Missing Markets: The Bane Of Our Existence

Reply to: Traditional Economics Don’t Make Sense For Open Business Models

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Imagine that you’re trying to decide whether to play golf (X) or write a story on Medium (Y). The question is… how should you allocate your time? Your time is a limited resource. Your time is scarce. Given that your time is scarce, it makes sense to allocate your time to whichever activity will provide you with the most benefit. 

Whenever people talk about post-scarcity economics… it’s a pretty good sign that they are clueless. Even if you were immortal you still wouldn’t be able to play golf and write stories at the same time. And [“Her” spoiler alert]… even if you were an incredibly advanced artificial intelligence capable of writing stories, playing virtual golf and engaging in a gazillion other activities at the same time… all the resources that you allocated to these gazillion activities couldn’t also be allocated to all the other gazillions and gazillions of possible activities. 

Scarcity will always be relevant… so prioritization will always be relevant. 

The way that market economies work is that everybody can help influence everybody’s priorities. If I had to allocate one of my dollars to X (you playing golf) or Y (you writing stories)… then I’d allocate it to Y. This is because I don’t derive any benefit from X. 

This is going to sound incredibly obvious but… you can never be me. And you are not omniscient. These incredibly obvious facts of life have incredibly powerful implications. You can never truly know how much benefit I derive from either X or Y. But, when I allocate my dollar to Y rather than X, then you can know that, from my perspective…

Y > X

It stands to reason that… the more people that give you their dollars for you to do Y… the more likely you are to do Y… and the more benefit you’d create for society. 

Let’s review the economic truisms…

1. Scarcity is, and always will be, relevant
2. Nobody’s omniscient
3. Incentives matter

Is this traditional economics? Well… it’s certainly economics. And it most definitely makes sense when we’re talking about open business models.  

This is what Medium might look like if they had a half-way competent economist on their payroll…

I would be able to use paypal to put money into my digital wallet. Then, if I benefited from your story, I could click the appropriate *heart* button. Let’s say that I clicked the 25 cent button. In less than a second, 25 cents would be transferred from my digital wallet to your digital wallet. I essentially gave you 25 cents of incentive to write stories rather than play golf. I increased your opportunity cost of playing golf by 25 cents.

Our society has a lot of people in it. And each person can engage in an infinite variety of activities. Market economies work because we can help encourage people to engage in the most beneficial activities.

All the biggest problems that we face as a society are not caused by markets… they are caused by the absence of markets. 

Right now we don’t have a market in Medium just like we don’t have a market in the public sector. These markets are missing because people don’t understand basic economics. People are under the impression that “recommending” or “liking” or voting can ensure that society’s limited resources are put to their most valuable uses. 

Solving the biggest problems in the world boils down to helping people understand basic economics. Then people would understand the point of markets… markets would be created wherever they are missing… and our collective intelligence and ingenuity would eliminate the world’s biggest problems. 

To help further illustrate the problem with missing markets… let’s consider this passage that you wrote…

I find this weird in so many ways. Let me highlight just one — consumption provides utility. Under this logic a tree has no utility unless it is cut down and “consumed”. I expect all of you question the logic of this. A tree can provide great utility without being consumed. It provides shade on a hot day, its leaves cleanse the air we breath, its branches provide homes for birds, its roots prevent erosion, and to many it is a thing of beauty. To assert that a tree has no utility if it is not consumed is, to me, a bizarre premise.

Benefit is in the eye of the beholder. Benefit is entirely in the eye of the beholder. 

In theory you benefit from trees being conserved rather than developed. It’s only a theory because you do not currently have the freedom to put your own taxes where your words are. Right now we don’t have a market in the public sector. A major and fundamentally important market is missing. It’s missing because people don’t understand basic economics. 

Creating a market in the public sector would be incredibly easy. People would be given the freedom to choose where their taxes go. I refer to this as “pragmatarianism”. Here’s the FAQ. 

Once we created a market in the public sector… then you could decide whether more trees (X) was more important to you than more defense (Y). 

If you decided that X > Y… then you’d allocate more taxes to X and less taxes to Y. Evidently, from your perspective, the world needs more trees more than it needs more tanks. 

