The Universe And The Teacup by K.C. Cole

Author:K.C. Cole [Cole, K.C.]
Language: eng
Format: epub
Tags: Science, Maths
Publisher: Houghton Mifflin Harcourt
Published: 0101-01-01T00:00:00+00:00

Caltech scientists have taken yet another approach to fairness, based on the age-old idea of auctions. Auctions, Ledyard says, counteract a person’s “natural tendency to ask for more than you really need.” An auction discourages people from bidding on what they don’t need, because they have to pay for and take whatever they bid on—leaving them with less money for something else. In other words, they have to make choices that carry real consequences.

Of course, for an auction to be fair, everyone has to have an equal start. But not everyone agrees on what “equal start” means. For example, Caltech got involved in helping divide up responsibility for L.A.’s polluted skies. The method they came up with works like an auction, except what players bid on is license to pollute. Cutting pollution is more difficult and expensive for some companies than for others. So the Clean Air Act of 1990 allowed California companies to buy and sell licenses to pollute—permitting firms that invest in expensive technology to recoup their expenses by selling unneeded pollution allowances to others.

In order to make the process fair, however, the total amount of pollution permitted had to be fairly divided to start with. “In this case, equal is not fair,” says Ledyard. “It’s not fair to give the same allowance to Joe’s Bar and Grill as to SoCal Edison.”

Instead, the allowances granted by the air quality board are based on levels of pollution during the years 1989–1990. Based on those figures, a factory might receive a permit to spew out three thousand pounds of pollution per year; a donut shop might receive an allowance of fifty pounds. But as Caltech economist Colin Camerer points out, that system “rewards people for polluting in the past.”

The system, in other words, is not perfect. But at least it’s a start at inventing a method that gives incentives to everyone to keep pollution down—and save money in the process.

Further complicating attempts to divide things fairly is the human factor. The NSF grant to Caltech was designated mainly for experimental testing to determine how well real people’s behavior matches the mathematical models.

Researchers have assumed, for example, that people would always act in a way that would maximize their gain. However, Caltech’s Camerer has found in a series of experiments that good manners can get in the way of rational behavior—especially if players were not strangers. They’ll give up tangible rewards, even cold, hard cash, in order to avoid appearing greedy or selfish. People further alter their economic behavior when they are in personal contact. For example, people voluntarily contribute to communal goods such as streetlights and holiday parties. “But if they are face-to-face, the rate of contribution goes way up,” says Ledyard. “Why is an open question.”

Finally, the choices people make in one-to-one situations can be quite different from the choices they might make as a member of a larger group or community: for example, in a situation where a community is trying to decide whether a tax break is fair compensation for having a chemical factory or hazardous waste dump in its backyard.

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