By Boz

This brought me to the crux of the matter. Do women who enter the flesh trade discover at the end of the day, that the journey has been economically worthwhile? ‘Depends on the opportunity cost’, she replied. I asked her to explain this term to me. She correctly explained that was what would have been her economic earnings had she taken the next best alternative of working as a Bank Teller, or as an office Assistant after her A-levels.

We drew out Fiona’s life-cycle of savings and income in her current profession, and compared that to what it could have been had she opted for the next best. Diagrammatically, the two scenarios are as follows:


The figure above represents the hypothetical life cycle consumption of Fiona as an escort. Since she is twenty seven years, her net consumption/ savings till date are certain. Please note that all negative amounts less than zero on the y-axis imply dissavings, or that she is consuming more than her income. Till the age of seventeen, she is dependent on her parent’s income and therefore she dissaves. Then, from 18, she enters the trade, and by 19, she is breaking even. Till 27, she is a huge saver, despite the fact that her expenditure as a top escort is high. She then, hypothetically, takes out a mortgage loan of £100,000 from the Halifax Building Society, putting up her own margin of £25,000 from her current income.

Meanwhile, at around the same time, armed with her degree from the LSE, she lands a job at Lloyds at the bottom of the Executive rung. From there on, till the age of 62, she is working for a salary, and retires at an appropriate level of seniority. Thereafter, till the ripe old age of 83 she dissaves spending her annual pension amount plus part of her accumulated savings.


What would have happened had Fiona decided to work at the local TESCOs after her A-levels, get an Undergraduate degree from the same Open University, and then take a student-loan from the Council to  pursue her Masters at LSE?

You can now see that Fiona as a TESCO employee has a very different consumption-saving profile than Fiona, the escort. From the ages of 18 to 27, she is a net saver, but nothing on the scale of Fiona, the escort. She dips into her savings to supplement the Council scholarship to see her through the LSE and, assuming she gets the same job at Lloyds, then shows the same savings-consumption profile bar some differences (she may have to dissave to put up the equity for her house-loan).

Therefore, the choice open to Fiona at 18 is the opportunity cost of being a street walker. From 18 till 28, when their careers converge once again, if the Expected Savings of being a London tart is a multiple of dispensing groceries across the TESCO’s counter at Newcastle, it would make economic sense to opt for the oldest profession, right?

Wrong! You would recollect that people are by and large risk averse, and different people have different degrees of risk aversion. Even if earnings and savings from escort services are a multiple of a salesgirl’s savings, so is the degree of risk. Most girls with an average degree of risk aversion will not think the higher earnings of a hooker worthwhile, and that explains why opportunity costs cannot be the sole determinant of the choice of a livelihood.

Before leaving the topic of risk and return, there was this nagging question that had been bothering me for quite some time. Why would Fiona decide to change her career at this stage? She was at the pinnacle of her profession. Whatever initial risk was involved in embarking on her chosen profession had already been taken by her. So, why throw it all away now? I asked Fiona to realistically estimate how long she could remain on the top, and what she could conceivably do remaining in the trade thereafter.

She took a day to work out her response, and when I entered my cubbyhole the next day, I found her response crisply written and explained in two pages. Starting with the life-cycle diagram, it went thus:


From the present, Fiona expected that she could stay at the top rung of her profession roughly for the next ten years. The obvious transition then would be to a manager of an escort house, where she would be managing a stable of ‘below-top-notch’ escorts. She went on to explain that there are various revenue-sharing models between the escort and the manager, but she thought a 60:40 revenue share would be ethical. The better the quality and reputation of the house, the higher would be the revenue share going to the escorts. At the low end of the trade, however, unscrupulous pimps kept almost 80 percent of the earnings. She felt that she could continue at this level in real terms till her late 60s before ‘retiring’.

It doesn’t require a specialisation in Economics to see that this choice would be the one which would be the most beneficial financially, if one considered Fiona’s life cycle. Besides, the incremental risk would also, perhaps, be less than switching jobs now. So, the basic question that arises is why is Fiona making an economically irrational choice?

