An Option Value Problem from Seinfeld
TL;DR — A Princeton economist formalises a sitcom plot as an option-value problem, and publishes it in a real journal.
Seven pages, published in Economic Inquiry.
Elaine Benes has a limited supply of a discontinued contraceptive sponge and must decide, for each new partner, whether he is “spongeworthy.” Dixit observes that this is an optimal-stopping problem with a depleting stock — each use forecloses a possibly better future use — and solves it properly.
It is a joke executed at full rigour, and it is also one of the clearest short expositions of option value in print, because the setup requires no domain knowledge. The reservation quality rises as the stock falls; the intuition transfers directly to hiring, capital deployment and anything else with scarce irreversible commitments.
Where this came from
- Will Manidis’s “most underrated PDF” thread, July 2023 — routing record: The Most Underrated PDF on the Internet (July 2023)
- Will Manidis’s “most underrated PDF” thread
Recommended 2 separate times across the sources above.
7 pages. A copy is archived locally against link rot; the header links the original source.