Saturday, June 03, 2006

The Rawls Experiment, Part II: It was an open bar...

A friend here in Raleigh (though soon moving to DC), sent the following email:

Okay, I was a bit loosey-goosey with the methodology but consider the following field data. (It was an open bar, I moderated and participated, there is no way to repeat the test under the same conditions etc.)

Last week we hosted state regulators for four days of economics boot camp. One evening, before loading everyone up on a bus and carting them off to an awesome dinner at La Cantina in downtown Aspen, I borrowed (with attribution) your classroom experiment. (for those interested in the Munger version, look here)

The scene: half a dozen state regulators; approximately half a dozen professional academics with backgrounds in law or economics (NIE and experimental folks) and myself. We had two extra tickets that given the outcome of the vote, I decided to just throw into the "pot."

I proposed the following rules for our experiment: a) anyone may opt out; b) if you opt out, then you may not vote; c) a vote would be taken to establish a rule of action which would be binding on everyone and a simple majority would carry the vote; d) the vote was to determine if we would socialize the winnings of 15 lottery tickets and share the prizes equally or if we would each take an individual property right in a randomly assigned $1 scratch ticket that I had purchased and would provide at no cost; e) warehousing was disallowed -- everyone would scratch at the same time and we would pass out any winnings at dinner.

Everyone wanted to participate. Only two people voted to have individual risk-reward and 11 (5 of 6 regulators and all of the academics) voted to socialize benefits. After the vote, a few enterprising folks discovered that there was a 1 in 4.68 chance of breaking even on any given ticket. After scratching, we had two tickets win $1 each and one ticket win $40.

Net result: A recently tenured assistant professor from George Mason voted to socialize winnings and as a result "lost" out on $36+ while everyone else came out ahead. As a sample, I'm willing to go out on a limb and generalize to say that regulators and academics are willing to take low payoff/high probability options over high payoff/low probability options. Your students were less risk averse. We can hypothesize as to where Rawls influence lingers the most.

Recovery: I had anticipated the "lessons" of the experiment to be things like how consumers are capable of making decisions with limited information, the decision rule (simple majority v. unanimity v. super majority) was important, and while socializing risk and reward may help some people, it comes at a cost to others. If these points failed, I planned to simply say "Boy that was fun; let's go eat." But given the circumstances and outcome, I focused on the decision rule, the transaction costs that would have ensued if we needed unanimity and externalities since some folks volunteered that their vote would have changed had it been their dollar plunked down on the ticket.

Discussion tid bit: Several people commented during the discussion that they were slightly worried about how they would "look" or "feel" if they won a hundred dollars but had voted to keep it all to themselves since the whole experience was "random or by chance." It was observed that this "feeling" would have dissipated if they had earned their lottery tickets or paid for them. This social pressure sparked a short investigation of rational but non-profit maximizing behaviors in the marketplace.

Anyway, I'm just a policy guy trying to change the world a bit at a time. And, I don't mind a little fun and a good dinner at La Cantina. I have no regret about the methodological sloppiness although the lopsided vote suggests that the program is not being as successful as I had thought in instilling the virtues of property rights etc.

Thanks to Kent Lassman, and good luck serving the public weal.