A lesson in Game Theory: Nationalism, NIMBYism, and Public Schools.
Three seemingly unrelated topics all come down to a single factor in human decision making, and that is given a choice, individuals will always prefer outcomes which they believe are beneficial to themselves at the expense of others. Let’s look at a simple example through the eyes of game theory.
A town is considering building college dormitories. The town will experience an overall increase if the housing is built, but of the 4 sites they are proposed in, the noise and nuisance of college students will cause those housing prices to drop slightly. The sites can choose to share construction instead. So what’s the best choice? For each site, consider the following outcomes.
- If the voters in a site vote in favor of housing on their site, but the other sites do not, their housing prices drop dramatically.
- If the voters in a site vote in favor of housing, and the other do as well, there is a small increase in housing prices.
- If the voters in a site vote against housing, but the other also do. There will be zero increase in housing.
- If the voters in a site vote against housing, but the other site votes to allow housing, there will be a huge increase in housing prices.
So what is the right strategy in this case?
Let’s look
In this payoff matrix, the dominant strategy would always be “Don’t build”. Why? In a Nash equilibrium the dominant strategy exists when neither player can improve their position by themselves from the current choices. At all 3 choice sets where someone builds, a site voter can improve their personal results by choosing to not build. This will result in no one building. This problem is described as the free rider problem in game theory and is at the heart of the three issues we face as a society today.
Nationalism. On the issue of nationalism, no issue is more obvious than immigration. While a society as a whole benefits from immigration, the community which accepts immigrants, especially low skilled immigrants, generally suffers from higher tax rates, and potentially higher crime rates (depending on crime rate differential between the two countries). This usually results in no single region in a nation wanting to accept new immigration. Also, as the penalty gets larger for accepting immigrants, such as from increased social welfare spending, the penalty becomes far worse and eventually leads way to what we have seen in the UK recently.
On NIMBYism, the main issue here is housing and transit. In a region with multiple governmental authorities, no single municipality wants to build new housing due to lowering the potential gains realized by their voters by not building. The resolution here involves coordination and negotiation, but that becomes increasingly complex as the number of parties involved increases which can result in political housing gridlock like in the bay area california.
And finally, on public schools. Access to the best schools usually results in higher housing prices. Once the market has reached an equilibrium, no voter is willing to risk their current public school choice and thus we are left with a tier of schools based on geography. This also distorts the housing market as well.
What is the solution? The solution is compromise. If two actors are faced with a single decision, they will always vote in their self interest, but if two actors are given two decisions and can negotiate and package those decisions together, then both cities can gain benefits, while taking the costs of of the other. A good example of this might be San Francisco willing to build more transit, in exchange for east bay communities building more housing, etc etc. For nationalism, the solution is much more complicated given there is often nothing to negotiate with, instead politicians should attempt keep immigration levels in line with how their voters view the benefits and costs of immigration, or they risk losing elections.
I know this was short, but I hope it provided a brief look into how individual decision making results in bad decisions for a community, but that we can use compromise to reach better outcomes for everyone.
