Chapter II Flashcards
tragedy of the commons
the overuse of a shared resource leading to the degradation of the resource for everyone
tyranny of small decisions
where a series of small, individually rational decisions ultimately leads to a system-wide negative consequence. “Death by a thousand cuts”
free rider problem
where people use a resource without paying for it. Think corporations and taxes
herd immunity
when vast majority of people are vaccinated against a disease, most people are immune from infection since the disease has few hosts to spread
externalities
consequences, good or bad, that affect an entity without its consent, imposed from an external source
spillover effect
happens when an effect of an activity spills over outside the core interactions of the activity.
EX: Secondhand smoke, buying a car and commuting adding to congestion of traffic for others, neighbors listening to loud music affecting sleep
coase theorem
how to internalize negative externalities efficiently without outside intervention:
1. well defined property rights
2. rational actors
3 low transaction costs
moral hazard
where you take on more risk once you have information that encourages you to believe you are more protected
principal-agent problem
where self-interest of the agent may lead to sub-optimal results for the principal across circumstances
ex: real estate agent pushing seller to take first offer because marginal difference in their cut
asymmetric information
where one side of a transaction has different info than the other side
adverse selection
when parties select transactions that they think will benefit them, based at least partially on their own private information
ex: people who need dental work are more likely to seek out dental insurance
goodharts law
when a measure becomes a target, it ceases to be a good measure. When you try to incentivize behavior by setting a measurable target, people focus primarily on achieving that measure, without giving thought to the larger goal
streisand effect
when you unintentionally draw more attention to something when you try to hide it
hydra effect
when an attempted solution actually makes the problem worse
observer effect
where there is an effect on something depending on how you observe it, or who is observing it
ex; when everyone is on their best behavior when the boss is walking around
