Suppose there is a group of 20 children in the class, and they all like apples. Would you rather….
a) give one apple to each of the 20 children
b) give three apples to a random 10 of the children, and nothing to the other 10
Which do you choose?
Option (a) looks fairer, because each child gets the same. Yet each child only gets one apple. 20 apples in all.
Option (b) looks less fair, because the apples are not equally distributed. Yet it holds the possibility of a better outcome, because now there are 30 apples in play, and perhaps those with more than one apple will choose to share. Potentially everyone could get one and a half apples now, if all the lucky children are feeling generous. Or maybe everyone gets at least one, like in (a) but some children will still get two.
Perhaps the children will collude to choose (b) with an agreement that all the children receiving 3 apples will give one to a child with no apple. Nobody is worse off, and half the children are better off.
Consider instead if the 20 children now get to vote in advance on which option to for them collectively to choose. Which way will they vote?
Would adults choose any differently?
What is actually the best outcome?
Rational expectations should lead everyone to vote for option (b). Under option (a) the expected return is 1 apple. Under option (b) the expected return for each person is (50% x 0) + ( 50% * 3) = 1.5 apples. But many will still choose option (a) presumably because they are prioritising the demonstration of fairness and equality ahead of the possibility of extra apples.
Now consider if the 20 recipients are actually strangers to each other. Never to meet, never to know each other. Now when these strangers vote, will their vote be different? And if (b) is the chosen outcome, and I am the lucky recipient of 3 apples, will I be more or less likely to share?
The resolution of who gets to trade in a market with non-fixed prices is similar. The free marketeer theorists (like Rothbard) assume that the optimal solution is the high bidders and low sellers all trade at the equilibrium price, and the low bidders and high sellers get nothing. But there is another solution where the high bidders trade with the high sellers and the low bidders trade with the low sellers. Almost everyone gets to trade, each at a price acceptable to them. The sum of the profits is lower, yet more equally spread.
(The high bidder / low seller scenario could be seen to favor those already wealthy. Who may be assumed to be less price sensitive, and thus willing to high bid or low sell in order to make the trade.)
RJ7: Nov 2023