Getting Out of a Prisoner's Dilemma in a Decentralized Manner

In the 16th century, the Anglo-Scottish borderlands were an absolute mess. Each side of the border loved to perform an act called "reiving," which included raiding, arson, kidnapping, murder, and extortion. When both sides committed this act of reiving, both sides received low payoffs. When one side was peaceful, but the other side committed the act of reiving, the peaceful side received negative payoffs, and the violent side received immense payoffs. Of course, both sides wanted to have high payoffs, so they performed the act of reiving. Here, performing the act of reiving is the dominant strategy; it is the only strategy that can yield the highest payoff. However, because the dominant-strategy equilibrium is Pareto-inefficient (both sides get lower payoffs when they reive each other), the situation in the Anglo-Scottish borderlands can be modeled by a prisoner's dilemma.

How did they get out of this prisoner's dilemma? The answer: through a decentralized system of cross-border criminal law called the Leges Marchiarum. The law gave incentives on both sides to act peaceably rather than violently. Because the law was enforced by both sides, both sides got to the socially optimal equilibrium in the prisoner's dilemma. What is unique in this paper, however, is that it shows that self-governance can facilitate order between members of different social groups. There is no direct intervention by a third party.

Voting

Yesterday, I voted in the Virginia General Election. I had no idea whom I was voting for besides their party. Last year voting, I felt bad that I was unsure of whom to vote for in two races, but this year I only recognized a single name, Sally Hudson, and she was unopposed. I was perfectly fine with this since there was an organization outside who gave a sample ballot with picks based on their party, this and knowing how little my vote counted made me feel totally okay with my ignorance.

While I likely won't be in Charlottesville next year, there is a chance I'll end up in Northern Virginia. In this case, only the Senate of Virginia and Member House of Delegates votes could have a possible effect on me, neither of which I expect to be substantial monetarily. However, I receive some utility from knowing the issues I care about are more likely to be debated. Also, it is satisfying to be on a team that wins. If there was a machine that could measure utility, after the NCAA basketball championship I would have been mistaken for a star player, although I was nowhere near Minneapolis. I value my picks winning this election at around $20.

Assuming I had no idea of polling beforehand and based on the number of votes actually cast, my vote in the Senate race had a 1/12,935 chance of determining the election. The Delegate race was a little better, with 11,899 votes cast total, though there were no other candidates listed on the ballot.  For simplicity's sake, let's say the chance for casting the deciding ballot here is 1/11,899.

Had I not voted, I likely would have been able to get to bed maybe ~30 minutes earlier, which I value at $1. So, is E[MB] > MC? The marginal cost is only this earlier bedtime since I walked to the voting location. Even in the Delegate race, it's not even close-> (1/11,899)*20 = $0.00168081, less than half a penny. The reason I choose to vote was not that I thought my vote would count, but because I enjoy interacting with the people who volunteer at the polls, this makes up the majority of the "D" value we discussed in class. The volunteers are always extremely nice and genuinely happy to see me; I value this to be about $5, making the equation E[MB] + B = 5.00168 -> (1/11,899)*20 + 5 > 1, explaining why I actually cast a vote yesterday. The sticker I got didn't add any value, since I now know the chance of it being true are less than 0.01%.

Principal Agent Problem as a Teaching Assistant

This semester I am a Teaching Assistant for Stat 2120: Introduction to Statistical Analysis. Coincidentally as we talked about the principal agent problem in class yesterday, I experienced this in my lab section on Monday. In a classroom with 90 students, there are four undergraduate TA's, and a PhD TA. We the undergraduate TA's are paid for showing up, regardless of how many questions we answer. This creates an incentive to shirk , by not answering students questions. When one of the four of us shirk, there is a marginal effect, but the slack is easily manageable to be carried by the three other TA's. However, when three of the four TA's shirk, it is evident that there is too much slack for a single TA to carry.

Unlike politicians, who can fail to create policy and face little to no repercussion for an absence of legislation beyond losing reelection, the TA's have a quota of questions we must fill; the students will ask questions they have, and still want their questions answered regardless of the number of TA's doing their job. The overwhelming amount of slack for a single TA to carry combined with the students' collective opportunity cost of their time spent waiting for help harms the students. Perhaps they choose to forego their question, because waiting 10% of the duration of the lab to ask a simple question is a waste of their time.

In this case, the Professor (who does not attend lab sections) is the principal, and the TA's are the agents. The TA's getting paid to sit in the corner, face the wall, and do homework for other classes are shirking, and both the students and the TA's choosing to help the students are harmed. You'd think that the PhD student would serve as a monitor of information about the TAs' performance in lab, but he fails at this task because he is too nice. While implementing some sort of method to record how many students a TA aids in lab may be tedious, it could cut down on this problem. The statistics department could make TAs reapply each semester to continue teaching, as a form of shortening their contracts of guaranteed employment, or define more clearly that it is expected TA's won't ignore their students.

