Rational / Utilitarianism

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Rational / Utilitarianism

• Paradoxes of rationality

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Mancur Olson

• Mexican migrant workers
• Fire in a theater
• Urban sprawl
• Problem of Collective Action
• Benefits of collective good are available to
  everyone.
• Costs are experienced individually
• Leads to free-riding.
• Additional problem of small inputs Individual
  contributions is too small to make a difference.

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Collective Action Problem

• Solutions
• Power
• Selective incentives
• Small group size

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Prisoners dilemma

• Dont confess, partner doesnt confess 0yrs
• Dont confess partner confesses 10yrs
• Confess, partner doesnt confess 1yr
• Confess, partner confesses 5 yrs.
• Solutions trust, norms, ideologies.

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Prisoners dilemma

• Basic point Suboptimal outcome because of lack
  of coordination. Each actor I worse off because
  of lack of trust and communication.

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Other deviations

• Transaction costs lead to contracts.
• Small inputs leads to bunching of choices

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Policy implications

• James Buchanan on budget deficits.
• James Coleman on investment in children.

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Thomas SchellingTacit coordination

• There are ways that coordination can take about
  without direct communication if there is a
  salient feature in the environment focal
  points.

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March and Simon

• Solution is Optimal when
• All alternatives can be clearly compared.
• One alternative is clearly preferable.
• Solution is satisfactory when
• There are criteria describing minimally
  satisfactory alternatives.
• Alternative meets these criteria.