Monday, October 7, 2013

Relieving Suffering, Utility Curves of the Rich, and Resource Constraints

There are several concepts in here that I'd like to develop into full-blown posts - I think they are relevant to macro-economic decisions and decisions on the environment and future of humanity. They could also be cast from a "How to Measure Anything" perspective (for example, there might be some common determinants for whether someone is likely to become rich).

The possibility of a low or negative time discount rate could be the most important conceptual problem that we currently face. The implication of a real negative rate but a working real positive rate would be a mis-allocation of resources on a global scale that would result in a major die-off in humans - a sort of Malthusian moment. A negative real interest rate is a conceptual problem because humans are biased toward valuing the present over the future. A self-imposed negative personal discount rate is likely impossible - but we can probably achieve a synthetic negative personal time discount rate by demonstrating that future suffering will be greatly alleviated with low cost decisions made in the present.

Why do we prefer a $ now to a $ in the future?
1.       1) Because there are things I’d like to do with the $ now that will produce a stream of benefits – if I had the  dollar now as opposed to $ a year from now, there would be a year longer of benefits to enjoy.
2.      2) The younger I am, the more acute my senses and so the greater the sense of enjoyment I get.
3.       3)There is a chance I will die before the benefits would come.

If I die, then does the value of a $ drop to zero? Well I think we can safely assume somebody else would receive that $ instead of me – it would come from somewhere so either the entity giving it to me or one of my heirs would receive the $ instead of me, so the value of the dollar doesn’t drop to zero, but it becomes a little bit hard to conceptualize.

So we go from something easy to conceptualize (a $ now versus a $ one year from now) to something difficult to conceptualize ($ now versus $ benefit to the human race/my progeny in the distant future). It might be a little easier to conceptualize if we think of the enjoyment we get from $1,000 – so it would $1,000’s worth of utility now versus $1,000 worth of utility in the future. We could also translate it into some real object – say 10 barrels of oil or 300 gallons of gasoline.

And we might be able to get a sense of utility curves related to after death by asking questions about utility going anonymously to strangers: if nobody was aware of your decision would you rather give $1,000 worth of benefit to 10 strangers or get $1,000 of benefit yourself? What about 100 strangers? What about 1,000 strangers? What about 10,000 strangers? 5 billion strangers? Keep in mind that the $1,000 would probably mean the difference between life and death for some of these strangers.

Additionally we can get some idea of how much people care about giving money to their progeny by comparing $1,000 benefit to self versus $x benefit to children…$x benefit to grandkids…$x benefit to niece/nephew…$ benefit to niece/nephew’s children?
Children = 50% genetic relationship…grandkids = 25% genetic relationship….niece/nephew = 0-50%, BE 25% genetic relationship…niece/nephew kids = 0-25% BE 12.5% genetic relationship

Another interesting experiment would be to see how people changed these answers depending on their perception of who was receiving the $. Are they relieving suffering? Are they increasing suffering? If you give the $1,000 to a self-absorbed consumer addict or a meth addict could you actually be increasing suffering?

And thus I think we arrive at a bit of a problem – there are individuals (self-absorbed consumerist or meth addict) who perhaps increase their suffering by having more resources but who are also the least likely to perceive a value in giving their resources to others who might decrease their suffering with it.

Also, the choice of people to give anonymously to those who are suffering would be surprising unless you consider that people are incorporating how much suffering they are relieving – that is the utility of the recipient into their decision.

One other interesting thought – the rich are often those who can delay gratification, usually through a combination of a lack of consumption and an ability to work hard (i.e. do unpleasant tasks in the present). These are the same people who (generally speaking) would be most likely to intelligently marshal resources, or put another way their marginal propensity to save is high – that is the poor are often those who would immediately increase consumption. In a resource constrained world, a large increase in real spending power for the masses is simply a physical impossibility. 

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