to make money. All My Sons, however, steps back and dramatizes how, behind every beautiful thing—the smiles and the “attaboys,” the long driveways and the mansions on the hill, the new fridges and the fast cars—lay some kind of pain. In dramatizing the cost so beautifully, it caught the imagination of a new generation of theatregoers and created, in the process, the uncreated conscience of American patriotism.

[1] Arthur Miller, All My Sons (New York: Penguin, 2000). Text references are to page numbers of this edition.

[2] Christopher Bigsby, introduction to All My Sons, by Arthur Miller (New York: Penguin, 2000), xxiv.

[3] Adam Smith, The Wealth of Nations: Books I-III, ed. Andrew Skinner (London: Penguin, 1999), 1.2.2.

[4] Oxford Latin Dictionary, 1st ed., s.v. “decido.”

[5] Miller, Death of a Salesman, 50th anniversary ed. (New York: Penguin, 1999), 74.

[6] On comedy as a world of plenty, see Edwin Wong, The Risk Theatre Model of Tragedy: Gambling, Drama, and the Unexpected (Victoria, Friesen Press, 2019), 234-6.

[7] On tragedy as a valuing mechanism, see Wong, The Risk Theatre Model of Tragedy, 79-110.

[8] Terence, The Brothers, in The Comedies, trans. Betty Radice (London: Penguin, 1976).

– – –

Thanks for reading. This series of readings are based on my new theory of tragedy, called risk theatre. Risk theatre understands tragedy as a valuing mechanism, and makes risk, chance, and uncertainty the fulcrum of the dramatic action. Reviews of my book, The Risk Theatre Model of Tragedy, are available here. Risk theatre is the basis for the world’s largest competition for the writing of tragedy, now in its third year. Other readings in this series include essays on MacbethOthello, and Seven Against ThebesWhen the world gives you risk, make risk theatre.

Don’t forget me, I’m Edwin Wong and I do Melpomene’s work.
sine memoria nihil

Economics of Live Theatre

In the last month, I.ve been to two performances. The first was a production of Macbeth put on by the Blue Bridge Theatre Repertory at the Roxy that was discussed in this blog. The second was eatingthegame put on by Hong Kong Exile at Metro Studio discussed here. Have you ever wondered about the economics of theatre? Here.s my take on the economics of live theatre based on the rate cards from the Roxy and Metro Studio.

Here.s the rate card from Metro Studio:

Metro Studio Rate Card

Metro Studio Rate Card

Let.s work it out in the most advantageous terms from the point of view of art. Or in other words, how to make the show as profitable as possible. Here.s the base price scenario for the Metro Studio:

$575 (not for profit rental rate) + technician ($98, based on minimum 4hr call) + front of house manager ($70, based on minimum 4hr call) + production manager ($120, based on minimum 4hr call) + projector rental ($40) = GRAND TOTAL $903.

Here.s the rate card from the Roxy:

Rate Card Roxy

Rate Card Roxy

Let.s make it out in the most advantageous terms from the view of art. Or in other words, how to make the show as profitable as possible. Here.s the base price scenario for the Roxy:

$650 (not for profit rental day rate) + concession manager ($72, based on minimum 4hr call) + technician ($88, based on minimum 4hr call) + $2,000,000 public liability insurance ($150, estimate from top of head) = $960.

So, best case scenario for a theatre troupe to stage a one day production at the Metro Studio is $903. By best case, these are only the fees incurred to the venue. The writer, director, actors, assistants, costume/set designers, makeup artists, etc., are all working for free. You say: ‘Maybe the rental rate shouldn.t be included in that figure if the Metro Studio is inviting a troupe to perform in their space’. Well, the Metro Studio wouldn.t be in business for long if they didn.t get rental revenue so that figure should stay in.

For the Roxy (which has 20% or so additional capacity), the best case scenario for a theatre troupe to stage a one day production is $960. By best case, these are only the fees incurred to the venue. The director, actors, assistants, constume/set designers, makeup artists, etc., are all working for free. You say: ‘Maybe the rental rate shouldn.t be included in that figure if the Roxy is putting on a performance in its own space’. Well, the Roxy would.t be in business for long if they didn’t. pay their property taxes, upkeep their building, pay the hydro bill, etc., In other words, the rental rate should stay in the figure.

At eatingthegame at the Metro Studio, the crowd was estimated at 50. At $20 a ticket, that.s a revenue of $1000. So, if the troupe didn.t have to travel from Vancouver and got paid absolutely nothing for the performance and the rehearsals, the show would make $97.

At Macbeth at the Roxy, the crowd was estimated at 70. At an average of $35 a ticket (including student / senior discounts & flex passes), that.s a revenue of $2450. So, if the troupe got paid absolutely nothing for the performance and rehearsals, the show would make $1490.

eatingthegame was a one show deal at the Metro. The economics are ouch. Good thing it is a one man show.

Macbeth went on for 14 performances. $1490 * 14 is $20,860. The bad thing is you have to split that number between 10+ actors, choreographers, director, set designers, and so on. Let.s say to make a Macbeth happen, four weeks of labour for 20 people are necessary. That.s a very optimistic estimate. That.s 3200 man hours. Let.s say of that $20,860 profit, $5000 goes to materials: props, setting, costumes, and so on. That leaves $15,860. $15,860 divided by 3200 man hours equals a wage of $4.96 per hour. Ouch. No wonder in the economics of theatre there are sponsors but not investors.

I.m Edwin Wong and my heart goes out to all the brothers and sisters out there Doing Melpomene’s Work because from the economics, it looks like it.s a tough go.