Self-Interest

Contrary to economic theory, each person pursuing their own self- interest produces a miserable world.

To illustrate, consider this story:

Once upon a time, in a land not too far from reality, there lived a clever politician. This particular politician was an economist and a statistician, and he decided to use his knowledge to win an election.

In this particular nation, as with many nations in the early days of democracies, there was no secret ballot. Therefore he made the following proposal to the electorate:

"Dearly beloved, I have an excellent proposal for you. For each and every person who votes for me, I will pay them $100. After I am elected, I promise to raise a tax levy of $1000 per person. This tax revenue will be used to pay for my new mansion, my new yacht, my new swimming pool, and other things that a smart fellow like me deserves."

Dear reader, if you lived in this nation, would you vote for him? Here is his explanation of why you should:

"It's simple," he says, "you simply calculate the expected value of each alternative."

Expected Value =
odds of achieving an outcome
x
dollar value of the outcome

"A rational person will chose the alternative which yields to him the greatest expected value."

"If you vote for me, the odds of earning $100 are 100%. If you do not vote for me, the odds of earning $100 are 0%."

"The odds of me being elected and adding $1000 to your taxes are unknown. You cannot predict how others will vote, and your own vote will have a negligible effect. Therefore you can consider the election to have a random outcome. There is one other candidate, so there are two possible outcomes. Either he will be elected or I will. In other words, the odds of me being elected are one in two, or 50%."

"Now, the expected value of your financial position can be calculated as follows:

If you vote for me:

Expected value

= (100% x $100) + (50% x -$1000) = -$400

If you vote against me:

Expected value

= (100% x $0) + (50% x -$1000) = -$500

"Clearly the rational person must vote for me, because he can expect to lose only $400 instead of losing $500."

So, are you a rational self-interested person? Would you vote for him? He is waiting right now to give you your $100.

If you don't vote for him, why not? [Click the Vote button beside this topic and tell us your answer!]