I’d probably be in the same boat as you. How many other people would be in the same boat? We don’t know. We don’t know the demand for conservation just like we don’t know the demand for defense.

Right now you’re saying, more or less, that the supply of conservation is wrong… but why in the world would you expect it to be right? How could it possibly be right when the demand for conservation is unknown? If the supply could possibly be right without the demand being known… then markets would be entirely pointless. 

If we created a market in the public sector then the supply of conservation would be entirely determined by the demand for conservation. And then you’d be more than welcome to argue that the demand for conservation was inadequate. Would taxpayers find your arguments/information convincing? If so, then they’d give more of their taxes to the EPA. 

Sharing information isn’t the easiest thing. It takes time and effort. So if you take the time and make the effort to share your information about the environment with other people… then it becomes a lot more worthwhile to do so when the recipients of your info have the freedom to immediately act on it. 

If you’re a door and door salesman then you’re not going to waste your time making your sales pitch to a kid that answers the door. You’re going to ask to speak to whoever can make the decision to purchase your product. 

With our current system… congress controls the purse. So all the sales pitches are made to congress rather than to the public. The public is treated like some kid. This is a problem because, with our current system… the kid is responsible for determining who controls the purse. 

The only way that the public is going to make sound decisions about the environment is if they are given the relevant information. And the only way that it’s going to be worthwhile for the public to be given relevant information about the environment is if they have the freedom to control the money that they earned.

Missing markets are the cause of rational ignorance. The effects of ignorance, rational or otherwise, are extremely detrimental. Therefore, it would be extremely beneficial to create markets wherever they are missing. 

What Would Tyler Cowen Do For A Klondike Bar?

Would Tyler Cowen do this for a Klondike Bar?  Does it really matter what Cowen would do for a Klondike Bar?  Does it really matter how much Cowen values a Klondike Bar?  Does it really matter how much Cowen values dessert?  Does it really matter how much Cowen values food?  Does it really matter how much Cowen values national defense?

How could these things not matter?  Perhaps Cowen's valuation of food matters but his valuation of defense does not?  Because...he needs to be a defense expert in order for his valuation of his own safety to matter?  Just like he needs to be a food expert in order for his valuation of his own hunger to matter?

Personally, I think Cowen's valuations do matter.  Not just some of them...but all of them.  If I didn't, then I wouldn't be such a big fan of the idea of allowing everybody to directly allocate their taxes.

What's surprising and very intriguing is that neither Cowen nor his co-blogger Alex Tabarrok agree with me.  They don't believe that all their valuations matter...just some of them.  Why do they have a valuation double standard (VDS)?  How important could individual valuation really be if it's only partially applicable?

In a few blog entries I've encouraged them to defend/explain/justify their VDS...

• Prices vs Chips - 16 May 2014
• Heaven's Going To Burn Your Eyes - 20 May 2014
• Crazy Cable Confusion: Costless Content Creation - 2 June 2014
• Progress as a Function of Freedom - 1 July 2014

To his credit, Tabarrok did take the the time to respond.  Unfortunately, his response didn't really clear things up.

But a few days ago I was happy to discover that Cowen posted a blog entry that provided some tantalizing insight into his VDS...

My thoughts on quadratic voting and politics as education

The concept of quadratic voting was first brought to my attention last year in a comment on the tax choice FAQ page.  This was my reply to the comment...

Value Deviation From The Crowd

Reply to: Is This Forum A Market?

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We can keep trying.

1. Does the crowd value football more than I do?  Yes, very yes.  I don't value it at all.  Therefore, I will never ever have to worry about funding football.

2. Does the crowd value public healthcare more than I do?  I have no idea.

3. Does the crowd value the environment more than I do?  No way.  For example, I'm the only person in my neighborhood who has a tropical dry forest instead of a lawn.  So, in a pragmatarian system, I would most likely have to worry about funding the environment.

4. Does the crowd value national defense more than I do?  I have no idea.

5. Does the crowd value education more than I do?  I have no idea.

If we created a market in the public sector...then we would have an infinitely better idea what the crowd values.  Here's how I've illustrated this...

