ESSA

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The Economics of Sharing


Suvi Lokuge

By

August 31st, 2016


Sharing is an everyday phenomenon that we often take for granted. Lokuge explores the question of whether we are sharing efficiently.


 

 

Sharing is something that we encounter every day, whether it is splitting bills at social gatherings, divvying up chores or sharing wardrobe space. The question is, are we ‘doing it right?’ Are we sharing in the most economically efficient way? It turns out that economic theory offers several ways of improving sharing as we know it.

 

I buy this time, you buy next time

With splitting bills there’s always the hassle of paying quickly and efficiently. Should we each pay for what we ordered? Or should we split the bill evenly? Splitting the bill evenly allows for the tragedy of the commons as some people order more expensive items and free-ride. Behavioural economist Ariely provides a nifty solution to this problem. Research has shown that we feel psychological pain when we spend money, irrespective of the price we pay. However, there is diminishing sensitivity to the pain of paying for each dollar paid. Ariely (2009, pp. 69-73)[1] suggests that in order to maximise the overall happiness of the group, one person should pay while the rest are free from the psychological pain of paying. Of course, it has downsides; people may be out of town, leave the friendship group, or even mysteriously disappear when it comes to their turn to pay, which allows for the tragedy of commons to occur. Nevertheless, if maximising the happiness of your friendship circle is one of your priorities, and you have morally sound friends, then this approach may be worth the extra cost.

 

Equal division of the contested sum

Robert Aumann and Michael Maschler wrote a paper in the 1980’s explaining the Talmud’s answer to an inheritance question which had baffled academics for many years. The Talmud answered that if one person claims the whole inheritance, while the other person claims half the inheritance, the inheritance should be divided between the two in the ratio 75:25 (Fisher,2008, pp33-50)[2]. The logic behind why it was divided in this ratio was unknown to academics until Aumann and Maschler’s paper which introduced equal division of the contested sum. Their basic principle is to take the part that both parties want, also known as the contested sum, and divide it equally between the two (Talwalkar, 2014)[3]. The remainder is uncontested, and therefore is received by the party that requests them. Although equal division of the contested sum was initially used to share inheritance, it can be used to share food, television time, or sibling squabbles in general.

 

I cut, you choose

A more applicable version in everyday life is the ‘I cut, you choose’ method, where everything is contested and therefore everything is up for grabs.

If two people were sharing a whole cake between themselves, the person cutting the pieces has an incentive to cut evenly sized pieces. If the person cutting the cake produces one piece that is slightly larger than the other, the person choosing will maximise their utility by choosing the larger piece, and the person cutting the cake will end up with the smaller piece.

Similarly, this approach is great for splitting up chores or delegating parts of an assignment. However, this also works for physical space such as wardrobe space and territorial disputes such as the United Nations’ convention for mining international waters (Shamlin,2016)[4].

There are many ways of sharing economically, however the method applied really depends on the situation. The ‘I buy this time, you buy next time’ approach is optimal when the objective is to minimise the psychological pain of paying. Equal division of the contested sum resolves conflict over shared goods that both parties claim. The ‘I cut, you choose’ method is more appropriate for splitting up large tasks or sharing space. Each of these economic concepts is applicable to sharing strategically in everyday life in order to prevent conflict and live harmoniously with others.

 

[1] Ariely, D 2009, Predictably irrational, Harper Collins, New York

[2] Fisher, L 2008, Rock, Paper Scissors: Game theory in everyday life, Hay House Australia, Sydney

[3] Talwalkar, P 2014, How Game Theory solved a religious mystery, Mind your decisions, viewed 26 July 2016, http://mindyourdecisions.com/blog/2008/06/10/how-game-theory-solved-a-religious-mystery/

[4] Shamlin, J 2010, I cut you choose, Jim Shamlin, viewed 27 July 2016, http://jim.shamlin.com/study/books/9381/02.html

 

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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