## Why We Are Too Rational to Stop Polluting

In this two part article, I will demonstrate using game theory that it is not possible for the the human race to cooperate to save the earth from global warming. No matter how dire the situation or how clearly it is demonstrated that the earth will be doomed if we all don’t stop polluting, it can never happen.

To demonstrate this however, I will need to elaborate on the concepts of the Nash equilibrium that I introduced earlier. To recap, it simply means that given the strategies that everyone else is playing, each person is happy with their own decision.

Image Credit: Onken Bio-pot

The Nash equilibrium implies stability. It’s a stable solution to the game, inasmuch that people have no incentive to change their strategy. In the movie A Beautiful Mind, despite the implication, the solution given by Russell Crowe (the actor playing John Nash) is not a Nash equilibrium!

The situation, if you remember, was that Nash and his two pals were in a bar, and four women walked in, one of whom was truly stunning. Nash proposed to his friends that if everyone hit on the beautiful babe, then the rejected men (two of them) would fail to score with even the other women who would not like being “second choice.” As a result, only one out of the three would get laid. His solution was that they all hit on the other women and thus increase their chance of collectively scoring.

The movie implies that this was what set Nash thinking and laid the path for his paper on Nash equilibriums. However, you will recognize that the above situation was not a Nash Equilibrium. If everyone has hit on the other women, then no one has hit on the stunning babe. Consequently, each man would regret not hitting on her (since no one else has) and would be dissatisfied with his choice. In a Nash equilibrium, everyone is happy with their choice, given that everyone else has made theirs.

Image Credit: John Nash

In a given game, it is possible for multiple Nash equilibriums to be present or no Nash equilibriums at all. If this is the case, then it is not possible to predict the outcome of the game. There are various types of games including coordination games, trust games, outguessing games, and chicken games. Out of these, outguessing games and chicken games have no Nash equilibriums, whereas trust games have multiple Nash equilibriums. Hence, for these games, it is not possible to predict the outcome. In coordination games, however, there is just one Nash equilibrium, and so, it is possible to predict the outcome for coordination games.

In the next article, I will demonstrate that when it comes to saving the planet, there is only one Nash equilibrium – that of everyone using carbon based fuels and is, therefore, the only stable outcome for rational beings like us! It is a completely new sort of game that deserves special attention…and one that dooms us all.

## Crude Shocks: Getting a Grip on Oil Fundamentals

Crude oil prices have risen 46% in 2008 and 800% since November 2001, setting 28 record highs between January 1 and June 13 this year. On that date, it reached \$139.12 per barrel and Saudi Arabian Oil Minister Ali al-Naimi said such prices were “unjustified by fundamentals.” An examination shows he’s only partially right:

Increased global demand. Ever larger chunks of the globe are being industrialized and require energy to power their production and transportation. This is highly correlated with per capita income, with wealthier countries consuming more barrels of oil per person than poorer ones, no matter the size of their total population. The Virgin Islands, for example, in 2007 consumed 1.0648 barrels of oil per person per day, Gibraltar 0.8571 and Singapore 0.1736. The U.S. consumed 0.0682; however, with a population of over 303 million people, that equals 20.8 million bbl/day, almost one-quarter of global usage. (Calculated from CIA World Factbook data.)

Decreased or threatened supply. It’s one of the ironic twists of history that most of the reserves of easily recoverable oil are located in the most politically troubled parts of the planet. Even a rumor of supply disruptions sends prices higher as refiners bid aggressively for the raw material to keep their plants productive. At the same time, these reserves are being diminished at an alarming rate and many oil-producing nations are reportedly past their peak levels, meaning production is unable to meet rising global demand. The remaining reserves are either not easily recoverable or require substantial processing, increasing prices further.

The weak USD. Oil is highly correlated with the strength of the U.S. dollar; 90–95% of the time, when the dollar falls, the price of oil rises. With USD currently at historically low levels, crude oil is skyrocketing. According to a report prepared by the Dallas branch of the Federal Reserve, the weak USD adds approximately one-third to the cost of a barrel of crude oil.

Speculation. When investments such as real estate and the stock market lose their shine, investors around the world purchase “solid” commodities such as gold and crude oil as a hedge against losses.