If the top of the bar is green, then it means that the crowd values the public good more than you do.  If the top of the bar is tan, then it means the opposite.

From your perspective, there is a...

...surplus of healthcare (a)
...shortage of welfare (b)
...shortage of environment (c)
...surplus of defense (d)
...shortage of NASA (e)
...surplus of education (f)

Clearly you're not going to derive any utility from spending your taxes on public goods that there's a surplus of. This means that you wouldn't spend any taxes on healthcare, defense or education.  This narrows your spending options down to welfare, environment and NASA.  Welfare has the largest shortage so perhaps you'll spend all your taxes on welfare.

As an outside observer...I can't see your utility function.  All I can observe is that you spent all your taxes on welfare.  This means that I can't conclude that you don't value any of the other public goods.  In other words, I can't say that the other public goods don't match your preferences.  The only logical conclusion that I can come to is that welfare is, by far, your biggest priority.    

In reality though...you're probably not going to sit around observing funding graphs.  You're going to live your life and respond to public shortages in much the same way that you respond to private shortages.  If a shortage of milk sufficiently concerns you...then you'll allocate your private dollars accordingly.  If a shortage of defense sufficiently concerns you...then you'll allocate your public dollars accordingly.

Unlike in the private sector though...in the public sector you'll always have the option to give your taxes to your impersonal shoppers (congress).

What's important to consider is that the further people's values deviate from the norm/crowd...the greater they will perceive the shortages to be.  Personally, I'm pretty sure that I'll perceive a huge shortage of environmental protection.  But most people will not.  Most people in a pragmatarian system will perceive that most things are mostly well funded.

The closer somebody is to the norm...the more closely the funding levels will match their preferences...and the less anxiety they'll have regarding the funding of public goods.  The further somebody is from the norm...the less closely the funding levels will match their preferences...and the more they'll toss and turn at night worrying about the adverse consequences of large shortages.

Of course, the mission of every deviant will be to make themselves the norm.  That's exactly what I'm doing right now.  As a pragmatarian (a deviant)...I have reason to believe that there's a huge shortage of pragmatarianism.  My anxiety is that people can't allocate their assets to alleviate or address their anxiety.  But most people, having normal values, think the current supply of pragmatarianism is perfectly fine.  So here I am trying to convince them otherwise.  The more people that I convince...the smaller the shortage...and the more normal pragmatarianism becomes.

Orham's anxiety is, at least superficially, caused by her perception that there would be a large shortage of national defense in a pragmatarian system.  This means that she believes herself to be a deviant.  Or maybe she would prefer to think of herself as exceptional?  When it comes to defense funding...is she really the exception rather than the rule?

Hey Orham, global warming is a far more clear and present danger than any foreign threat.  What shall it profit us to win a war but lose the Earth?

See...we could certainly duke it out...and attack each other with pages and pages of facts and figures...but it's not like the loser can allocate their taxes accordingly.  Doesn't that make you nervous?  It really makes me nervous.  Because people can't shop for themselves in the public sector...there's far less incentive to widely disseminate essential information.  Widespread ignorance, rational or otherwise, should make everybody nervous.

What's interesting is that most people reject pragmatarianism on the basis of perceived shortages.  But for most people...the shortages will actually be far smaller than they currently are.  They just don't realize it because they have no idea what the crowd truly values.

Eliminating demand opacity would ensure that shallow input never trumps deep input...

The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. The seasons during which the ability of private people to accumulate was somewhat impaired would occur more rarely, and be of shorter continuance. Those, on the contrary, during which the ability was in the highest vigour would be of much longer duration than they can well be under the system of funding. - Adam Smith, Wealth of Nations   

People wantonly calling for wars...that should sound familiar...

As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market.  A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. - Geoffrey Brennan, Loren Lomasky, Democracy and Decision

People should be free to wantonly call for wars (shallow input)...but if they want their wishes to come true...then they should have no choice but to reach deep into their own pockets (deep input).  This fail safe device will prevent any unnecessary wars.  And since no war is really necessary...pragmatarianism would result in world peace.    

