The cost of making new friends

Would Jerry be friends with Newman if they would find themselves alone in Alaska?

Have you noticed that when you are out of town for a long period you become friend more easily of people from the same origin as you? Maybe even people that you knew before but you never thought of being his/her friend, but now, you hang out pretty much all the time. Why is that?
Well, yes, as everything in this blog has costs associated to, making friends has costs as well. When you grow up in the same place having the same friends since high school you’ve become very close to them. You know each other pretty well. And you have many and good friends.

So, what if now you find yourself in a new city, with no known people around? Well, you’ll have to make new friends. Why? Good question. Maybe is part of your utility function, to have friends. Let’s use that as an assumption.

But, what is the problem? Well, you’ll have to invest time and effort in making good friends as those you left home. So, again, you encounter yourself with the problem of equating the marginal utility of the every minute invested in a new friend with the cost of your time. You will have to start going out for beer with some people you met at the office or the school, and then you will be start to trust them more and more so that they will gain the benefit of being your friend. The costs sometimes involves the time, the cultural barriers if you are in a totally different place or the cost of giving out information to your friends so that you will receive information about them.
But… there is a much simpler way. If you knew that there is another person or group of people your age that are from your home country in that city, it would be rational to try to contact them – even if you already know them and you were never friends with them before. Why? Well, there is no cultural barrier to cross, if you know them from before so you may have already some information about them, and as you, they are also looking for friends. So it means that the cost of “friending” with those people is less than with strangers in the street or in your new job.

Ok, let me try a graphical explanation (yeah right!). I would say that in this case your utility function is convex at the beginning and the concave after some inflection point in terms of time. Meaning that the first minutes or hours that you “invest” on an individual so that he/she will be your friend are not that productive (you won’t become best friends after one beer). However, the more you invest, the more “effective” is every minute until a point, maybe when you are already very good friends, that spending another minute won’t make you more than best friends with him/her.

So my argument is that the process of being very good friends with the people of similar background as you is much more faster, because you don’t start at the beginning of the curve, but at some more advanced point in which the marginal return of time is much higher. So in that sense, the costs of being friends with these people are lower.

People know this, and that is why in many framework in which they want you to become friends with others (to improve the productivity of the firm or to make you having a wonderful college/graduate school experience) they promote activities to lower the costs of making friends. They set up time to make you talk to each other, and to make you realize that you may have similar backgrounds. Or this is why companies do their “team events” every here and then. This is lowering the costs of knowing the people around you and becoming friends. This can explain many initiatives of getting people together in conflict zones such as Israelis and Palestinians children, students or adults. Lowering the costs of knowing each other will increase the chances of becoming friends and will induce higher productivity in the future.

So don’t be surprised if you see Jerry and Newman becoming new friends in a very remote place… well, maybe not.

Rationality...

Jerusalem, 2:30 am. Can't fall asleep.

I can't think of anything interesting to write either. Maybe a short intro will do.

Can an economist think of any rational explanation to insomnia? Is there any incentive to stay up late and write blogs? It is hard to think of any.

The most interesting part of being an economics graduate student (at least for the really geeks, such as myself) is that you try to link every interesting thing you see to economics. Such as: what are the incentives behind the actions other people do, or what is the strategy I should "play" in order to reach my goal in this situation, or what composes the utility function of that other guy!? I must admit, it sounds like it is very boring, but it is actually funny... and it really helps you to understand other people. I think all who read Freakonomics agrees with me...

I heard Prof. Robert Aumann (Nobel Prize in Economics Lauréate 2005) about a week ago at the 19th Summer School of the Institute of Advance Studies of the Hebrew U. He talked about one of Arrow's economic model which gives an explanation to discrimination due to skin color or other observable characteristics. I know, it sounds awful. But his point was very right. Discrimination is rational. It does not mean that it is something good. But it can be explained as a rational behavior. The same with wars. Wars, even though most of the time we think otherwise, are rational. Ahmadenijad is rational. Before you stop reading and say "this guy is crazy, let's get out of his blog", wait a second, trust me, you may agree with me if you reach the end of this parragraph. In any case, most of the decisions of human beings are guided by rational behaviors. And the only way of avoiding several outcomes, such as discrimination, war or an Iranian president who wants to blow out Israel, is trying to understand the rationality behind them, and only then act to generate the proper incentives that will offset the undesired outcome.

Yes, I know what you are thinking. This guy thinks that because he is an economist he can solve all the world's problems with a mathematical model. Well, I don't. First of all because I don't consider myself to be good with those kind of models. But even if I did, I am not thinking that those are the solution to all of our problems, but for sure they can help us to understand reality, or at least, make life more interesting.

I guess you will see lots of things of this kind in this blog. You are all welcome to comment and give some ideas about interesting topics.

It is 3:01am. My laptop automatically adjusted the screen's brightness level to the lowest one, hinting that the battery is low enough. I think it is time to sleep.

The Homo Economicus