Vaccine Mandates

There has been widespread debate as to whether Covid-19 vaccines should be mandated by the government, with polarizing opinions across the country. Vaccines have a positive consumption externality, the social marginal benefit of receiving the vaccine is greater than the private marginal benefit.  However, many scientific studies have estimated that this positive consumption externality will be reduced once the country reaches herd immunity (estimated to be around 80%). Similar to Gruber's example of global warming, increases in vaccinations produce diminishing marginal returns.  

Mandating vaccines would be considered a collective action response to the externality. Due to the diminishing marginal rate of returns to increases in vaccinations, a government mandate is not the economically efficient solution to the externality. A Coasian solution would define property rights and determine who is liable. We can see examples of this occurring within the private sector. For instance, some companies are offering to pay their employees to receive the vaccine. In this case, companies are assuming liability and have determined that reducing the risk of Covid-19 spread is more valuable than the money they are willing to pay the employees. The employees will get the vaccine if the private marginal benefit with the addition of monetary compensation outweighs the private marginal cost of the vaccine. In this scenario, the employees retain property rights over their body but they have increased incentive to receive the vaccine. In other words, the social marginal benefit would equal the private marginal benefit. This is an example of a Coasian solution internalizing the externality. 

The Negative Externalities of the Activities Fair

 As the Treasurer of a political organization at UVA during my first year, part of my role as an exec board member was to table at the activities fair for the spring semester. Because it took place during the winter months, the fair was held indoors in Newcomb. For some reason, the fair organizers decided to place all the political organizations, from both sides of the aisle, in the same small room. On the one hand, one can see the purpose of this decision. It would be more efficient, as all those who were interested in political advocacy would only have to go to one room, saving them time and effort. It would optimize space and preparation time for the fair organizers. However, this decision did not take into account the negative externalities of placing political organizations from different sides of the aisle in the same room as each other. Members of other organizations came to our side of the room and made negative comments as well as obscene hand gestures. These actions hurt our organization's recruitment because potential members may well have been turned off after realizing that they would be subject to the same harassment if they joined our club. As a result, they missed out on being part of a club from which they would have gained utility through free and open debate.

Without intending it, the club's organizers imposed a negative externality on potential members of our club by placing all the political clubs in the same room during the activities fair.  If the fair organizers were interested in an efficient market of club recruitment, they should have compensated our potential members who decided against joining our club because of the harassment we received. This would make up for the opportunity cost of the utility they would have received from becoming members of our club.

The Defining Problem of Our Generation: Who's Going to Wash the Dishes?

     I live in a house with eight other people here in Charlottesville. While this makes rent very cheap and days very action-packed, it also leads to a lot of dirty dishes. Divvying up this godforsaken chore is one of the greatest sources of animosity in the house and is quite literally, the worst. Dishes are an economical nightmare in my house. Those who have the lowest private marginal cost (not caring about dirty dishes in the sink), produce the most dirty dishes, while those with the highest private marginal cost (caring deeply about having an empty sink), produce the least dirty dishes. This results in a massive negative production externality where my sink is normally full, to my detriment, even though I wash all my dishes.

    With equal property rights to the sink, am I entitled to a clean sink or are others entitled to a dirty sink? We knew dishes had to eventually become clean so a few members of the house produced a weekly dish schedule system where everyone washed all the dishes once a week (with the exception of two members/free-riders with meal plans who never used the sink), because everyone washing their own dishes "just wouldn't work". In this system, the sink remained full throughout the day, with nobody having any incentive to wash their own dishes, knowing somebody else would do it for them at the end of the day. Furthermore, knowing the kitchen would just be cleaned the next day, it was easy for those who didn't care as much about a clean sink to skip out on cleaning the dishes on their day and leave it for the next guy, leading to a detrimental free-rider problem.

    This problem continues to plague my house, with variations between washing own dishes and having a schedule. So here I humbly ask all of you economists to help me come up with a solution to this predicament.

