Public goods that can simultaneously benefit any individual, such as disaster prevention measures and scenic beauty, cannot avoid the free rider problem, a situation where some people push others to pay their share of the cost. The market cannot solve this problem. I have investigated systems designed to prevent free riding by mainly using game theory. Recent human subject studies have suggested that this problem cannot be solved simply by a system of behavior principle models that assume people behave in a uniform manner which is usually assumed in economic theory. I am conducting research to design a system that accounts for principle models that assume diverse behavior of people.
Goods and services that are simultaneously accessible to and can benefit any person, such as disaster prevention measures and scenic beauty, are called “public goods.” By their nature, public goods benefit numerous people once constructed. On the other hand, a motive arises among interested parties for becoming a “free rider” because a free rider can be relieved from his or her burden by pushing his or her share of the cost (in terms of both money and labor) to others. Too many free riders lead to an inefficient state in which necessary public goods are not constructed.
To solve such inefficiency, skillful systems of cost allocation, reward, and punishment (negotiation procedures with interested parties) need to be established by a neutral organization such as the government. It is necessary to construct a decentralized decision-making procedure that achieves resource allocation desirable to the entire community while skillfully motivating each individual. However, analysis methods have long been limited to theories, with game theory being particularly widely used. Game theory assumes that a player makes decisions so as to gain the most profit by predicting how others will act.
Many of the solutions designed based on this concept depend on uniform and strong rationality, and thus the feasibility of its application has been unknown. Human subject studies, several of which have been performed in recent years, have uncovered the problem that subjects have acted in ways far removed from what game theory predicts.
For example, people have been observed to follow norms rather than to seek benefit and to make decisions based on their degree of optimism or pessimism when faced with fundamental uncertainty. Furthermore, most mechanisms for supplying public goods, which have been designed based on theories over a period of half a century, did not work in human subject studies. The subjects of the studies I have published thus far have also demonstrated diverse behavior principles in experiments on mechanisms for supplying public goods. For example, I reconfirmed that there were subjects who behaved selfishly and also some who acted in a conditionally cooperative manner, in other words, cooperating only when a certain number of others also behaved cooperatively. Experimental scientists have discovered diversity in human behavior principles, necessitating a revision of conventional theories.
Development of a mechanism for supplying public goods is an urgent topic for everyone. To close this gap, it is necessary to search for a robust system that still functions even when diverse human behaviors coexist.
What, then, are the behavior principles to be taken into account by system design researchers? I believe the clues for future studies likely exist in decision theory. In decision theory, events that include personal subjective opinion such as “avoiding regret,” “temptation,” and “pride” are mathematically and statistically patterned and included in calculations. Decision theory has recently seen remarkable progress along with the increase in experimental studies. Opportunities to expand its application to solving strategic situations going beyond the framework of personal problems are on the rise. However, studies for feeding back the knowledge to the theory of system design are still in their early stages, and only few are strongly linked with human subject studies. I’m planning to investigate a robust mechanism capable of accounting for diverse behavior principles of players via both theoretical and experimental approaches by incorporating the knowledge of decision theory.
To achieve these goals, I will use decision theory, mechanism design, and experimental economics in a mutually complementary manner. In other words, the basic cycle of my studies will involve 1) applying the rich models, which have been elaborated by decision theory, etc., to a number of system participants, 2) theoretically deriving a system for achieving the social goal, and 3) verifying the performance of the system by laboratory experiments, and 4) returning to the first step and making modifications as necessary.
Economics has constructed theories on human behavior by using rational settings. However, active experiments in recent years have demonstrated the need for revising the conventional theories. I have also encountered many cases in daily life where theories in textbooks are not applicable and where theories cannot solve the difficulties faced by those whom the theories do not account for(such as weak individuals). However, the history of experimental research in economics is short. There is no definite behavior model, and opinions are divided. I aim to construct an economic system that is grounded on the characteristics of human behavior and addresses problems such as the supply of public goods.