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mudcub

I Am A Wild Blue Beast

(Zulu)

So You Wanna Be A Dictator?
I've been thinking a lot lately about the Dictator Game. It's a psychological experiment where one person plays the role of a "dictator". There is another person called the "charity" in a separate room who can't see the experiment. The dictator is given an amount of money, like \$50. They can choose to split their money with the unseen charity person, give a partial amount like \$5, give it all away, or they could take everything. The charity person will never know who the dictator was.

One important theory in economics is that individuals try to maximize their own well being. In this model, the dictator would always take the entire \$50. Instead, most trials of this experiment show the dictator taking most of the money, but still giving about a third to the charity. The Dictator Game is used to disprove the idea of rationality in economics, and has a lot of variations that try to show the ideas of altruism, trust, or revenge.

If I ever played this game, I'd split the money 50/50. Each of us would get \$25. But then, I thought... what if there was a whole classroom of 100 subjects who all got to be the dictator, and only one charity? If everyone used my theory, the charity person would get \$25 * 100 = \$2,500! While all the rest of us got only \$25, (which is one percent compared to the lucky charity person).

So, I decided that the amount I would give as dictator would be dependent not only on my own choices, but a guess at what everyone else would do. Plus, I might take into account the need of the charity. For example, let's say the whole classroom is going to go to the circus! Whoo! The circus! And \$10 out of the \$50 will be used for admission.

One idea is to achieve complete economic equality. Put everyone's money into a bucket (\$50 * 100 = \$5,000) and then divide it out equally among the dictator and the charity person (5000/101 = \$49.50). Of course, that idea completely negates the idea of the Dictator Game... all dictators are forced to contribute everything.

Or, maybe the goal would be to make sure the charity person got enough to attend the circus, but not too much. Let's say \$10 for admission, and another \$10 for food. Then, each dictator just needs to contribute (20/100 = twenty cents). Two dimes, and the entire class of 101 people can all attend the circus.

You may guess where I'm going with this.

The poverty line in the US is currently set at \$10,830. For each additional member of the family, add another \$3,740.

Really? Could I live off of \$902.50 per month? Definitely not in New York City! How about two people living together for \$1,214.16 per month? That sounds better, especially if they could split all expenses, rent a single room in an affordable city, and health care was somehow magically a lot cheaper.

There are 307,006,550 people in the US. An estimated 13% to 17% of them live below the poverty line. That's 40 to 50 million americans. Luckily, the rest could contribute money to raise them out of poverty, much like the Dictator Game. That's 5/6 of the people paying so the other 1/6 can live.

Of course, not everyone in poverty would need an additional \$10,830. Some people would only need a thousand or so to put them over the line:

 Amount Earned Number of People Average amount needed Total amount needed (ave amt * # people) Under \$2,500 12,945,000 \$9,580 (\$10,830-\$1,250) \$124,013,100,000 \$2,500 to \$4,999 7,408,000 \$7,080 (\$10,830-\$3,750) \$52,448,640,000 \$5,000 to \$7,499 9,980,000 \$4,580 (\$10,830-\$6,250) \$45,708,400,000 \$7,500 to \$9,999 11,496,000 \$2,080 (\$10,830-\$8750) \$23,911,680,000 41,829,000 \$246,081,820,000

So, the 265,177,550 people in the US living above the poverty line have to come up with \$246 billion dollars. That comes out to \$927.00 per person. That's a lot less than I expected.

One of the big questions is if rich people would pay more than a thousand dollars a year. For example, someone barely above the poverty line making \$11,000 will have a lot harder time coming up with an extra thousand than someone making \$4 million. To the millionaire, a thousand bucks is chump change.

A flat tax would have each person pay a little over 3% of their income. Or 4% if you only count the income over the \$10,830 poverty line. So, the guy making \$11,000 is taxed on \$11,000-\$10,830 = \$170 (paying \$6.80 per year), while the \$4 millionaire pays (\$4,000,000-\$10,830) * 4% = \$160,000. Our current tax system has a graduated scale with special deductions, loopholes, and "alternative minumum tax" soft spots to allow certain groups to pay less. if you want to know why our tax code runs to thousands of pages, it's because human beings are busy little creatures that find ways to pay as little tax as possible.

The average median income in the US is \$49,777. That's a little misleading, since really rich people throw off the average. As the joke goes... if you and me and Bill Gates were in a room, on average we would all be billionaires! But using this median, the average US person would pay ((\$49,777-\$10,830) * 4%) = \$1,557.88 for charity every year.

If that sounds like a lot of money, consider this: if life was the Dictator Game, the average american would get \$50 and turn around and contribute \$1.50.

Hi! Thanks for the comment. You're right... I was mixing up my numbers. I was quoting household income. Personal income is a little different.

"The overall median personal income for all individuals over the age of 18 was \$25,149 (\$32,140 for those age 25 or above) in the year 2005"

"In 2006, the "real" (adjusted for inflation) median annual household income rose 1.3% to \$50,233.00 according to the Census Bureau. The real median earnings of men who worked full time, year-round climbed between 2006 and 2007, from \$43,460 to \$45,113 (about 3.6 time minimum wage in 2006 to 3.7 time minimum wage in 2007). For women, the corresponding increase was from \$33,437 to \$35,102 (2.8 and 2.9 times minimum wage respectively). The median income per household member (including all working and non-working members above the age of 14) was \$26,036 in 2006."

Edited at 2010-11-19 07:22 pm (UTC)

The correct answer for your circus example should be 20 cents. The first 100 dimes would pay the \$10 entrance, and the second 100 dimes the \$10 for food. In either case, not a massive expenditure on the part of the majority. (I'm being nitpicky and should be shut up. Where's my muzzle when I need it >.>)

No, it was a good catch! Corrected in the above post.

When I first started thinking about the Dictator Game, I started asking myself basic questions: how many poor people are there in the US? How much does the average citizen pay in taxes? Where does the money go?

And I became swamped by details. Are we talking about dollars adjusted for inflation? Post- or pre- tax? Are we considering taxes paid by corporations?

I would love to see an ecoomuic theory that could be written on the back of a postcard. But as I noted... any time you do things like the "flat tax", people will find ways of reducing their income (i.e. hiding it in trusts, getting contributions "in kind"... as when your company buys your house for you instead of paying you a salary and voilà! No tax)

To me, it comes down to agreeing on a goal. As americans, do we want to feed and clothe all our citizens? Do we want to make sure everyone has a bare minumum of education and health care? If the answer is "yes" then all other questions are social engineering IMHO

Edited at 2010-11-19 07:45 pm (UTC)

In that case, the average american would pay ((\$25,149-\$10,830)*0.04) = \$572.76 per year towards charity. If they were a dictator who was given \$50, they would be paying back \$1.14