How do Christians hold public office?

Our latest reading and class discussions have been about ideology. Today in class we defined ideology as the fundamental principle that guides every choice a person makes. This got me thinking about my own ideology, the guiding principle of my life. There are many different roles I play in my life, but the core being of who I am is in my faith. I am a Christian, and at the core of Christianity is Jesus. Although Jesus did not have a PHD in Economics or any degree from a "prestigious" universities, he had many teachings about material possessions and the cost of following him. Here are a couple:

Luke 12:15- "And he said to them, “Take care, and be on your guard against all covetousness, for one's life does not consist in the abundance of his possessions."

Matthew 16:26- "For what will it profit a man if he gains the whole world and forfeits his soul? Or what shall a man give in return for his soul?"

Matthew 16:24- :Then Jesus told his disciples, “If anyone would come after me, let him deny himself and take up his cross and follow me"

In the Christian Faith, Jesus calls people to not have a Utility Function of U = f(Material Well Being, Ideology), but instead he calls people to have the function U = (Ideology). With this in mind, the life that Christian's are called to live would lead to complete shirking in political arenas. Now some voters ideologies may align with the representative, but in this case shirking would be inevitable. The question then is, how does anyone who is a Christian hold public office? This answer can be found in the principle agent problem. Followers of the Christian faith are the agents and the principle is how Jesus calls us to live. No matter how hard anyone tries, it is impossible to live this out. Without the principle agent problem in this sense, christian politicians would only act off of the ideology of what Christianity says and not the desires of their voters, leading to no one who is a Christian to be elected to public office.

The Streaming Wars

Streaming services are a growing popularity as media and entertainment companies are trying to respond to fewer people showing up in theaters and more people binging seasons of television from their couch.

Apple just launched their streaming platform, Apple+, and Disney is next in line, launching Disney+ on November 12th. Collecting content from Pixar, Marvel, Star Wars, and National Geographic in addition to its own movies, Disney has amped up its marketing routine to prepare for the streaming wars to come between Netflix, Amazon, and Apple – among others still on the way. In order to get a leg up, each service is offering different (selective) incentives. Disney is attracting customers with a low price of $7 a month. Apple is giving its service for free with the purchase of new or refurbished Apple hardware. Netflix is opting for a different approach, aiming to provide new content on its service every day of the year. Streaming services are surely beginning to dominate the entertainment world.

When we discussed Capture Theory in class, we talked about the example of the railroad freight company. Streaming services, an already billion-dollar business, are poising themselves to be an influential industry. For now, Capture Theory doesn’t seem to apply to this field. Prices aren’t regulated between the streamers unlike some industries. With the massive influx of new companies, perhaps the top earners will group together and attempt to regulate prices. If Apple, Disney, and Netflix get together, they could set a price rate that prevents even more companies entering and diluting the field. Stigler’s perspective might be cynical on the future of streaming companies, and he may believe they’ll capture the government and use it to their own interests.

Freeriding through Breast Cancer Awareness Month

Last week, when I was home for the weekend, I was able to go to my brother's high school football game. As most athletic teams do in the month of October, Warhill High School acknowledges breast cancer awareness month by having their athletes wear pink uniforms all month. The football team takes the easy way out by having players wear hot pink socks for every October game.

During the national anthem, I looked down the line of WHS football players. Pink socks, pink socks, pink socks—all the way down the line, until suddenly the uniform pink was broken by a pair of plain black socks. Horrified, I kept looking down the line, thinking that maybe wearing the pink socks was optional. No, every single other person on the home side of the field, coaches included, was rocking pink socks. My eyes went back to the black sock culprit. Imagine my horror and shame when I realized that the uniform defector was none other than my own, pink-hating little brother, Jack Schulz.

Jack gave me a classic example of freeriding to write about for this blog post. In this case, the public good is supporting breast cancer awareness in the month of October. The contributors (the team members) make their payments (wearing the pink socks) in order to have the public good exist. Since his 50+ member team was showing support for breast cancer awareness by wearing the pink socks, the cost of Jack opting out of wearing the pink socks was very small. The public good still existed without his contribution. However, had Jack been part of a doubles tennis team supporting breast cancer awareness instead of a football team, the cost of Jack not wearing the pink socks would have been much higher. The fewer members of the team would make the lack of uniformity would be more noticeable, making the support of breast cancer awareness unclear and keeping the public good from existing. As n increases, the incentive to freeride increases.

