The Illusions of Choice

A definite for the reading list is: No One Makes You Shop At Wal-Mart: The Surprise Deceptions of Individual Choice by Tom Slee. Anything that sites George Akerlof, Thomas Schelling, and Jane Jacobs as sources was bound to end up here. This is also the only book that I know to be classified as “Social Issues / Philosophy / Business” (…partridge, pear tree . . . .)

By applying the lessons of game theory to the kind of thing that happens in day-to-day life, Slee comes up with some startling and important observations. The most basic of which is: Individual decisions often add up to broad consequences that the individuals involved wouldn’t have chosen. Which is to say that by choosing the best individual strategy, people often chose what is a sub-optimal strategy for everyone involved. (John Nash again.) This is a version of the famous “prisoners’ dilemma,” but insightfully applied to things like the takeover of small towns by Wal-Mart and litter in public parks. This is why bad things happen to good people (and communities.) Choices “tangled” together sometimes have unfortunate additive effects. (Suburban sprawl? The tragedy of the commons.)

He also takes on “MarketThink” (see The Fraud Problem below) and points out that Imperfect Information introduces power into “free exchanges” and makes the unknown but higher quality business lose out to the common sure thing as risk avoidance leads to fewer choices overall, and also the related Herd Choice phenomenon covered by Gladwell in Tipping Point.

This is also one of the few places I’ve seen transaction costs covered. The costs of making a choice or a change has massively negative effects on the freedom of the labor market, and in fact holds most markets from functioning as they theoretically ought.

While his recommendations of “collective action” (whatever that is,) disappoint at the end, the analysis is fascinating and too long overdue in a book this easy to read.

Destruction

June 26, 2007.

Haven't had the heart to post it previously.

Healing the Sick

Michael Moore’s Sicko, whatever else it may be, provides a great illustration of the sticking point of the idea of a market for health care. One of the early scenes is a story of a man who, having the tips of two fingers severed by a table saw, is given a price for attaching each fingertip. He opts for the less expensive (and less damaged) ring finger and leaves the middle finger about ½ inch shorter. Really, from the standpoint of classical economics, this is the ideal scenario: He was given an explicit option between alternatives and allowed to place a value (in this case how much debt he was willing to incur) on the “good” of each fingertip. Most people don’t get to make such clear, rational decisions about their health care in extreme situations.

Yet, to many, if not most, people, the whole situation is morally reprehensible. The idea that there existed a way to make him whole again, it was within reach, and would not harm (other than opportunity cost – which may be the key,) anyone else to perform just screams of a moral duty to perform. The idea of negotiating over a part of someone’s body just seems monstrous. The rational arguments are all there: someone spent time and energy developing the technique and deserves to be compensated; an expert surgeon would be required to spend time and skill he spent years developing; the overhead costs of the hospital and operating theater need to be maintained so they’ll continue to be there; and a dozen others. Still, there is something about the entire matter that screams violation back though the recesses of the primitive brain and refuses to let anyone sleep at night, regardless of the utility equation. The most basic things within us are shouting, “good can be done, good must be done here.”

This is the problem (well, one of them) with the entire matter. Unless people are willing to accept that decisions considered cruel and inhuman can, will, and must be made; unless the public at large is willing to accept going back to Victorian attitudes of the justice of misery and suffering; then a true market for health care can not exist. Free exchange requires an option to walk away. Period. Anything else is not a market. It may be a pseudo-market hybrid, it may be a competition-restricted option to dole out a tax credit to six or seven different corporations, but it will not be a free market.

Indigent care remains the ignored thousand-pound gorilla in the room that serves signal for the entire system. It is not obligatory to convert every hospital to a single-source system administered with government funds (taken, of course, by force – a form of moral transgression in its own right,) but is a half-way part-way maybe system a better alternative? Federal programs already make up for an enormous portion of the medical dollar, and often those not covered are tasked to make up the profit shortfall of the government system. Would it stifle innovation? Maybe. Would it discourage so many from entering the industry? Sure. Is this a circle that can’t be squared? Quite possibly.

However, until it’s looked into the eye with something other than facile, milquetoast reasoning it’s only going to get worse.

Compare: Socialized Medicine?


N.B: Slate’s Dana Stevens had a great observation about the film: Hasn’t Mr. Moore’s arch-nemesis General Motors essentially bankrupted itself paying for healthcare? The irony.