No Free Rides (Major Post 2)

Imagine you live in a small, growing community known for its very family-friendly, suburban neighborhoods. Due to the increasing number of families moving into the area, local government and other public officials have decided to expand the current public school system. But in order to finance the plans, all residents would have to face higher taxes. Now all we have to figure out is how much should each citizen have to pay?

Should the costs be split equally among everyone in the community? That would seem fair, right? Well, is this solution fair for the Matthews family down the street who send all three of their children to the private high school in the city? They'll get no use out of the school system. What about the Johnson couple who retired last year and are now living on a fixed income? All their children have grown up and left the nest. Should they have to help finance the expansion plans? What about the Chin family? They have twin girls and a younger son all in the public school system? Since they have multiple students currently in the school system, shouldn’t they pay a higher amount than families with one, two or no kids in school?

This simple example outlines the complexities of a long time problem economists have been trying to solve for centuries. The free-rider problem is a result of individuals wanting to consume more than their fair share of a public good or wanting to contribute less than their fair share to the costs of the good's production. How does this problem arise? Well, the situation depends on how much everyone values the good – based on each individual’s utilization of the good and how much each person benefits from it. The most rational approach would call for everyone to pay an amount proportionate to how much they truly value the good. In doing so, project financing could easily be raised and everyone would be happy. Simple, right? So all governments and other committees have to do is ask everyone how much he or she values any public good. But there's just one little problem…most people happen to be very good at lying, especially when it pays off to do so.

Exactly, why would people try to lie? I think the better question is why wouldn't people lie? If highly valuing a public good means paying a higher price for it, why would you want to tell the truth? In the end, if the good obtains the necessary financing and is produced, you would still benefit from it at a cheaper price than you could've/would've/should've paid. In the example above, common sense would determine that families with children that attend the public schools in the community should pay more taxes than those families who would not be utilizing the school system at all. Furthermore, families with multiple children within their household should pay higher than other families with less children in school. Therefore, in order to make an optimal decision, leadership groups need to know how much everyone values a public good. But how would you collect the true value individuals place on certain goods?


Leave it to neurologists to find a resolution. Neuroscientists at CalTech performed a study where they used functional magnetic resonance imaging (fMRI) to track brain activity. In the experiment, participants were given values for different situations that were randomly chosen from a uniform distribution of low values or high values. Scientists were unaware of this figure, but then asked each person if their value was “low” or “high.” The incentive to tell the truth was that for every hypothetical public good that was produced (which was a maximum of half of all the situations due to the parameters of the experiment), participants received a cash reward that correlated to their allotted value. The only way that public goods were produced was if the reported values of all participants exceeded the costs. During the entire process, brain activity of each person was being tracked (A detailed explanation of the experiment can be found here). Researchers found that about 60% of the time, the neuroscientists could predict, from the brain image, whether the “low or “high” value reported by the individual matched the actual figure they were shown.

With this technology, neurologists are able to detect certain areas of the brain that are being stimulated which signify whether an individual has a high or low value for a good in question. Of course, there is no way for an fMRI machine to detect a specific monetary amount, but it does help to deter people from lying about how much he or she values a good. If individuals knew that there was a good possibility they would be caught if they lied, it’s likely they wouldn’t lie in the first place. This probability also increases when individuals find out that lying will lead to consequences, like an increased tax. Such rules and outcomes were established in the experiment, and scientists found that these parameters motivated participants to tell the truth 98% of the time. Therefore, this type of equipment can make great advances in solving the elusive free-rider problem.

If you’re thinking this is just some fancy type of lie detector, you might get your head bitten off. One of the scientists strongly states that this experiment is not about detecting lies, instead, it is about detecting values through brain activity and comparing them to reported values. The scientists were not trying to prove that they can spot when people are lying, but rather predict how much an individual truly values a public good.

After reading the article (gated) and the supporting material, I have a few issues with the experiment. Firstly, if you read the details of the experiment, information is disclosed to all participants that a higher average payoff is more likely to be received if they were all to tell the truth. Lengthy probability equations and complex tables and graphs could persuade anyone to always tell the truth in the experiment, especially if people were participating just to make a quick buck. Therefore, results could be bias since variation would be quite small.

Also, in the experiment, participants were provided a random figure as their value, but I wonder if results would be different if individuals were expected to determine a value on their own? Being given an exact figure is quite different than generating one, especially since most people can’t pick an exact figure when evaluating a public good. Moreover, there are numerous external factors in the real world that could affect how someone values a good. Among them are personal income, discretionary spending, household members, location, number of consumers, etc. Just because a person values a good highly, does not mean they have the means to pay a proportionate amount for it.

Finally, I question the actual role of the fMRI machine. A 60% success rate of predicting participants’ results isn’t extremely efficient and causes one to ask if participants only refused to “free ride” because they were threatened by the daunting presence of an impressive piece of machinery and guys in lab coats. If intimidation is key, it is really worth all the hassle? A simple lie detector test would be much quicker to perform and require a lot less effort – I imagine that the costs for fMRI tests are pretty high in comparison to a simple polygraph machine. I think the experiment is a great step towards solving the free-rider problem and opens up numerous doors towards combating the issue, but if a couple of burly club bouncers can fill the shoes of an fMRI machine, I think neuroscientists can find better things to do with their time. Overall, I’m impressed by the experiment and its findings are very telling, but real world application of the entire process is just a little implausible in my opinion.