8. The Efficient Society (Part 2)

Note: This post is the eighth in a series, Parts one, two three four five sixand seven

Note: I previously posted on chapters 3-5 of 'The Efficient Society' here, back in 2005. This time around I'll cover much of the same ground, but I'll go into a little more detail, and maybe emphasize some different points.

Chapter 3, "Perverse Outcomes" covers situations where people make rational choices intending for a certain outcome, but 'perversely' end up with results that are the opposite of what they are aiming for. This, again, comes back to Prisoner’s Dilemma and Arms Race type situations and has already been described here and here so I won’t say too much more other than to highlight a couple of key passages.

"As we have seen, the mere fact that people realize they're in a prisoner's dilemma, and realize that their own behaviour is contributing to the misery, does not mean that they have any incentive to change what they are doing. For example, just knowing that it's a 'bad thing' for everyone to be running around with guns does not mean that individuals do not have an incentive to own a gun (and especially not if everyone else is going to be running around with a gun, regardless of what you do). In order to actually change the pattern of behaviour, people must be given some sort of incentive.

(These incentives actually come in two flavours: internal and external. The interior controls are what we normally think of as morality and these can be quite effective under certain circumstances. But this is complicated and so I will set aside until the next chapter.

The last example, Heath provides in the chapter describes how the city of St. Louis, back in the 1970's decided that rather than raise taxes to pay for street maintenance, they would sell the streets off to neighbourhood groups who would own the streets and do the maintenance themselves. But after a while, the new street owners figured that they saw no need to let just anyone drive on their streets and so, many streets came to be blocked off to through traffic. Eventually, a local university had to negotiate with various street owners to negotiate a passageway that would allow students to be able to get through to the university.

This highly inefficient situation results from the American unwillingness to sacrifice liberty for efficiency (you might be thinking about Health Care after reading that sentence, but Heath doesn't cover that until chapter 7)...

Instead, let's go on to chapter 4, picking up Heath's concept that the necessary incentives to overcome prisoner's dilemmas are often internal or moral in nature.

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Chapter 4 starts off with a great line, "Anyone who has ever lived with roommates understands the Hobbesian state of nature implicitly"

Heath goes on to explain how if 4 students sharing an apartment, because all like to live in a clean place and all prefer others to do the cleaning, it is a prisoner’s dilemma type situation where everyone has an incentive to free ride on other people’s cleaning efforts so nobody wants to be the sucker who cleans while other people take it easy and the place ends up looking like a pigsty.

Eventually, the students might come together and make up a list of rules that divide out the tasks in order to make for clearer accountability and allow people to punish those (typically in fairly low key ways such as by making sarcastic remarks) who are not doing their part.

Heath then goes on to the question of why people tend to follow rules, even when the benefits to breaking them might exceed any potential punishment that might be imposed. He gives the example of cleaning up after your dog in a park, even when there is nobody around to see if you don't. He points out that cleaning up after the dog is something you do because if people (in general) didn't do that, the results would be a mess. This corresponds with the sort of 'golden rule' (do onto others as you would have them do onto you) that is found in the moral code of almost every culture. In other words, sometime our sense of morals suffices to prevent prisoner's dilemma type failures of cooperation from occurring.

Heath then tackles the question of why we can sometimes rely on our morals to escape prisoner's dilemma type situations and why sometimes our morals fail us. They key element, he argues, is trust. People don't like to be taken for suckers so if they can be assured that others are doing their part (keeping the house clean, cleaning up after their dog, paying their taxes, etc.) they will usually do the same. Situations where this sort of trust can't be established lead to failures where we are trapped in the Prisoner's Dilemma without some sort of external incentives (punishments or rewards for cooperative behaviour) being used to bring about cooperation.

He concludes the chapter looking at one of the ways people have traditionally used to overcome the problem of securing cooperation among large groups of people - hierarchies. The hierarchy, where those who cooperate to achieve the collective objectives are promoted while those who don't cooperate are punished, allows a large group of people to work together without constantly undermining each other putting their personal interests ahead of the cooperative goal.

Chapters 5 and 6 of the Efficient Society discuss markets, and will be covered in the next post.