Saturday, October 30, 2010

10-30-10: New Housemates Economic Dilemma

I had a discussion yesterday with a friend at work about an interesting dilemma involving two friends of his, two single heterosexual males, who bought a house together. The house they bought had two bedrooms, one of which was the master bedroom with its own bathroom and the other required its inhabitant to use the bathroom downstairs. They agreed to flip a coin to decide who got the master bedroom.

I found the decision interesting, seeing as though the winning party would have a distinct advantage in having the master bedroom, and the other would lose simply based on chance.

Something quite similar occurred when several of my friends rented a large house together a few years ago in Trumbull, CT. The last one in, my friend Michael, was quite cunning, and insisted that he get the master bedroom in order to sweeten the pot, otherwise he’d back out of the rental agreement and the rent would be too high for the remaining housemates to handle. He got the master bedroom.

Unfortunately, the five friends only lived in that house, which was very nice and very large, for one year – the owner decided to jack the rent up after their original lease ended. Three of them moved into an apartment in Hamden, CT, and the other two moved into an apartment in Milford, CT.

The three Hamden-based friends no longer live together, as one of them decided to buy a house in Trumbull with his fiancé. The two remaining roommates decided that they liked their apartment building, and found another, two bedroom apartment on the other side of the complex. Oddly enough, the apartment they found had two bedrooms of dissimilar size and luxuries. One bedroom was significantly larger than the other, and had its own bathroom.

Here’s how they decided who got the larger bedroom: the departing roommate who bought a house acted as an unbiased third party. The two remaining roommates presented arguments to the departing roommate stating reasons why they should get the larger bedroom. After a couple months of deliberation, a decision was made.

This arrangement, with a “neutral” third party making the decision, seemed far more fair than a simple coin flip. But I have another proposal for fixing such a dilemma:

It still involves a neutral third party. They would be offered something simple, like a dinner or something small, from both parties beforehand as a form of a flat fee. However, instead of each party presenting arguments, they would silently submit bids to the neutral third party indicating what percentage more in rent or mortgage payments than the counterparty they would be willing to make in order to live in the master bedroom. The higher amount would be the winning bid. The neutral third party would simply hold the bids for some short period of time and would reveal to the two parties involved at an established time. The winning party would then be bound to that figure.

Even more interesting might be to have the winning party pay the median value between the two bids. Let’s say Party A bids 5% and Party B bids 10%. Party B would then win the bid and would pay 7.5% more in rent or mortgage payments than Party A. That way if one party didn’t really care all that much and bid only 1%, but the other party bid 15%, they wouldn’t be stuck with the entire bill. It would result in higher bids being made, assuming one party is more interested than the other.

I should brush up on my Game Theory.

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