Beyond Dilemmas

It can be hard to think in terms of infinite possibilities.

Hell, it can be hard to think about 100 options simultaneously. What's the highest number of reasonably simple options you can consciously consider at the same time? 50? 20? 10? 5?

For most policy decisions, I'd say we tend to think in terms of two choices at a time. Do we cut down this forest, or do we not? Do we make gay marriage legal or not? Do we X, or not?

Sometimes, if we're really ambitious, we might consider three choices. Do we raise interest rates, lower interest rates, or keep them the same?

But even for situations where we are considering only two options, we have to recognize that there are usually near-infinite implicit options. The key is timing.

Let's say we have two potential policies, X and Y. X will provide benefits of $100/year for 100 years, and Y will provide $3000 the year it is implemented, but will never allow X to be implemented thereafter nor provide any benefit after the first year.

For a discount rate of 3%, the present value of X is ~$3255 and of Y is $3000. If we treat these as the only two options, then we would clearly go with X.

But those aren't the only two options. After 30 years of implementing X, the discounted value of the 70 years remaining under X is less than $3000. So to maximize the benefits of our policies, we should run X for 30 years and then do Y.

If you imagine that X is "preserving a natural resource" and Y is "harvesting that resource" (where the resource will naturally disappear even under X in 100 years), this may be more clear.

The point is that we shouldn't think of policies as being unchangeable--indeed, taking into account the incentives of future policymakers should be an important step in major decision-making (RAND has a freely downloadable monograph on the subject here).

How can time play into your decisions?