Clarifying The Demand For Public Goods

[update] Please join the discussion: Demand Clarity Would Eliminate Corporate Welfare [/update]

Question

"How are we going to bust up big ag that has caused so much disparity?" - rabbitcaebannog, The Free Market religion needs to fall on its sword

Answer

We create a market in the public sector.  If people can choose where their taxes go (logistics) then we will see exactly what the demand is for farm subsidies...

This chart shows us what the demand for farm subsidies might look like.  As you can see, there's very little demand breadth because the benefits are extremely concentrated...

Those who think that central planning will promote economic progress are naive.  When business enterprises get more funds from governments and less from consumers, they will spend more time trying to satisfy politicians and less time satisfying customers.  Predictably, this reallocation of resources will lead to economic regression rather than prosperity. - James Gwartney and Richard Stroup, What Everyone Should Know About Economics and Prosperity

Their resources can be used in two ways: investment in capital goods that can be used to produce a product for sale in competitive markets, or investment in lobbying and bribing politicians and in trying to develop legislation that will protect firms from competition or provide them with a share of the public budget.  Under a large government, "political investment" can become relatively more profitable than "market investment," and a shift in investment from the market to the political arena should be expected.  In private competitive markets, a firm must appeal to buyers to enter mutually beneficial trades: in political markets it can enlist the power of the state to force people to give up part of their income for the firm's benefit. - Richard B. McKenzie , Bound to Be Free

Politicians exploit rational ignorance by conferring large benefits on certain constituents whose costs are widely dispersed and borne by the general population. Take the sugar industry. It pays the owners and workers to organize and tax themselves to raise money to lobby Congress for tariffs on foreign sugar. If they're successful, it means millions of dollars in higher profits and wages. Since they are relatively small in number the organization costs are small and the benefits are narrowly distributed. The Fanjul family, who owns large sugar farms in the Florida Everglades, capture an estimated $60 million annually in artificial profits. - Walter E. Williams, Rational Ignorance

My impression is that moves toward an economy with less open-market competition reflect a diversion of competition to the political process, as resort is made to greater governmental control over economic access to markets and terms of exchange.  Much of what passes for the new corporate economy should more accurately be called the new mercantilist, or the new “political” or politically regulated, economy, since it involves more political competition and the greater use of political rewards and penalties.  And this move to political influence has occurred in both small and large firm industries.  The “solution” (if such a “political” economy is a problem) usually is more political controls and political competition.  This is beneficial to those most adept at political competition, for they would benefit from increased demand for their services as political competition displaces market competition in controlling economic activity. - Armen A. Alchian, The Collected Works of Armen A. Alchian: Volume 2

Because the benefits of farm subsidies are so concentrated, if we implemented tax choice then it's highly likely that only a very small percentage of people will spend any of their tax dollars on them...

What a delicious prospect: a government office having to explain itself in order to persuade taxpayers to support its existence. The elements within the government that can make a persuasive case will do fine. Americans are not stingy or shortsighted. We will still have plenty of mine inspectors and curators. But who will voluntarily pay for the layers of bureaucratic barnacles that make up so much of the organization charts? Who will pay for the billions in subsidies that are doled out to agricultural, corporate and nonprofit special interests? Who will pay for the enormous pork-barrel projects? - Charles Murray, You Are What You Tax

If enough people don't pay for a public good (insufficient demand breadth)...then it won't be considered a public good.  As a result, people won't be able to spend their taxes on it.  

Another example is war...

There are multitudes with an interest in peace, but they have no lobby to match those of the 'special interests' that may on occasion have an interest in war. - Mancur Olson 

Going to war accelerated the move from indirect to direct rule. Almost any state that makes war finds that it cannot pay for the effort from its accumulated reserves and current revenues. Almost all war-making states borrow extensively, raise taxes, and seize the means of combat – including men – from reluctant citizens who have other uses for their resources. - Charles Tilly

In cases where a war has popular support (opinions, sentiment)...

