In episode 199 "The Sponge," Elaine's favorite contraceptive sponge goes off the market and she makes one last bulk purchase. The short supply forces Elaine to limit her, well, "spongeworthy" activities.

Princeton economist Avanish Dixit saw this as a perfect example of option pricing theory. Each decision to sleep with a man is an investment that reduces Elaine's precious contraceptive sponge supply. Each sponge she uses is one she cannot use when a potentially better mate comes along. So how do you decide what investment is worthwhile?

The purpose of the paper is "to quantify this concept of spongeworthiness," where the investment is the partner. If sponges were unlimited in supply at a constant price, then Elaine's decision about whether a partner would be sponge-worthy or not would be yes for any quality greater than zero.

But when stock becomes limited, a "spongeworthiness threshold" is required, dependent on the number of sponges she has left. The fewer the sponges, the higher the threshold for using one.

Like any good academic research, the paper outlines some tangents of his research. What if Elaine is patient? What if she gives a sponge to George? What if one partner, as Prof. Dixit writes, "asks for a second helping"?

Read the full story at WSJ Real Time Economics.


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