I argued with her, pointing out the irrationality of her choice, how her behaviour wasn’t consistent with that of a representative Homo Economicus. Fiona was adamant. She reminded me of the observation she had made in her first tutorial. In a conflict of end results between the Oldest Profession and the youngest Social Science, the former was always right. I accepted her view with bad grace. It was almost a decade later that I came across the path breaking work of Daniel Kahnman and Amos Tversky, who challenged the assumption of human rationality prevailing in modern economic theory. Kahnman and Tversky developed a cognitive basis for common human errors that arise from heuristics and biases and developed a new off shoot of economic ideology called Prospect Theory. Kahnman shared the Nobel Prize for Economics in 2002 with Vernon Smith, (Tversky, unfortunately, had died a few years earlier).[1]

Fiona and I evolved a strict code of conduct between us. We were not friends. It was strictly a teacher-student relationship. No invitations home, no dates, no pub visits beyond the one in-house run by the LSE Students’ Union. Yet, she was generous to a fault. She passed on two prime box-side tickets for the Andrew Lloyd Webber play ‘Cats’, which had made its debut ten years ago at the New London Theatre at Shaftesbury Avenue. Tickets, as far as I knew, had been sold out for the next six months, and prime seats were well beyond my means. This was followed by Centre Court seats for the finals of Wimbledon, where I had a chance to see the unheralded Michael Stich outserve and oust his fellow countryman Boris Becker.

Very often, she would bring along  something exotic, like a jar of Pate de Fois Gras, or plovers eggs pickled in brine. I never asked where these items came from, nor was any explanation ever offered.

Similarly, our conversations beyond economics were on a wide range of subjects. Surprisingly, she was a Tory supporter, primarily because of Mrs. Thatcher. She had seen the Labour Party and the Unions ruin the Midlands during the Harold Wilson and James Callaghan years, and was as chary of the Old Left as she was of the Neo Conservative Right. What was happening in British politics was that since 1979, that is, since Mrs. Thatcher’s first term, there was a total metamorphosis of political philosophy, especially on the left.

The Labour Party had to virtually reinvent itself by jettisoning the unions and the extreme Left rump, taking up a position that looked virtually a Conservative position without its excesses. The Conservative Party, on the other hand, emboldened by Mrs Thatcher’s success, had veered sharply to the Right. The Prime Minister’s move to introduce a Poll Tax in lieu of Property Taxes or Rates was unpopular in the extreme, even among her own party members. If we revisit Al and Joe selling ice cream along a one kilometre stretch of beach in Brighton, and compare James and Maggie,


Assuming that political opinion is spread uniformly across the spectrum, and B is the mid-point of the voters’ political stance, you can see that Maggie certainly attracts more voters.

By 1991, however, Labour had jettisoned Joe and his cohort, inducted “Sharp” Tony, whose views on the Markets sounds more like a Goldman Sachs CEO’s. In contrast, “Plodder” James views of ‘extracting the Capitalist Surplus through Nationalization’ sounded archaic, especially since the deformed workers’ states of USSR and its allies had tumbled down like a pack of cards.


‘Sharp’ Tony and his crony, ‘Bullish’ Gordon, have taken the Labour Rump sharply to the Right. Labour Unions no longer dominate the first day of the Annual Labour Convention at Brighton. Instead, prospective Labour MPs are forced to hear suave Political Scientists like Anthony Giddens[2] speak of a ‘Third Way’. Bad French food with unpronounceable names and indifferent wine from South Africa have replaced the time honoured Brown Windsor Soup, Steak and Kidney ‘Pud’ or ‘Bangers and Mash’, much to the discomfiture of the old timers, who view ‘Sharp’ Tony as something of a Pratt. Draft Guinness or Fuller’s Brown Ale are unavailable.

Maggie, on the other hand, emboldened by her thrashing unions, much to the appreciation of the common man in the street, and by showing that privatisation works, has veered more to the Right. It is clear that an election today would see a change of guard.

If things are so clear as the example above, why do political leaders, and especially someone as astute as Mrs. Thatcher, get things so wrong? Fiona and I both agreed that the trick here was to know where exactly the point B lies. Remember that point B is the position within the Left-Right spectrum of the median voter. Mrs. Thatcher might have expected that since 1979 the mid-point had shifted to B*. When politicians occupy seats of power for long, they seem to lose a sense of reality. Mrs. Thatcher wasn’t the first, nor was she the last politician to make a wrong guess wrong.

This is the third part of the short story series, The Adventures of Fanny Hill at The London School of Economics.

Note: This story is purely a work of fiction. Though some of the personae peripheral to the story (such as Professors Desai and Goodhart exist), the main protagonists are fictional. Any resemblance to known figures is purely coincidental

Boz is the nom de plume of a retired IAS Officer with experience in Finance. He was at the IMF and possesses a PhD in Economics from the London School of Economics.

[1] -“Thinking Fast and Slow” :Daniel Kahnman summarizes the research done by him and Amos Tversky

[2]– Anthony Giddens, now Baron Giddens,published ‘The Third Way’ in 1998, a Sociological waffle. He served as Director of the London Schoool from 1997 to 2003.

Read the fourth part here: The Adventures of Fanny Hill at the London School of Economics – Part 4

Posted by The Indian Economist