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On The Role Of Economics, Trolley Problem Edition…

September 20th, 2016 · 4 Comments
Policy

I’m guessing many of you are familiar with the trolley problem:

The problem is interesting because there is an objectively “right” answer- absent specific circumstances, one dead person is better than five dead people- but psychology, philosophy, ethics, etc. bring in a whole host of other considerations having to do with intention, fate, and so on. Such considerations result in a problem without a correct answer, and these considerations can’t (and probably shouldn’t) be ignored in a society of human beings and not robots.

Because of this unexpected complexity, the trolley problem has spawned a number of extensions, ranging from the even more nerdy…

…to the snarky and political:

There’s even what I will call the economist version, which incorporates opportunity cost/cost of effort as well as a few other factors…

In any case, we seem to be pretty familiar with the “clear efficient answer under some basic assumptions, but fairness and ethical considerations make things complicated” concept. So allow me to present a more accurate economic version of the trolley problem:

You are currently looking at a crisis area. The status quo is that there is a large shortage of Uber drivers to get people out of the area. Do you 1. Do nothing, or 2. Implement surge pricing?

I think this is a situation that we’ve seen before a number of times. Allow me to explain the similarities to the trolley problem:

“Clear Efficient Answer Under Some Basic Assumptions”

Surge pricing is the obvious answer here, under two assumptions: first, that surge pricing gets more drivers to the area, and second, that how much a person is willing to pay for an Uber is an accurate proxy for how important it is to them. Under these assumptions, shortages are smaller (or nonexistent) under surge pricing than they would be otherwise, and cars go to those who need/want them the most. (In case you’re curious, the first assumption seems to have empirical support even though surge pricing doesn’t appear to always get more drivers on the road overall.)

“But Fairness and Ethical Considerations Make Things Complicated”

I can’t really tell you what’s fair- that’s kind of the deal with value judgments- so I will instead report some common themes that I’ve come across. One is that people should have at least a chance to get an item at the “regular” price, and some people view random rationing as more ethical than price-based rationing when extenuating circumstances are present. (I wonder how this would change if pricing were framed as regular prices and discounts rather than surge pricing.) Another is that willingness to pay is a better proxy for wealth than need/want, in which case surge pricing unfairly rations items to rich people. (This may be true in cases of extreme income inequality, but shouldn’t be the case in a market with more uniformly distributed resources, so this view is somewhat of a fact/opinion hybrid.) Yet another that hadn’t even occurred to me (thanks Internet!) is that it’s unethical to use the promise of money to get largely low-income individuals (the Uber drivers) to take on risk of bodily harm, especially when said risk is incurred during the service of higher-income individuals. (See last point, and note that this is the same logic used to justify outlawing kidney donations and such.) Yet another is what Russ Roberts says. You’ll notice that all of the fairness arguments presented except the last one are against surge pricing.

My point in bringing this up isn’t to have a discussion on fairness or convince you of anything in this regard- like I said, you’re more than welcome to subscribe to one of these viewpoints or come up with your own. My point, instead, is to highlight the role that economics can play in conversations about what is best for society. To that end, here are a few points to keep in mind:

  • Economists can tell you what is efficient under certain assumptions, but they can’t definitively tell you what is fair.
  • The assumptions used to determine the efficient outcome can and should be examined.
  • Just because something is a market outcome doesn’t mean it’s fair. (In fact, the existence of market failures implies that market outcomes aren’t even always efficient.)
  • Fairness matters.
  • But so does efficiency- it’s reasonable to ask economists to stay in their lane, but not to discount them entirely.

I guess I could do something similar for economists:

  • State your assumptions.
  • At least try to stay in your lane.
  • When you venture into the philosophical lane, make it clear that you are doing so.
  • Fairness matters, and people really hate it when you dismiss their value judgments as irrelevant. They’re even likely to reject what you can show them about efficiency if you do so.

Okay? Great- now let’s go have some thoughtful policy discussions.

Tags: Policy

4 responses so far ↓

  • 1 On The Role Of Economics, Trolley Problem Edition via /r/economy | Chet Wang // Sep 21, 2016 at 8:56 am

    […] On The Role Of Economics, Trolley Problem Edition http://www.economistsdoitwithmodels.com/2016/09/20/on-the-role-of-economics-trolley-problem-edition/ […]

  • 2 Joseph Giacona // Sep 21, 2016 at 12:45 pm

    ‘Wrongful Beneficence’ by Chris Meyers is a good essay regarding this problem. “it is possible
    for someone to be wrongly exploited even if that person benefits from
    the exploitation and even if the person prefers the exploitation over all other
    options. This notion of beneficial exploitation could apply to other instances
    of “driving a hard bargain” with desperate people, such as price gouging, etc.”

  • 3 Dave // Sep 21, 2016 at 8:01 pm

    You’re leaving out a very big part of this: there is no definition of fairness. So talking about whether an outcome is “fair” begs the question: how are you defining fairness? No need to answer that, because your answer will likely differ from mine anyway. But when discussing economic outcomes, it’s useful to remind people/students that there is no one definition of fairness, so people need to take stock of what their definition is, how they came to it, and what the implications of it is for others.

  • 4 Tenured Radical // Sep 21, 2016 at 8:31 pm

    Maybe worth noting that more than a few economists do very well in the philosophy lane, and are maybe most interesting when they veer over there. The contemporary examples are probably pretty obvious, so I’d make the case that Adam Smith is an early example.

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