As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market.  A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. - Geoffrey Brennan, Loren Lomasky, Democracy and Decision

...it's extremely unlikely that most people would spend any of their own money on it.  This is because talk is extremely cheap...which is exactly why we say that actions (spending) speak louder than words (voting).  The reality is that the multitude has a myriad of far more valuable/beneficial uses of their own money...

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is, I repeat, the best way of life to be found on the road the world has been taking. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron...Is there no other way the world may live? - Dwight D. Eisenhower

Another excellent perspective on the subject...

The essential act of war is destruction, not necessarily of human lives, but of the products of human labour. War is a way of shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea, materials which might otherwise be used to make the masses too comfortable, and hence, in the long run, too intelligent. Even when weapons of war are not actually destroyed, their manufacture is still a convenient way of expending labour power without producing anything that can be consumed. A Floating Fortress, for example, has locked up in it the labour that would build several hundred cargo-ships. Ultimately it is scrapped as obsolete, never having brought any material benefit to anybody, and with further enormous labours another Floating Fortress is built. In principle the war effort is always so planned as to eat up any surplus that might exist after meeting the bare needs of the population. In practice the needs of the population are always underestimated, with the result that there is a chronic shortage of half the necessities of life; but this is looked on as an advantage. It is deliberate policy to keep even the favoured groups somewhere near the brink of hardship, because a general state of scarcity increases the importance of small privileges and thus magnifies the distinction between one group and another. By the standards of the early twentieth century, even a member of the Inner Party lives an austere, laborious kind of life. Nevertheless, the few luxuries that he does enjoy his large, well-appointed flat, the better texture of his clothes, the better quality of his food and drink and tobacco, his two or three servants, his private motor-car or helicopter -- set him in a different world from a member of the Outer Party, and the members of the Outer Party have a similar advantage in comparison with the submerged masses whom we call 'the proles'. The social atmosphere is that of a besieged city, where the possession of a lump of horseflesh makes the difference between wealth and poverty. And at the same time the consciousness of being at war, and therefore in danger, makes the handing-over of all power to a small caste seem the natural, unavoidable condition of survival. - George Orwell

I've shown you charts that represent special interests...now, for comparison, here's a chart that represents what a general interest might look like...

Unlike with farm subsidies and war...many people will readily grasp the material benefit of spending their money on public healthcare.  We can see that, unlike with special interests, the demand for a general interest will be very broad.  This is because it will truly contribute to the well being of most people.

Consider this last passage...

The expenses of government, having for their object the interests of all, should be borne by every one, and the more a man enjoys the advantages of society, the more he ought to hold himself honoured in contributing to these expenses. - Turgot

Given the disparity between actions (spending/values) and words (voting/opinions)...the only way we can accurately discern how specific or general an interest truly is would be to create a market in the public sector.  If we do not clarify the demand for public goods then the interests of the many will continue to be sacrificed for the benefit of the few.  

Rational Ignorance: Cause, Consequence and Cure

Over on the facebook page for tax choice...Scott Thurston wrote...

How? If you give more responsibility to citizens they are more likely to research it? How does it naturally follow, and how is rational ignorance the logical consequence of the current system?

The current system takes the power of the purse away from the citizens and gives it to congress.  This means that taxpayers don't have the option to shop for themselves in the public sector.  So even if you take the time to research and study how effective the EPA is...no matter what you learn...you're not going to be able to change the percentage of your money that goes to the EPA.  Any effort to do so will greatly exceed the potential benefit.  This is why it's logical not to make the effort to learn about the EPA.

The consequence of rational ignorance is that benefits are concentrated and costs are dispersed.  The EPA will cater to special interests and the costs will be dispersed among the rationally ignorant taxpayers.

The cure is simply to implement tax choice.  Taxpayers don't want their hard-earned money to be wasted...so once they can shop for themselves in the public sector they'll make the effort to ensure that they get the most bang for their buck.  This requires due diligence.

Here are some passages on the topic...