Potential solutions include:

Strengthen USD and curb speculation. As the U.S. economy recovers, currently expected toward the end of 2008 and early 2009, the dollar will rise to follow, easing the financial pressure on commodity prices and making them less attractive to speculators. This most obvious solution has been touted by financial and political leaders around the globe, including Russian Finance Minister Alexei Kudrin and OPEC President Chakib Khelil, while in late May, French Finance Minister Christine Lagarde offered to “arm twist” whoever is holding the dollar down and the euro up.

Decrease global reliance on oil, foreign or domestic. Although strengthening USD will partially ease price pressures, only bringing supply and demand into balance will effect any permanent change. On the demand side, this means increasing reliance on alternative energy sources such as geothermal, hydro and wind power. Increasing MPG ratings for vehicles and encouraging more efficient driving habits certainly won’t hurt.

Find ways to tap currently unusable reserves. On the supply side, higher prices make it cost-effective to drill in areas previously considered marginal and to find production methods for unconventional crude sources such as oil sands and oil shale. Also, cleaner drilling methods and more stringent environmental regulations may encourage exploration in sensitive areas such as Alaska.

End subsidies. Many developing countries have long subsidized the price of gasoline to encourage growth, sending demand higher in these regions. However, the financial strain for these governments is becoming unbearable. China recently raised their gasoline prices by 18%, and Indonesia, Taiwan and Pakistan all reduced their subsidies as well. As much of the rising demand for crude oil is centered in these regions (in developed economies such as the U.S. it’s currently decreasing) ending such subsidies could, if not lower demand, at least slow its growth.

Because there is no single cause for high crude oil prices, there is no simple solution. One outcome of the June G-8 meeting in Japan was a united call for the International Energy Agency and the International Monetary Fund to examine the problem in greater detail, and the U.S. Commodity Futures Trading Commission has announced an investigation into possible means of curbing speculation. With higher energy prices sending inflation progressively higher around the world, hopefully one of these solutions will ease the pressure before Mad Max comes to call.

## The Future of Healthcare Is Here

If you haven’t read Alvin Toffler’s book, Powershift, you probably have no idea what has happened to us in the last decade with regards to the information era. In this historic book, Toffler talks about the “Powershift” which is the information era and how knowledge and information will be the most valuable currency in the world. While traditional economic transformation progressed from agrarian to industrialized societies, the next wave was the information era. “Third World” economies could actually leapfrog the industrialized economy from a rural/agrarian one to an informational society with the advent of computer networks and the internet.

In the healthcare system, such a “powershift” is occurring within the walls of hospitals. Archaic hospital systems are using paper charts and paper prescriptions. Physicians must hand sign an order book which then gets faxed to the pharmacy. A courier then runs up the medicine to the patient’s room. All charting is done on paper and record keeping rooms are enormous. Medical transcriptions are done on a typewriter and placed in the patient’s paper chart.

In the second wave of medical informatics, the electronic network came about. Orders were allowed to be filled electronically. Medical transcriptions of dictations were outsourced to transcription companies who typed these out and they appeared electronically. Physicians could edit, verify, and sign electronic records and transcriptions. Computerized vending machines on the hospital floors could electronically document the use of supplies for the indicated patient. The second wave of medical informatics cuts costs and dramatically improved things and brought us out of the dark ages.

It appears that we are starting the third wave of medical informatics. “Going Live” is the concept where the electronic record is completely “live” and “online” and always being edited. Laboratory and diagnostic results appear real-time; doctors dictations, nurses notes, medical orders, and prescriptions are all done online and appear real-time. Transcription software allows the physician to dictate his note which uses voice recognition and speech transcriptions software to transcribe the note instantaneously where the physician can edit. If he so desires the doctor can electronically type his notes if he likes. There is no paper chart.

“Going Live” is the third wave of medical informations. Gone are the outsourced medical transcription companies. Gone are the paper charts. Gone are the electronic notes that indicate that a dictated note is “pending.” There are no gaps in the care or documentation of the care of the patient. The laptop or PDA-toting physician is here to stay.

As in the global powershift, hospitals and healthcare systems who “Go Live” early on will win more business and thrive. They will be more profitable and be more efficient and thus more effective in the delivery of healthcare.

If you’re interested in other works by Alvin Toffler, read Greg Beatty’s review of Revolutionary Wealth: How It Will Be Created and How It Will Change Our Lives by Alvin and Heidi Toffler.