Submitted on June 4, 2009
Accepted on August 25, 2009
Using Neural Measures of Economic Value to Solve the Public Goods Free-Rider Problem
Ian Krajbich 1, Colin Camerer 2, John Ledyard 1, Antonio Rangel 2*
1 Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125, USA.
2 Computation and Neural Systems Program, California Institute of Technology, Pasadena CA 91125, USA.; Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125, USA.
* To whom correspondence should be addressed.
Antonio Rangel , E-mail: rangel{at}hss.caltech.edu
Every social group needs to decide when to provide public goods and how to allocate the costs among its members. Ideally, this decision would maximize the group’s net benefits while also ensuring that every individual’s benefit is greater than the cost he has to pay. Unfortunately, the economic theory of mechanism design has shown that this ideal solution is not feasible when the group leadership does not know the values of the individual group members for the public good. We show that this impossibility result can be overcome in laboratory settings by combining technologies for obtaining neural measures of value (functional magnetic resonance imaging–based pattern classification) with carefully designed institutions that allocate costs based on both reported and neurally measured values.
