Who Said It? "Human Beings are not "Individuals"...

That would be the granddaddy of all Chicago economists, Frank H,. Knight, in "Fallacies in the Interpretation of Social Cost," reprinted in Frank Knight, The Ethics of Competition 209-28 at 227-8 (1977)/

The Wobbly Table

For the four-legged table: you take a matchbook; you get down on your hands and knees; you shove the match book under the wobbly leg until it is even.,

For the three-legged table.  If the three-legged table wobbles, you'd better quit drinking.  The three-legged table cannot wobble.  Indeed, an alternative correct solution to the four-legged table problem is to chop off the fourth leg; then you have a three-legged table which does not wobble.

Per BBC, men know this; women pull out another matchbook.  BBC says that men get it right because the conceptualize the problem, and women get it wrong because they go straight to the solution.  In my sample set of one (not Mrs. Buce), my subject firmly insisted that a three-legged table can wobble and that she was going right home to try.  Haven't heard back.

Who Bears the Loss?

The answer is: Roomie.  He pays 15 pounds to buy the right from Romeo, but he'll have to pay another 15 pounds to recover the 20--plus, probably, a transaction cost (Romeo is out only 5 pounds net).  But the real puzzle is: how could anyone have been puzzled by this puzzle?   Isn't it obvious?  Or am I speaking now, perhaps, as a commercial lawyer?

TEST

Financial Panic: Been There, Done That

The Wichita Bureau has been reading about the Panic of '07, and hears an echo in the back of his skull:

The panic was blamed on many factors - tight money, [T.R.] Roosevelt's Gridiron Club speech attacking the "malefactors of great wealth," and excessive speculation in copper, mining and railroad stocks. The immediate weakness arose from the recklessness of the trust companies. In the early 1900s, national and most state-chartered banks couldn't take trust accounts (wills, estates, and so on) but directed customers to trusts. Traditionally, these had been synonymous with safe investment. By 1907, however, they had exploited enough legal loopholes to become highly speculative. To draw money for risky ventures, they paid exorbitant interests rates, and trust executives operated like stock market plungers. They loaned out so much against stocks and bonds that by October 1907 as much as half the bank loans in New York were backed by securities as collateral - an extremely shaky base for the system. The trusts also didn't keep the high cash reserves of commercial banks and were vulnerable to sudden runs.

--Ron Chernow The House of Morgan 122 (1990)

Thanks, John.