Best,

Nick Cummings

The Real Life 'Up' House - A Storybook Holdout

The other night a few of my friends and I decided we wanted to stay in and have a movie night. The debate over what to watch was hotly contested, but we finally settled on Up, the heartwarming Pixar movie about a grouchy old man (Carl) who goes on an adventure with a young boy (Russell). Part of the exposition of the movie is Carl's stubborn refusal to sell his old home to the developers building skyscrapers around him. This is a great example of a holdout; a developer who wants to build something on Carl's block, even having bought up the surrounding property, still needs to negotiate with him individually. The sentimental value that Carl places on his home is far more than market value, making him a difficult holdout to deal with and giving him inordinate power. The key difference between Carl's example and a true perfect holdout, however, is that ownership of the houses on the block is not truly shared. The developers can build around Carl's home on all of the adjacent properties they own, making his holdout more of a hindrance than a total barrier.

I was curious about the inspiration behind this story, and a quick Google search showed me that Up is loosely based on the story of Edith Macefield, a Seattle woman who allowed a shopping center to be built up around her house rather than sell it. She's far from the only real world example; there's a small leatherworks shop in my hometown that is in a similar position. Again, while these may not be perfect examples of holdouts due to home ownership on a block being an imperfect example of shared property, they are some of the clearest and simplest real world demonstrations we have. The power a single stubborn property owner can have over the development of a larger block of land closely resembles the power a single owner can have over shared property, which is the textbook definition of the holdout problem.

Gonzales v Raich through the Economic Lens of Markets Externalities

    This past Tuesday I was sitting in my Comm Law class, listing to Professor Sherri Moore lecture on the Commerce Clause and its many applications. The Commerce Clause gave Congress the power to regulate interstate commerce to prevent states from establishing laws that may disrupt the free flow of goods. There have been numerous commerce clause-related cases appealed to the courts. One case in particular, Gonzales v Raich, relates to our discussions on markets and externalities. The 2005 case involves Gonzales, a citizen of California, who had been growing medical marijuana in his backyard. The 1970 Controlled Substances Act made the use of marijuana, along with many other drugs, illegal on the federal level. Gonzales was arrested for his possession and potential use of marijuana. Gonzales went on to appeal his case under the 1996 California Compassion Act, which made the use of medical marijuana legal in California. The court ruled that the commerce clause gave jurisdiction to the federal law, specifically because the local cultivation of marijuana affected the state market for medical marijuana, thus altering market prices. Gonzales was found guilty.

            The court’s ruling on Gonzales was based on Wickard v. Filburn, a 1942 case involving the quantity of wheat allowed. The Agricultural Act of 1938 restricted the quantity of wheat individual farms were allowed to grow in hopes of manipulating market prices. Wickard, a small farmer in Ohio, sold only the allowed quantity, yet grew more for his own personal use. Although intrastate and not exceeding the quantity of wheat allowed to be sold, the courts found Wickard guilty. Their ruling was as follows: although insignificant when only one farmers, dozens and thousands of farmers growing excess wheat for personal use affects market prices for wheat. Thus, the intrastate wheat market was affected, and the commerce clause stands. Wickard was found guilty.   

            Professor Moore added another justification for Gonzales’ inditement, a justification that directly relates to our Public Choice class and discussion of externalities. Moore commented on “the possibility of overflow smells” from the marijuana, which would inadvertently influence and intoxicate the neighbors. Assuming his neighbors did not want to “get high”, the “spillover” of Gonzales’ marijuana smoke is a negative externality, much like the smelly hog farms of Michigan. 

 

Unemployment Benefits and Negative Externalities

During covid, the government increased federal unemployment benefits to help those who lost jobs due to the pandemic or those who worked in service industries that may not have felt comfortable going back to work because of the virus. However, since the end of lockdowns and the restart of the economy this has been creating a negative production externality for many consumers. For example, the other week my friend locked her keys in her car and we called AAA to help us out. AAA is a company that provides 24/7 roadside assistance and advertises themselves on their prompt service. However, they have had issues with staffing because of these unemployment benefits and many former employees are more content with their current benefits than their previous salaries. Due to this, we had to wait 5 hours in the middle of the night, the night before the first day of classes, for a tow truck that never came. And apparently this has been an issue for AAA since the end of June, as this article shows.

We experienced a negative production externality because of the external cost of the unemployment benefits that has not yet been addressed by AAA. And while the federal unemployment benefits are coming to an end soon, employees may not necessarily return to their previous jobs, since many enjoyed the changes to their work environments that they experienced during covid. To address this issue, AAA should pay attention to the external cost and either charge consumers more in order to reduce the amount of people using their service or pay their employees a higher percentage of their revenues to entice them to come back and better serve their remaining customers.

