Tag: economics

Voting and the Prisoner’s Dilemma

Voting is important to me. It’s something that I do every time elections roll around, and it’s something that I take a lot of pride in. I wouldn’t say that I’m the most political guy in the world, but I definitely have strong opinions about the best direction for my country to go. I want to make sure that those opinions get counted and have an effect.

That’s why I’m so bothered by people who don’t vote, especially if those people agree with me. People’s excuses for not voting are as numerous as the non-voters themselves, but they usually fall into a few different categories. There are the people who don’t vote because they’re too lazy. Some don’t vote because they just don’t care (or claim not to, they sure complain about the government a lot for people who don’t care). Others don’t vote because they say it’s not worth it.

It’s that last group that I want to address here. I’ve recently been in a few different conversations with people who feel that their vote has such a small impact that it’s not worth the time it takes to get informed and actually cast their ballot. The people I’ve met who think this way tend to be economists and computer scientists, so it’s not like they’re ignorant about the situation. From their perspective, they’re probably making the right choice. However, that choice is predicated on the fact that many other people with similar views will be voting.

Voting is the Prisoner’s Dilemma played at scale. There are huge groups of people who can either defect (not vote) or cooperate (vote). Assume for simplicity that each issue is divided on party lines and each party is the same size. In that case, each individual voter is playing the prisoner’s dilemma with people of their own party.

If the person defects and doesn’t vote, they get the extra time and energy they would have spent on voting to use for other things. If everyone defects, then the bill/politician/whatever that they wanted gets voted down by the other party.

So when people who share my political ideas say they don’t vote, I get upset. I don’t much mind that my vote is then that much more important. What I do mind is that those people are making it less likely that the world turns out how I want it.

This is a bit different than the popular idea that voting is a civic duty, and that everyone should vote. Basically I’m saying that I only want people who agree with me to vote. I’m still working on how to reconcile that with my general belief in the process of democracy.

Entropy and Externalities

There’s a concept in economics called the externality that my environmentalist friends like to talk a lot about. An externality is a cost that exists for some enterprise, but it’s a cost on somebody other than the enterprise itself. The classic environmentalist example is that environmental damage is an externality for oil companies. Oil companies get a lot of money for extracting oil, and they sometimes don’t bother to take care of the environment as they do that. This is because environmental damage affects the local community, but not the oil company’s profits.

In many ways, it seems to me that an externality in economics is similar to entropy in physics. Entropy in a closed system never decreases, it’s only by ignoring some part of the system that you can say that you’re increasing order. So too with externalities. Those costs created by the enterprise still exist and still need to be paid for. The only reason that a company (or person, or government) can console themselves about not paying for those costs is that they’re not a part of the closed system that is the company and its customers and suppliers.

As the concept of externalities has come to be better understood by governments, there have been attempts to make destructive companies take responsibility for their actions. This seems like what I used to do in my physics classes by redrawing system boundaries to account for entropy. Redrawing system boundaries for economic externalities is usually done by creating laws that require companies to pay for any damage that they may create. One good example of this is Montana, where mining companies have been required to create trusts that are responsible for cleaning up after them.

What’s interesting to me is that the owners and CEOs of possibly damaging companies sometimes realize that they live inside the wider system that encompasses whatever damage is caused by their company. One example of that is Sunoco, which is the only oil company to sign on to the Ceres Principle.

I wonder if a better understanding of physics would cause people to realize the impact of such externalities to other parts of their lives. Even companies that work to mitigate externalities don’t do all that they could. Perhaps CEOs of potentially harmful companies should be required to take a course in thermodynamics to get a good understanding of entropy and system boundaries.

Toy Economies

I went to Ada’s Books last week. They had a lot of textbooks, which I wasn’t too interested in. They also had a lot of science books, which I wasted half my day (alright, just 20 minutes) perusing. I ended up buying Group Theory in the Bedroom. It’s a collection of essays some guy wrote for a variety of science magazines.

A couple days ago I read an article in the book about conserved economies. The idea is that you can model economic behavior if you make some simplifying assumptions (like that people spend exactly as much as they earn). What really intrigued me about the article were the graphs of wealth distribution over time. By slightly tweaking various economic parameters, it’s possible to make economies collapse by concentrating all wealth in the hands of one person.

I’ve been toying with Processing a lot lately, and these graphs finally gave me an excuse to get started. I wrote up a quick toy economy sketch and generated my own versions of the economies described in the book.

Wealth in a stable economy is rarely concentrated.
Wealth in an unstable economy all belongs to one person.

These economies are super simple. No one ever makes or loses money, except in a transaction with someone else. In those transactions, someone makes money and someone else loses money. Each line is a person’s wealth over time (time 0 is at the top). The width of the line corresponds to how much money they actually have.

So we’re basically assuming that everyone has some amount of money in savings, and that they spend exactly as much as they make. I like saving, so I added a savings feature. Everyone gets one unit of wealth each time step. In order to keep people from accumulating infinite wealth, I set up a random event that would force them to spend their savings. Now each person saves for a rainy day, and they periodically experience those rainy days and have to spend their savings.

Saving in a stable economy don\’t make a big difference.
Savings in an unstable economy aren\’t very realistic.

A normally stable economy remains essentially stable. People do manage to save up a higher maximum amount of money, but they don’t really keep it for very long. It also doesn’t give people a leg up in exchanges.

That changes in an unstable economy. The person who ends up owning all the wealth really gets it all. It’s kind of ridiculous. Surprisingly, even the people who don’t get very wealthy still don’t get as poor as they would have if they hadn’t saved a little. It seems that extra boost gives them a little more leverage in an exchange. One thing to keep in mind about this is that the agents aren’t allowed to go into debt. If agents could have negative money, this situation might be very different.

Since I’ve been interested in startups and entrepreneurs for a while, I decided to add that into my economy as well. I gave entrepreneurs some chance to win much more than they already have, but also to lose much of what they had. It turns out this is a hard thing to get stable. If succeeding in a startup is too hard (and too many people try), the entire economy collapses pretty quickly. On the other hand, if it’s very easy then everyone ends up ridiculously wealthy. It seems like that kind of situation would lead to hyperinflation, which wouldn’t really be a good thing.

Too many failed startup kill an economy.
A Goldilocks economy is just right. Everyone starts to get rich at the end.
Easy money means hyperinflation.

These models are way too simple to accurately represent a real economy. Real economies have a lot of intricacies that I didn’t want to go into for this. One of my EE professors once said that we’d never find the “Maxwell’s Equations of Economics” because there was simply too much going on. That’s probably true, but there’s something poetic about modeling economies in such a simple way.

Get the code here.