Wednesday, January 18, 2017

Carrying capacity or Prospect theory?

I have to wonder how much of the loss of civility can be laid at the feet of resource depletion and how much can be attributed to Prospect Theory.

Carrying capacity can go down if the environment is degraded.  The rest of this curve would make it look like a hat.
Resource depletion is the cause of that "S" shaped curve in fruit fly populations.  At some point the population growth slows, becomes stagnant and then begins to decline.

Prospect theory

Losses are felt three times more acutely than gains.

One exception is that near zero small losses get lost in the ground clutter of everyday indignities...we hardly feel a scratch while a thousand mosquitoes are biting us.

The losses of prospect theory can be masked when the economic tide is rising.  Everybody's boat is lifted although some boat rise faster and higher than others.

Losses become noticeable near the top of the S curve when it becomes a zero-sum game.  If somebody gets a bigger slice of the pie, that means that others must be getting smaller ones.

The challenge for policy makers will be to loosen the strangle-hold that resource sinks have on the economy.

Too many resources are being absorbed by nonsensical regulations, for instance.

Loosening the strangle-hold will not reverse the S growth curve but it will soften the impact of Prospect theory...for a while.

1 comment:

  1. Excellent point! TVA comes to mind, since the Tennessee Valley has been electrified since the 1950s!!!