It is often worthwhile for an individual beneficiary to find out the value of promised benefits, as these tend to be concentrated, and hence large for each beneficiary. But it is often not worthwhile for the individual voter to put any effort into calculating the costs of the financing of benefits, as these costs are highly dispersed, and hence small for the individual voter in each case. Indeed, it is likely that people are much less informed about such abstract macroeconomic matters as the 'excess burden' of taxes, than about their own, much more concrete needs for economic security in the future, even though the latter type of misinformation
is ofted used as an argument for compulsory social security (the 'paternalistic' argument). - Assar Lindbeck, Overshooting, Reform and Retreat of the Welfare State

People employ what economists call rational ignorance. That is, we all spend our time learning about things we can actually do something about, not political issues that we can’t really affect. That’s why more than half of us can’t name either of our U.S. senators. And why most of us have no clue about how much of the federal budget goes to Medicare, foreign aid, or any other program. Even if a citizen studies the issues and decides to vote accordingly, he has a one in a hundred million chance of influencing the outcome of the presidential election, after which, if his candidate is successful, he faces a Congress with different ideas, and in any case, it turns out the candidate was dissembling in the first place. Instinctively realizing all this, most voters don’t spend much time studying public policy. - David Boaz, What Big Government Is All About

Imagine buying cars the way we buy governments. Ten thousand people would get together and agree to vote, each for the car he preferred. Whichever car won, each of the ten thousand would have to buy it. It would not pay any of us to make any serious effort to find out which car was best; whatever I decide, my car is being picked for me by the other members of the group. Under such institutions, the quality of cars would quickly decline. - David Friedman, The Machinery of Freedom

Not only does a consumer have better information than a voter, it is of more use to him. If I investigate alternative brands of cars or protection, decide which is best for me, and buy it, I get it. If I investigate alternative politicians and vote accordingly, I get what the majority votes for. The chance that my vote will be the deciding factor is negligible. - David Friedman, The Machinery of Freedom

Externalities play an enormously greater role in institutions controlled by voting. If I invest time and energy in discovering which candidate will make the best President, the benefit of that investment, if any, is spread evenly among 200 million people. That is an externality of 99.9999995 percent. Unless it is obvious how I should vote, it is not worth the time and trouble to vote 'intelligently', except on issues where I get a disproportionately large fraction of the benefit. Situations, in other words, where I am part of a special interest. - David Friedman, The Machinery of Freedom

Before going to UCLA to do graduate work, I had been reading books and articles by Gordon Tullock, James Buchanan, and Anthony Downs. They had shown that the probability of affecting the outcome of a typical election was so close to zero that the expected value of voting was substantially less than its cost. Therefore, they concluded, there was no point in voting, no matter which way you would vote, even in a close election. - David Henderson, Voting, Public Goods, and Free Riders

Imperfect models of the complex environment that the politician (and constituent) is attempting to order, institutional inability to get credible commitment between principal and agent (voter and legislator, legislator and policy implementer), the high cost of information, and the negligible payoff to the individual constituent of acquiring information all conspire to make political markets inherently imperfect. - Douglass North, Understanding the Process of Economic Change

In a statewide election, the probability that a voter will be killed in an auto accident on the way to the polls is quite likely larger than the probablility that his vote will affect the outcome of the election. - Dwight R. Lee, Overcoming Taxpayer Resistance by Taxing Choice and Earmarking Revenues

In the real world, demand revelation meets with the same problem that has long confounded students of democracy. As Anthony Downs and others have shown, rational voters have little or no incentive to spend their time or effort gathering or providing information about their preferences. And even if the information were available, what is the incentive for a bureaucratic (monopolistic) supplier of a public good to give voters the greatest amount of value at the minimum of cost? - Edward H. Clarke, Demand Revelation and the Provision of Public Goods

If anyone insisted on deliberating with maximum scrupulousness every one of the economic acts he undertakes every day, if he insisted on rendering a judgment of value throughout to the last detail concerning the most trifling good that he has to deal with by way of receipt or expenditure , by utilization or consumption, such a person would be too much occupied with reckoning and deliberating to call his life his own. The correct maxim and the one which would be observed in economic life is "Be no more accurate than it pays to be." In really important things, be really exact; in moderately important things be moderately exact; in the myriad trifles of everyday economic life, just make the roughest sort of valuation. - Eugen Böhm-Bawerk, Capital and Interest

