BUSINESS
07/21/2010 12:16 pm ET Updated 5 days ago

Seinfeld 'Sponge-Worthiness' Explained In Economic Terms (VIDEO)

There are markets in everything -- even, it turns, out in the contraceptive decisions of "Seinfeld" characters.

Examining the show's relation to "option pricing techniques," Princeton economics professor Avinash Dixit authored the paper "An Option Value Problem From Seinfeld." (Hat tip the Wall Street Journal's Real Time Economics.)

The crucial economic decision behind Dixit's paper was Elaine Benes's dilemma over deciding which of her boyfriends was, in fact, "spongeworthy." Faced with a dwindling amount of her favorite Today's Sponge contraceptive Elaine had to carefully screen potential boyfriends.

The paper itself is highly technical, but here are a few snippets:

"If sponges were freely available for purchase at a constant price (which is small in relation to the potential value so I will ignore it), then Elaine's decision would be yes for any quality greater than zero. But when she has a finite stock and cannot buy any more, her optimal decision will be based on a "spongeworthiness threshold" of quality...The threshold depends on the number m of sponges she has: the fewer sponges left, the higher the threshold needed to justify using up one of them. "

Dixit also assigns a measure of Elane's assessment of each man's "quality" (the variable Q), and takes a perhaps unintentional shot at Elaine's, well, "expertise":

Each day she observes the Q of that day's date. Actually this is only her estimate formed from observing and closely questioning the man (which is what she does in the episode), not the ex post facto outcome. But I assume that she has sufficient experience and expertise to make a very accurate estimate.

WATCH a clip from the episode:

Download a PDF of professor Dixit's paper here.