Ideology & the Hold Out Problem in the Senate

     As October approaches, the Biden administration is pushing hard for the president’s long-awaited infrastructure bill. With the narrowest possible majority in the Senate, Democrats can only pass the high-spending measure using the budget reconciliation process - a loophole allowed once per year to circumvent the filibuster. Still, in order to take advantage of this opportunity, every single democratic senator and Vice President Harris will have to vote in favor of the bill. As time to whip the votes necessary to pass the infrastructure bill wanes, centrist Democrats like Sen. Joe Manchin of West Virginia can take advantage of the holdout problem described in Grueber chapter 5. 

    Rather than property rights, these 50 democratic senators all share voting rights. As the “last one” to exercise his right to vote - since Manchin’s conservative tendencies mean his vote along the party line is not guaranteed - Manchin is in a position to hold the other Democrats hostage, negotiating bill provisions that uniquely benefit his political interests and/or his constituency. Earlier today, in fact, he decided to capitalize on this position by publicly declaring that the party needed to take a “strategic pause” on the bill the administration is so eager to pass. Majority Leader Schumer will give Manchin much more in negotiations to secure his vote now that he is essentially the only thing blocking this important political victory. 

    This example of the holdout problem is slightly different from those that plague Coasian negotiations. For one thing, though Manchin’s strategy may crumple the collective action of the Senate Democrats, it will not have any negative effect on Senate Republicans, who uniformly oppose the bill. This intragroup effect of the holdout problem is different than intergroup scenarios we studied, where an opposing group’s actions were blocked by the original group’s failure to act collectively. Additionally, unlike a more classical example of the holdout problem, Manchin is one of the only Senate Democrats willing to use the holdout strategy. The political consequences of not supporting such an important party vote could cost more liberal Democrats reelection, meaning there is not much competition to be “the last one.” 

Competitive Governance Puts The 'Choice' In Public Choice

Milton Friedman in the second chapter of Capitalism and Freedom takes for granted the government's monopoly in the role of ‘rulemaker and umpire.’ This assumption is reasonable in the context of his book, as he wants to stress shared values with those who may disagree with him, but it merits closer inspection today as the idea and implementation of competitive governance spreads around the world.

Businesses are forced to fulfill consumer preferences by competition; if they fail to provide what buyers want, they can take their money elsewhere. The absence of competition uncontroversially leads to higher prices and lower quality of goods and services. Governments use the high costs of switching governments and the high cost of starting a new government as barriers to competition. These barriers are undesirable for the same reasons as in the market. They lead to lower quality public goods and higher taxes. There are several technological and institutional strategies that we could implement in order to lower barriers and increase competition in the provision of public goods like rule-making and arbitration.

Barriers to switching governments include the costs of moving, crossing borders, job search, and cultural change. These costs can be decreased by transportation technology, federalism, and remote work. In 1850 the fastest route from New York to San Francisco was a 50 day boat journey through the Isthmus of Panama that cost several thousand dollars and put you at high risk to die of cholera on the way. Moving long distances is now much cheaper, faster, and safer than it was and there is room to improve with advances in supersonic air travel, high-speed rail, and self-driving cars. Federalism can decrease the costs of switching governments by putting many governments close together and uniting them under a free trade and open borders zone. Moving from Texas to Florida is a lot easier than moving from Cuba to Florida and Albemarle County to Fairfax County is easier still. The more autonomy that local governments have, the easier it will be to choose preferred bundles of public goods. Finally, remote work makes moving less costly by making location less important. One no longer needs to search for a new job when moving to a new place. These present and future technologies and institutions are ladders over the barriers to switching governments.

Starting new governments has traditionally required conquest or revolution, but new institutional forms such as special economic jurisdictions and decentralized autonomous organizations allow for much lower entry costs into the market for government services. Special economic zones are already allowing for more competitive governance in China, India, and Honduras, and they are spreading quickly to many more nations. Decentralized autonomous organizations (DAOs) are a way for people to securely organize social groups and governance around an agreed upon set of rules. These preference aggregation algorithms can act as venture capital firms, hedge funds, and even provide public goods. New technology and institutions have made Friedman’s assumption of a monopoly over the creation of rules, arbitration, and public goods provision unnecessary.