Since each person has a fixed number of votes - either 1 or 0 - regardless of the amount of information he has and the intelligence used in acting on this information, and since minorities are usually given no representation, it does not "pay" to be well-informed and thoughtful on political issues, or even to vote. - Gary S. Becker, The Economic Approach to Human Behavior

Although choices in the private sector are also affected by advertising and other selling activities, rational individuals become reasonably well informed about most private decisions because they and their families usually bear the main consequences of their mistakes. The incentive to become well informed about political issues is weaker because each individual has only a minor effect on political outcomes decided by the majority (or by similar rules). Hence the average person knows far more about supermarket prices or the performance of cars than about import quotas or public wages. Although rational political behavior has appeared to be contradicted by widespread voter ignorance and apathy, the opposite conclusion is justified because rational voters do not invest much in political information. - Gary S. Becker, A Theory of Competition Among Pressure Groups for Political Influence

This greater complexity of political choice is compounded by an inability to gain from any investment in knowledge. In a market setting, a person can gain by storing food during the boom periods; it is a simple task to profit directly from knowledge. In a political setting, however, even if a person has acquired knowledge about the more complex question of "why," there is no way that he can profit from his knowledge because a change in policy will take place only after a majority of people have come to the same conclusion. Consequently, it is rational to be considerably more ignorant about general policy matters than about matters of market choice. - James M. Buchanan, The Theory of Public Choice: II

In addition to the uncertainty factor, which can be readily understood to limit the range of rational calculus, the single individual loses the sense of decision-making responsibility that is inherent in private choice. Secure in the knowledge that, regardless of his own action, social or collective decisions affecting him will be made, the individual is offered a greater opportunity either to abstain altogether from making a positive choice or to choose without having considered the alternatives carefully. In a real sense, private action forces the individual to exercise his freedom by making choices compulsory. These choices will not be made for him. The consumer who refrains from entering the market place will starve unless he hires a professional shopper. Moreover, once having been forced to make choices, he is likely to be somewhat more rational in evaluating the alternatives before him. - James M. Buchanan, Gordon Tullock, Individuality Rationality in Social Choice

In markets for private goods, consumers internalize the benefits and costs of their purchases. If you don't like your new car or the cup of coffee you've purchased, you have an incentive to spend more time comparing alternative brands of cars and coffee, and adjust your behavior accordingly. But if a new kind of pollutant is thought by scientists to deplete the earth's ozone layer, to warm the planet, or to threaten the ecosystem of an endangered species, there is little reason for most people to study the issue carefully, since each person's consumption choices have a negligible impact on whether the atmosophere is altered, or another species becomes extinct. This line of reasoning suggests that ignorance by respondents to CV surveys is not anomalous; it is a predictable fact explained by the incentive structure of public goods problems. - Jonny Anomaly, Public Goods and Government Action

Overall, government action seems likely to reduce the robustness of institutions and to exacerbate collective-good problems because removing the ‘exit’ option prevents individuals from judging how their personal contributions affect outcomes. When taxpayers who fund failing programmes cannot exit with their own money, then the only form of accountability left is that of democratic voice. Yet, given the minuscule chance of affecting the result of a large-number election it is rational for voters to remain ignorant about the relative effectiveness of specific programmes. It is precisely this ignorance that may allow opportunistic behaviour to go unchecked. - Mark Pennington, Robust Political Economy

Where citizens have little choice about the quality of public services supplied to them they will also have little incentive to do anything about it. The costs of attempting to do anything about the services they receive are likely to exceed any tangible benefit that they themselves will receive. As a result, individuals face situations in which anticipated costs exceed anticipated benefits. The rational rule of action in such cases is to forego the "opportunity" to accrue net losses. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

Public choice theory, developed by George Mason University Professors Gordon Tullock and James Buchanan, recognizes that the probability of any voter's ballot making any difference in the outcome of any election, including last year's Florida election, is essentially nil. In other words, the only way my vote changes the outcome of an election is if my vote breaks a tie and the probability of a tie is close to zero. - Walter E. Williams, Rational Ignorance