Making Markets Sexy

I’m someone who thinks that economics and markets are more than just ways to make money. I find them interesting in and of themselves.

Sadly, not too many people feel that way. So, on one of my interminable commutes home, I came up with a (what I think is a) brilliant idea to make markets more than just stuffy topics that the well-to-do dabble in to make fortunes. The idea is fundamentally the same tactic that a good majority of advertising campaign in existence uses: add sex.

So, just for fun – here is a sketch of how I would teach a teenager what it is that investors and hedge funds do (note that “hot/gorgeous girl” can be replaced with “charming hot/suave/rich/whatever man” — but this was inspired by seeing a man trying to get a woman’s phone number).

Lesson 1: Efficient Markets Hypothesis – Why it’s Hard to Get the Hot Girl’s Phone Number

Let’s say you see a drop-dead gorgeous girl sitting at the bar alone. You’re interested. You come up to her and ask her for her number. Chances are . . . you won’t get it. Why?

There are two possible reasons why. The first is that she’s already looked at you and judged you unworthy. That’s not the subject of this particular lesson, so let’s pretend that’s not the case – let’s just say for argument’s sake that you are a handsome, intelligent, and reasonably wealthy (single and straight) man.

The other major reason you’ve just been rejected is that she’s probably got a boyfriend. Why? Because she’s hot. Hot women typically don’t stay single because the minute they do become single, there are probably a line of guys waiting to swoop in. This is the same reason that you probably won’t find $100 bills lying on the ground (if they do somehow fall to the ground, someone is bound to have already snatched it up by the time you get there). This is the efficient markets hypothesis – hundred dollar bills don’t tend to lie on the street, and hot girls tend to not be single.

Taking a step back to the finance world – this hypothesis says that, so long as markets are fairly efficient, it’s difficult to make money. That’s why trading on “hot stock tips” is so difficult for the vast majority of us – by the time a normal person knows something, the rest of the market probably already knows about it.

So, the interesting stuff is how people do make money, which leads to…

Lesson 2: Arbitrage – How to Date Hot Girls

Efficient markets hypothesis says that it’s hard to find single hot people. So, how do you get get around this? Well, efficient markets hypothesis assumes that the market (in this case, the dating market) is extremely fast and extremely good at appraising a girl’s value (in this extremely sexist world, we judge a girl’s value, of course, by her hotness). In reality, because human beings don’t think or move infinitely fast, the market isn’t that efficient. So, three ways to date hot girls:

1. Be friends with hot girls and their friends – This is analogous to the “hot stock tip.” Yes, hot girls tend to not be single. But, because markets aren’t perfectly efficient, and because almost everyone inevitably breaks up with their significant other at some point, if you’re among the first to know when a hot girl becomes single, you can swoop in before the rest of the dating market can.
2. Go someplace where there are more hot girls than good male suitors – This should be self-explanatory. In this case you’re finding a market which is not efficient (where hot single girls can stay single for long periods of time because the men there are either blind, all married [and amazingly faithful despite being surrounded by an excess of hot women], and/or not dating material) so that it becomes easier for you to get with hot women.
3. Find an unknown hot girl or a girl who could be easily made hot – Efficient markets hypothesis assumes that the market always correctly appraises everything. In this case, it means that the pool of men can always and accurately say who is hot and who is not. If this is not the case, such as if there is a hot girl that nobody knows or if there is a hot girl who’s a librarian and hides her gorgeous face and body behind baggy clothes and giant glasses [clearly I’ve done a little too much thinking about this], then you’re in a good position to arbitrage (in “traditional” markets that means buy low so you can sell high, in the dating market it means swoop in on an available hot girl that wouldn’t normally be available).

So, what do smart investors and hedge funds do? They may use crazy computers and hire really smart people from big-name schools, but basically they are either (1) swooping in on newly single hot girls (or good deals which haven’t been taken yet) because they know exactly who is about to be single, (2) going someplace where hot girls aren’t immediately snatched up (i.e. emerging markets), or (3) finding “ugly ducklings” and waiting for them to “blossom” (a few too many bad metaphors, but you get the idea). This is arbitrage.

Lesson 3: Private Equity
There’s been a lot of talk since Blackstone’s IPO about private equity. So what is private equity? This can be an entire massive lesson on its own, but in a nutshell, private equity (in the dating market) is when a guy moves in on a girl who is already dating another guy by paying the guy’s friends and family (the “management”) to force him to dump her. The guy pays for the date and for having management essentially hand the hot girl over to him by borrowing money, clothes, and car from friends with the promise that he’ll somehow pay them back. Sounds risky and difficult? Now you know the essence of how private equity makes so much money, why it’s so risky, and why the guys who work at Blackstone get all the girls (because they have money, duh).

See how much more fun economics is when it’s taught this way? [Now I wonder what mutual funds and derivatives would be using this framework...]