A Different Perspective on a Classic Negative Consumption Externality

I am sure that everyone is familiar with the classic externality example in which a house party's loud music reduces the wellbeing of a neighbor, who may be trying to sleep.  This would be an example of a negative consumption externality.  Surely if you walk down Rugby Road on a Thursday-Saturday night, you will hear fraternities playing loud EDM music, too.  While this may be disturbing to some, I am on the other end of the spectrum.  I enjoy hearing the loud late night music, so for me, it is a positive consumption externality.  I benefit from the fraternities' consumption, but I do not pay for the benefit.  When I hear the late night music, I am reminded (fondly) that UVA is a work-hard play-hard school, and that I fit in with the school's culture and made a good decision when choosing my college.  Furthermore, I am a deep sleeper, so the loud music is not costly in any way as it relates to my sleep.

But what about those that do not like the music?  After some online reading, it seems that often a noise complaint can lead to a party's music being shut down and, in some cases, the host being fined.  I am somewhat conflicted on this matter because I can see both sides.  I think in this example, though, we see one of the major problems with The Coase Theorem.  The transaction costs and negotiating problems that would arise between party-goers and neighbors are far too great.  However, when a house party is fined by a local authority for loud music I have doubts that those who are harmed (the neighbors) are the ones who receive the compensation.

Fraternity Freeriding

 I was having a discussion this weekend with the Treasurer of my fraternity and he was explaining to me what a problem it is to get everyone to pay their dues. According to him, dues collection is always a burden and there has not been a semester in which he has seen every member pay their dues. Some members never contribute, meaning as a whole we do not have the amount of money we should have in proportion to our members. Therefore the quality of philanthropic events, social events, and meals is of a lower quality than it should be. 

It was immediately obvious to me that people were just free riding. As the number in the group grows there is less and less of a reason for individuals to contribute.  The events, meal plan, etc will still go on as planned without the individual incurring a personal cost. It is difficult to exclude anyone from the enjoyment of these resources as because everyone is considered a friend and it is seen as wrong to deny a friend entrance to a social event or meal and so people can free ride. It is also non-rival meaning one person paying their dues does not inhibit another member's ability to pay their dues. Our dues as a whole then are underproduced because of this free riding problem. 

The Intelligence Community Lacks Intelligence

Being from Northern Virginia, I have several family members who have worked for the government and one in particular has worked for the intelligence community (IC). He, unfortunately, is dumbfounded by how unintelligent said community is. He has reported back that the IC as a whole, because of their classified nature, gets away with some shady business. He has been repeatedly frustrated and annoyed with the "busy work" that his team is assigned to because it demonstrates the inefficiency that continues to persist in that particular bureaucracy. He would admit that the IC's work, for the most part, is very important. However, these agencies lack proper oversight due to their secretive nature, satisfying Niskanen's model almost perfectly. Not only will these bureaucracies seek to maximize the budget, they are also monopoly suppliers of their respective information, and the true cost schedule is only known by the executives within a particular agency because of the classified nature of their jobs. These IC agencies will then seek to push Congress's surplus to 0 even though each bureaucracy is not using their resources effectively, as my family member has seen firsthand. 

This is not a new problem. The IC budget has proven to go unchecked even by Congressmen/women who create them. As it is spelled out in the jurisdiction for the Senate Appropriations Committee, these committees are influenced not only by their own self-interests ideologically (as Weingast/Moran might argue), but they also might hear out their constituencies, the public, and the President's requests for any budgetary changes. Yet, because the output for the IC is ambiguous and mostly classified, the public and even many high-ranking government officials do not even know how inefficient these bureaucracies are, and they may be arguing for unneeded increases in their spending abilities. With consistently increasing budgets and my family member's astute observations, I would be cautious -- just as the Liberty Lobby was back in 1982 -- to trust that the funds being allocated are being utilized to their fullest extent.  

Why the Shy Trump Voter Might Not Be a Myth

 As I followed the last two elections I noticed (and I'm sure a lot of other people noticed) that the majority of the prediction polls underestimated the amount of the popular vote and electoral votes that Trump would receive. One of the hypothesis set forth to explain this is the existence of the 'shy Trump voter'. These are people who are reluctant to openly state their political ideology or candidate preferences.