Warren's Excessive Lobbying Tax and Rent Seeking

As part of her bid to win the Democratic Presidential Nomination, Sen. Elizabeth Warren proposed an “excessive lobbying tax” earlier this month, which would require “companies that spend between $500,000 and $1 million per year lobbying the government to pay a 35% tax on those expenditures.”  For companies spending more than $1 million per year on lobbying, “the rate would increase to 65%, and for every dollar above $5 million, it would increase to 75%.”  Warren argues that the revenues from this tax, which could exceed $1 billion each year, would be used to limit the influence of lobbying in federal agencies, and there by limit the rent seeking activities of big corporations. 

But would this tax really stop rent seeking?  I think it depends on the size of the rent.  if the tax raises the costs of lobbying to the point that they exceed the potential profit from the rent, then corporations will stop rent seeking.  On the other hand, if the potential profit from the rent exceeds the cost of lobbying, including this new tax, corporations will continue rent seeking.  In this case, the tax will only increase the dead weight loss that results from rent seeking activities.

The Public Good of Wrestling

Last year, I decided on redshirting for the year. I qualified for a major wrestling tournament overseas and I wanted to focus on training for it rather than wrestling every weekend in various competitions for our team. Redshirting would also allow me to sharpen more skills and be able to focus on things other than my sport. However, our 125-pounder could not make weight anymore and we did not have a backup at the time. My interests were in training for this one tournament and getting bigger in order to be a strong 133-pounder. But the team would have had to forfeit 125 every match, so I decided to make a major weight cut from about 145lbs. Our main goal as a team is to win. We have many other goals such as being a family and being there for each other but more than anything we want to win. With the forfeit, we would not have won a single match from the point in December when our old 125-pounder decided to not make weight.

Although our direct interests did not align, our program is built on more things than just winning, which has helped me become a better person. It has helped me get into a great university and compete at the sport I love. It provides me with an outlet to compete to my highest ability while also pursuing the things most important to me such as God, family, and everyone who has helped me get to where I am today. If I had let the team continue to lose, I would have felt terrible about myself and would have truly been free riding on the amazing opportunity that I have been given. Wrestling is the public good that I have been given by the team and cutting weight is the tax that I am giving back in order to further the teams interest of winning.

Lowering Total Costs in Our House

As the weather is cooling down, my housemates and I are having a harder and harder time staying comfortable and warm on our balcony. As our balcony is quite literally the only nice thing about our house, I was determined to prolong the amount of time we could spend on it. When I came across this ad on Facebook, I thought I found the answer. 

With 15 guys in our house, I knew unanimous support for a purchase like this was unlikely. I used the lessons I learned about decision costs and external costs to make sure the costs of this purchase were at a minimum, or at least close to it. Instead of making the decision myself, lowering the decision cost to its minimum but resulting in a maximum of external costs, and instead of asking everyone in the house, maximizing the decision costs but minimizing the external costs, I reached out to a handful of guys and asked for their opinion, or “vote”. 

Having a group of guys in the house vote yes for the purchase, we reached a low average total cost for the purchase of the space heater by lowering both the decision costs and the external costs. After setting up the space heater and sending out Venmo charges to the whole house, people are excited about our balcony again. Because of the lessons of decision costs and external costs, we are able to use our balcony through the winter at a low total average cost.

Honor Committee Elections

Last week I was meeting with some people as part of the alternative-sanction working group in the Honor Committee where we discuss plans to change the current single sanction system. As we were discussing everything, something came up about the vote in 2016, which we are all very familiar with. To summarize, there was a proposition on the ballot that would force the Committee to start discussing multiple-sanction options. This received 58.9% of the vote but failed to reach the 60% supermajority that is required for votes on the single sanction. I started thinking about this in the context of the Median Voter Theorem and thought about the reasoning for this threshold.

            Before public choice, I would have assumed that it was set at 60% to ensure that the vote was not biased by abstentions. However, abstentions are likely to happen on both sides of the issue, so the median voter result would still hold. In the context of public choice, it would make sense to have this threshold based on the decision making cost and external cost curves. Based on these costs, it is possible that minimizing the total cost curve sets the optimal decision-making rule at 60%. It is unclear what these exact costs are, but the curves would point to the exact percentage of votes that minimizes costs.

            There is also a third option that the threshold is set at 60% for irrational reasons. As less than 1% of all UVA students go through the Honor process, the external costs of this vote are low. Contrarily, the cost of more decision making is high. The multiple sanction option had a lot of support and a lot of time and money were put into its supporting campaign, however they could only secure 58% of the vote. This would suggest that the voting threshold should be lower and closer to 50%. However, we can’t know where that exact threshold is without further researching the exact costs of a vote. Until then, we will continue to work to get over 60% of the student body’s vote.