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8 How Society Works
8.1 The Challenge of Cooperation
To understand the nature of “social dilemmas”, let us now discuss what it actually
takes to produce “collective goods”. For this, let us assume that you have to engage
with others to create a benefit that you can’t produce by yourself. In order to produce
the collective good, we further assume that everyone invests a certain self-determined
contribution that goes into a common “pot”. However, the size of these contributions
is often not known to the others (and might actually be zero). The common pot could
be a fund or also a tax-based budget. If the overall investment reaches a sufficient size,
a “synergy” is created whereby the resulting value is higher than the initial investment.
To reflect this, the total initial investment is multiplied by a factor greater than one.
Finally, let’s assume for simplicity that all can equally benefit from the “collective
good” (such as a public road) independently of how much they contributed (e.g.
how much taxes they paid). Under these conditions it can happen that someone
gets a benefit without contributing to the collective good, i.e. without making an
investment.
In such social dilemma situations, creating benefits requires investments, but the
outcome is uncertain. No individual can determine it alone. Specifically, if everyone
invests enough, everyone will profit from the synergy. If you invest a lot while others
invest little, you are likely to incur a loss. If you invest a little while others invest a
lot, you may profit more than others. But if everyone invests only a little, the overall
investment is too small to create a synergy effect and everyone will be worse off.
In such scenarios cooperation (contributing a lot) is risky, while free-riding
(contributing little) is tempting. This discourages cooperative behavior. If the situation occurs many times, cooperation will be undermined and a so-called “tragedy of
the commons” will result. Then, only a few will invest and nobody can benefit. Such
situations are known, for example, from countries with high levels of corruption and
tax evasion. Although cooperation would be beneficial for everyone, it breaks down
in a similar fashion as free flowing traffic breaks down on a crowded circular track.
2
This happens because the desirable state of the system is unstable.
8.2 When Everyone Wants More, but Loses
“Tragedies of the commons” occur in many areas of life. Frequently cited examples
include the degradation of the environment, the abuse of social welfare systems, and
climate change. In fact, even though probably nobody wants to destroy our planet, we
still overexploit its resources and pollute the Earth to an extent that causes existential
threats.
3 As measured by the “environmental footprint”, many humans consume more
resources than are being (re-)created, which leads to a globally unsustainable system.
Moreover, although nobody would want to wipe out a species of fish, we are facing
2 See the movie at https://www.youtube.com/watch?v=7wm-pZp_mi0.
3 For example, a safe way to store nuclear waste has still not been found.
8 How Society Works
8.1 The Challenge of Cooperation
To understand the nature of “social dilemmas”, let us now discuss what it actually
takes to produce “collective goods”. For this, let us assume that you have to engage
with others to create a benefit that you can’t produce by yourself. In order to produce
the collective good, we further assume that everyone invests a certain self-determined
contribution that goes into a common “pot”. However, the size of these contributions
is often not known to the others (and might actually be zero). The common pot could
be a fund or also a tax-based budget. If the overall investment reaches a sufficient size,
a “synergy” is created whereby the resulting value is higher than the initial investment.
To reflect this, the total initial investment is multiplied by a factor greater than one.
Finally, let’s assume for simplicity that all can equally benefit from the “collective
good” (such as a public road) independently of how much they contributed (e.g.
how much taxes they paid). Under these conditions it can happen that someone
gets a benefit without contributing to the collective good, i.e. without making an
investment.
In such social dilemma situations, creating benefits requires investments, but the
outcome is uncertain. No individual can determine it alone. Specifically, if everyone
invests enough, everyone will profit from the synergy. If you invest a lot while others
invest little, you are likely to incur a loss. If you invest a little while others invest a
lot, you may profit more than others. But if everyone invests only a little, the overall
investment is too small to create a synergy effect and everyone will be worse off.
In such scenarios cooperation (contributing a lot) is risky, while free-riding
(contributing little) is tempting. This discourages cooperative behavior. If the situation occurs many times, cooperation will be undermined and a so-called “tragedy of
the commons” will result. Then, only a few will invest and nobody can benefit. Such
situations are known, for example, from countries with high levels of corruption and
tax evasion. Although cooperation would be beneficial for everyone, it breaks down
in a similar fashion as free flowing traffic breaks down on a crowded circular track.
2
This happens because the desirable state of the system is unstable.
8.2 When Everyone Wants More, but Loses
“Tragedies of the commons” occur in many areas of life. Frequently cited examples
include the degradation of the environment, the abuse of social welfare systems, and
climate change. In fact, even though probably nobody wants to destroy our planet, we
still overexploit its resources and pollute the Earth to an extent that causes existential
threats.
3 As measured by the “environmental footprint”, many humans consume more
resources than are being (re-)created, which leads to a globally unsustainable system.
Moreover, although nobody would want to wipe out a species of fish, we are facing
2 See the movie at https://www.youtube.com/watch?v=7wm-pZp_mi0.
3 For example, a safe way to store nuclear waste has still not been found.