When it comes to expressing your political opinions there are some costs that you can incur. Family, friends, and even strangers may judge you. This could result in marginalization, slandering, or exclusion. Because of this the cost to expressing political ideology could outweigh the potential benefits for Trump voters as in the past 4-6 years Republican voters or Trump supporters have been labeled as racist, sexist, homophobic, and hateful. 

As Caplan explains; when the price of behaving ideologically rises then the amount of ideological behavior falls. Furthermore, we know that that the point at which the cost of behaving ideologically is the lowest is in the voting booth. This is because each individual vote has an extremely low probability of affecting the election thus there is a low cost to the rest of society if the voter behaves ideologically. I believe there is another reason why the cost is lowest here and it is because the cost to the individual is lowest. They can express themself openly without the fear of judgement or repercussions from other people. Because of this the prediction polls, especially those held over the phone where the respondent could be overheard, did not correctly assess the support for Trump. One article states that Republican voters were 6% less likely to say they supported Trump when interviewed over the phone versus online thus adding credibility to the claim that shy Trump voters exist. The result was that the results of the election were wildly different from the predictions since voters could behave ideologically in the booth but not in society.

Covid and Ideological Costs

I remember being in middle school and going shopping with my mom at the grocery store or the bookstore and her specifically avoiding products that said “Made in China”. I never really got the full picture on why she did this but I did understand that steering clear of Chinese goods meant paying a higher price. My mom was exhibiting one of the four economic biases discussed by Kaplan, anti-foreign bias. She added her disdain for goods that were made in China into her utility function which meant that when she was able to make purchases of goods made in the US/locally, her utility increased. 

We discussed in class how there are different levels of cost associated with acting ideologically. In a normal world, her costs are relatively low if the price difference is not significant between the two options. However, I have witnessed Covid increase the cost for my mom to act in line with her ideals. And, according to this article, she may not be alone. Many people are looking to cut spending because of loss of income or uncertainty due to the pandemic. Americans are looking to cheaper products as they lose their jobs or their wages are cut. Along with this, my mom has been much more careful about going out to regular stores because we live with my grandmother. This means sacrificing normal products for ones that can be shipped to our home - often the substitutes being made in China. Because of an increasing cost to act in line with her ideologies, she has ironically probably cut down on her spending.

Social Media Regulation through the Bureaucracy

Since the 2016 election, the CEOs of major tech companies Google, Twitter, and Facebook have been reporting consistently to the Senate Judiciary Committee over issues regarding censorship and misinformation on their platforms. The main legislative reform that has been proposed at these hearings is reform of Section 230 of the Communications Decency Act which protects social media platforms from legal liability for things posted on their platform. However, just last month, the chair of the Federal Communications Commission Ajit Pai issued a statement stating he was considering issuing an interpretation of Section 230 to address the concerns of government officials. This statement and the actions of Congress in regards to regulating big tech companies shows the conflict between the congressional dominance and autonomous agent theories

The FCC is reliant on Congress for its budget. Although Pai has not been specific on what his interpretation would be, the prevailing sentiment on both sides of Congress is for some sort of Section 230 reform. The fact that Pai as a lone bureaucrat has the power to change the interpretation of Section 230 and hasn't shows that he is under congressional control in waiting for a more specific recommendation to come down from Congress. However, the fact that he is indeed coming out in support of the specific policy solution proposed by Congress, general Section 230 reform, shows that he is indeed acting as an autonomous agent seeking to maximize his bureaucracy's budget by agreeing with the people who approve his budget. I would argue in this situation Congress is exerting more control than the bureaucratic agent, but it will be interesting to see who determines how these social media companies are regulated. 

Supreme Court Nominations Fly By

         When Brett Kavanaugh was nominated to the United States Supreme Court in 2018, I wasn’t sure he would get confirmed. His confirmation hearings were contentious to say the least, and there seemed to be a lot of pushback from the media, Democrats, and even some conservatives. When Amy Coney Barrett was nominated this year, there was also quite a bit of opposition. Although Kavanaugh had squeaked by, I had thought to myself: “would Amy Coney Barrett also make it through the confirmation hearing process?”

