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wedrifid comments on Rationality quotes: October 2010 - Less Wrong
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A real-world example of Parfit's Hitchhiker was prominently in the news recently, about firefighters that watched a guy's house burn down because didn't buy a subscription, even though he offered to pay when they arrived at the scene (which I assume means with all the penalties for serving a non-member, etc.). The parallel to PH became clear from this exchange with a writer on Salon:
Obviously, this doesn't carry over the "perfect predictor" aspect, but I'm guessing the FD's decision maker could do much better than chance in guessing whether they'd be able to recover the money -- and the homeowner suffered as a result of not being able to credibly tell the FD (which, of course, has its own subjunctive decision-theoretic concerns about "if I put out the fires of non-payers when they ...") that he would pay later.
(Sorry if this has been posted already, and let me know if this belongs somewhere else like the new discussion forum.)
Update: Okay, it looks like details are in dispute -- by some accounts, he wasn't offering the penalty rate, and people dispute whether the nonpayment was deliberate or an oversight (and the evidence strongly favors the former). "You'll say anything", indeed.
Wow. I just felt a surge of patriotism. I had no idea that sort of system was in place in any first world country. I'm sure it's all Right, True, and Capitalistic but I must say I prefer the system here.
In fact, in rural areas (where I grew up) most firefighters are actually volunteers. Those that I knew considered the drastic enhancement to sexual attractiveness to be more than enough payment. ;)
It's a government-run fire station, so it's not all that capitalistic.
Really? Going for a 'worst of both worlds' approach it would seem. ;)
If you are going to make fire fighting a pay for individual service system instead of a cooperation problem handled by central authority and taxation then you may as well at least get the efficiency benefits of competition in private industry. In fact a completely capitalistic organisation with no interest in public welfare would probably not have had a problem like we see in this instance. The organisation would have set up payment contingencies such that they can sell their services at a penalty rate to those who didn't buy according to the preferred subscription/insurance model.
For some strange reason a lot of US policy in particular seems to fall into the "worst of both worlds" camp ( I would consider their health insurance system as an example). As I'm not an American I don't know why this is the case.
Could you give other examples? I certainly accept health insurance and this particular fire department, but I don't think it is a representative fire department. Is the common theme the word "insurance"?
"Too big to fail" banks: they profit when their gambles pay off, we bail them out when they don't. Also arguably telecommunications carriers that have quasi-natural quasi-monopolies.
I'd go along with both of those examples (though the US has a history of corporate bailouts that extends far beyond current events). Also rent control (it has significant perverse effects on rental markets and often hurts the poor).
That's not to say other countries don't have their problems, I don't think the US is a uniquely bad policy maker, but there is something about the way the US government makes policy that seems to want to have its cake and eat it too. When they try that it usually doesn't end well.
Neither do Americans.
Sure we do. It's all the other party's fault.
I agree with this statement. Either extreme would probably be better than what we actually ended up with.
What little I know of that system scares me.
I'm an economist and it makes no sense to me at all. It seems almost like someone carefully identified the efforts insurance markets make to mitigate the failures in health markets and then crippled them. I actually have trouble convincing some of my colleagues that I'm serious when I describe the regulatory structure.
Could you expand on the specific details of what went wrong?
The essential problem is the way health insurance works in the US. The basic function of insurance is to protect people from strongly adverse events that would put them into financial distress. Insurance companies have to charge more than an actuarially fair rate for insurance in order to make a profit. This means that it is inefficient to run small or high probability expenses through an insurance scheme. The only reason this happens in the US is the tax deductibility of insurance and the mandates on coverage in some states. This turns health insurance into an inefficient health savings scheme.
Furthermore community rating produces very adverse outcomes. By preventing insurance companies from pricing insurance policies at a different rate for each customer (thus creating an expected profit from each customer), the insurance company has an incentive to refuse cover to high risk people (i.e. those that need insurance the most) or drive them away by making their life a misery every time they try to lodge a claim. To the extent they can't do this it drives low risk people out of the market, which leave them exposed if they suddenly need emergency health care (this is especially problematic since low risk people are generally young and therefore have little savings) and insurance companies have to raise premiums further to make up for the loss of the highly profitable young people.
My advice to the US government would be to end community rating, guaranteed issue and mandated coverage. I would suggest eliminating the tax deductibility of insurance (or failing that, make putting money into a Health Savings Account tax deductible). Medicare and Medicaid should be discontinued and replaced with a system of income support where poor or unusually sick people would receive extra money in a health savings account that could be spent on healthcare or health insurance. If you have to include old people in the scheme explicitly to make it politically possible, that would be OK as a second-best solution.
The basic principle in this is to let market mechanisms work in the absence of a clear market failure and then deal with people who can't afford vital services by helping them directly. To what extent you provide that help is a terminal values question so I won't venture an opinion here, but however much or little you want to help, this system should result in cheaper insurance for most people and essential coverage for the poor or those in need of extraordinary levels of health care. It should also arrest the escalating health costs of the US government.
This idea seems to involve people negotiating their health care expenses with providers directly, which doesn't work. Or rather, it only works for the routine expenses, and not the unexpected ones. Some fraction of health care decisions are made under conditions that are literally "buy this or die", and a large fraction of the remainder are made by people who are in no condition to negotiate, so either some form of collective bargaining, or else direct regulation of prices, is required.
It is very likely that this is an issue of a particular locality and that plenty of places in the U.S. are sane about matters like this. (You'll also note that it made the news, suggesting people may not have realized this kind of thing was possible.)
From what I know, it's utterly common for several different fire departments to respond to a single call that happens to be near, even if not in, their specific jurisdictions, and I was utterly shocked to read this story.