I should have known better. Of course! “Since 1789, 42 presidents have nominated 163 people to serve on the Supreme Court. Of those who were nominated, 126 were confirmed and seven declined to serve. Only 11 people who faced the Senate were not confirmed to the Supreme Court, and only one was rejected from serving as chief justice.” In over 200 years, only 11 rejections! Given the effectiveness of the incentive system in place, the pre-screening process for US Supreme Court nominations, prior to their Senate confirmation hearing, is incredibly robust. Thus, we seldom see a nomination rejected by the Senate. Put another way, a US Supreme Court nomination will rarely be put forth by the president if they are not extremely confident that the candidate will be confirmed by the Senate. As Weingast and Moran wrote, “the more effective the incentive system, the less often we should observe sanctions in the form of congressional attention through hearings and investigations” (pg.769). US Supreme Court nominations are a prime example of their paper in action.

 

Will the Covid-19 Vaccine Be a Public Good?

It has come out recently that Pfizer's Covid-19 vaccine is 95% effective and is awaiting approval. Naturally, the question of how the vaccine will be distributed has come up. Pfizer has reached a deal with the US government to produce enough doses of the vaccine for about 12.5 million Americans for free by the end of this year. These will go to healthcare workers and vulnerable populations. For the general public, the vaccine should be available next year and will also be paid for with taxpayer dollars.

In order to determine whether something is a public good, we need to see if it is infeasible to exclude people from it, and whether it is rivaled in consumption (meaning utility goes down as more people consume the good). The CDC states on their website that vaccination providers will be able to charge a fee for administering the vaccine, but this fee will be reimbursed by a patient's health insurance. If a patient has no insurance, the Health Resources and Services Administration’s Provider Relief Fund will cover it. Since there will be no cost to anyone for the vaccine, it is infeasible to exclude anyone from it. Once the vaccine is widely available, it will also be non-rivaled in consumption, because one more person receiving a vaccine has no negative effect on the next person receiving the vaccine. Since the vaccine will meet both of these criteria, it will be a pure public good.

Slack and Presidential Candidates

In The Myth of the Rational Voter, Caplan points out an interesting shirking phenomenon that can be exemplified by events during this election cycle. Caplan explains that elections constrain representatives only as much as voters care about a certain issue. If voters care deeply about an issue and it is interesting to them, politicians have almost no slack. If voters don't care about an issue, or find it boring, politicians have some amount of slack. During this presidential election there were certain policy spaces where the candidates had little slack and certain areas where they had a lot, and these were very different depending on the political party that the candidate represented.

One key divisive policy space was the handling of COVID-19, with 82% of Biden supporters saying this was very important to their vote in the 2020 election and only 32% of Trump supports saying the same thing. This means that Biden was held significantly more accountable and enjoyed less "wiggle room" in regards to his plans for COVID, while Trump had significant slack. This can be evidenced by the fact that many regard Trump's handling of the pandemic as going back and forth between approaches. For example, his indecision about the usage and importance of mask wearing. Meanwhile, Biden has held unchanging and staunch views on his approach to COVID, saying that he will implement a national mask mandate if he is elected. Biden's stance here strongly mirrors what his electorate has been demanding. Trump can occupy a more moderate stance on COVID policies because his electorate does not overwhelmingly demand a certain strong response. 

Another space where Biden and Trump experienced significantly different levels of political slack was the policy approach to crime. 74% of Trump supporters sited this was very important to their vote, while 46% of Biden supporters said so. Again, we can see this difference in slack reflected in the candidates' policy focus. Trump has held extremely vocal and cohesive views on "being tough on crime," as evidenced by his policy choices, such as full support for increased police rights. Meanwhile, Biden occupies a more moderate stance - for example, calling for investigations into police misconduct, but not for the police defunding that so many voters called for. 

The Miracle of Aggregation and the Wisdom of Crowds

I wouldn’t say I’ve ever been the biggest fan of group work. Yet, a few weeks ago, I took an economics exam that proved to be an incredible testament to the power of group work. A few friends and I joined forces to study together over the three days that preceded the exam. When we first began studying, we each understood an alarmingly inadequate amount of the test material. Yet, by the end of the three days, we’d developed a strong comprehension of the material, and every one of us passed the exam with scores well above the class average. I considered the desperate condition in which we’d started, and the miracle it was that we actually performed well on the test. It reminded me of a miracle that I’d learned about in my Public Choice class: the miracle of aggregation.

In politics, the Miracle of Aggregation states that the votes of many uninformed voters will ultimately offset one another and the result of the election will be swayed by the informed voters, thus resulting in a socially preferred outcome. Much like how an ignorant voter would have been unlikely to choose the optimal outcome by themselves, if my friends and I had taken the test without having studied together, we likely would have failed. The miracle of aggregation is also considered a strong example of a phenomenon called the “Wisdom of Crowds,” which suggests that, collectively, large groups of people are smarter than individual experts. My friends and I were essentially able to build off of each other's ignorance in order to obtain a concrete and correct understanding of difficult economic concepts. And so, thanks to the miracle of aggregation and the wisdom of crowds, I performed well on a difficult exam, and can now say I’ve had a positive experience with group work.

Betting Markets v Pollsters in Forecasting the 2020 Election

Leading up to the 2020 election, countless streams of polls reported candidates’ respective leads. When it came to election day, many of the highly trusted polls systematically underpredicted the presence of Republican voters. For example, Biden was polling +8 percentage points over Trump in Michigan, but when it came to election day, he won the state by a much smaller margin. Alternatively, betting markets proved to be fairly accurate election forecasting metrics. Trump carried Texas by a fairly large margin, a state where betting markets were bullish for Trump, and many polls considered it a tossup. Additionally, Trump handily won Florida, a state pollsters expected to go Blue but bettors gave to Trump. How could polling ‘experts’ consistently get it wrong, but the betting market get it right?

 

Given no systemic bias in the sample, a large enough sample size, and some knowledgeable voters, polls and betting markets should on average predict election outcomes correctly. The repeated underprediction of Republican representation points to significant systematic bias present in the polling system. Whether poll respondents were lying or disproportionally democratic, polling errors were not purely random and undermined the election forecasting process. On the other hand, gamblers put their real money behind a political candidate. With real losses/gains on the line, bettors have incentive to be rationally knowledgeable and back the candidate that they truly believe will win, regardless of their preferences. In fact the marginal cost for a bettor is much higher than it is for a poll respondent, who might let their ideological ideas influence their response. While there were outliers in the betting market (guy that bet 5 Million on Trump), for the most part, random errors cancel out and the proportion of respondents that are well informed dominate the political betting market. With the betting markets better eliminating systematic bias and creating disincentives to be ignorant, they produce a result suggestive of the Miracle of Aggregation and prove to be a better forecasting method than polls.

The Prisoner's Dilemma Behind The Two-Party System

This weekend I was thinking about how the Republican party is in a bind due to Trump’s refusal to concede the election, with Republicans like Mitt Romney admonishing Trump’s actions, while others like Lindsey Graham vehemently stand by Trump. In casual discussion, one of my roommates asked me what I think the odds are that the Republican party splits. This division would seemingly split the party into a group of more moderate Republicans that want to go back to the pre-Trump Republican party, and a group of Trumpers who focus on pure political power and divisive politics. When contemplating this question, I realized that this might be a good example of a Prisoner’s Dilemma problem in politics.

We’ve seen the Republican party become divided in views/strategies of the two aforementioned groups, but we’ve also seen the democratic party stretching between super-progressive democratic socialists like Bernie Sanders, and more moderate democrats such as President-elect Joe Biden. In this article using Gallup poll data, the author explained that only 38% of Americans feel that the two parties do an adequate job, so a majority of people would support more parties. If both the Republican and Democratic parties split into more moderate and extreme subsets, everyone would feel better represented by their candidate of choice. I don’t believe this would happen though, because if one party splits, the other party instantly benefits from not splitting their party, and keeping a larger number in the caucus than both of the individual opposing parties, and can more-easily win a presidential election. If both parties were to split, both democrats and republicans would be better off than they are now, but if only one party split then the other will hold off and benefit from still being larger. Due to this, the parties are stuck in a dominant strategy prisoner's dilemma, where they don’t reach Pareto efficiency. To simplify, if both parties remain one they have utilities of (10,10). If they both split, they reach Pareto efficient utilities of (20,20). If one party splits but the other doesn’t, they have utilities of (5, 40), respectively.