Not Your Average Automobile: The Driverless Car of the Future

A paradigm shift in the automotive industry is about to radically change transportation as we know it. Consider the following statistics:

• The average American spends 396 hours driving per year.     
• An estimated 36,200 traffic fatalities occurred in the United States in 2012. 
• United States consumers burned an average of 367.1 million gallons of gasoline per day in 2011.  

These statistics are rather disheartening, yet are the byproduct of our vehicle-centric society. But now imagine a world where we no longer have to sit behind the driver’s seat of a car, where traffic fatalities become practically non-existent and fossil fuel consumption is drastically reduced. Seems pretty nice, right? Well buckle up, because this seemingly utopian future will become reality thanks to the driverless car (where, ironically, you actually won’t have to buckle up). 

Technology now allows computers, rather than human drivers, to maneuver a vehicle from Point A to Point B using GPS systems and road sensors. Google, a founding pioneer of the technology, designed a driverless fleet that has accumulated over 300,000 accident-free miles. This has spurred companies such as Toyota, GM, Lexus, Audi and Volvo to accelerate driverless technology research. First-generation autonomous technologies, such as automated parallel parking, accident avoidance systems and adaptive cruise control are already being incorporated into vehicles. Federal government agencies are also joining the research fray. The National Highway Traffic Safety Administration has been conducting vehicle-to-vehicle communication research and expects to issue an agency decision on connected vehicles by the end of 2013. Considering this rapid progression of driverless technology in the past several years, driverless vehicles are not a far off aspiration. They are the present. And they are undoubtedly the future.

Driverless benefits

From a pragmatic standpoint, driverless vehicles are beneficial on all levels. Traffic safety would no longer be a concern. Computers do not get tired, distracted or annoyed by other drivers. They eliminate the most dangerous element of driving—the human element. Commuting would no longer be a labor, rather it would be an extension of leisure time where one can eat, sleep, surf the internet, work or watch a movie. Consequently, society could see productivity increase and a more involved labor force as transportation limitations would be largely eliminated.

Furthermore, aspects of driving we consider social norms—stop signs, stop lights, general road signage, and overhead freeway lighting—would become obsolete. Vehicles’ ability to communicate and seamlessly weave between one another at intersections eliminates the necessity of traffic controls. Street lighting and signage will be a vestige of human-driving history: the car does not require lights or signs to know where it is going. Multiple vehicles for a family would no longer be needed: the car could continuously run and bring every individual to their required destination in a more efficient manner than multiple vehicles could. Even vehicle ownership is a concept that could become outdated. Many individuals will likely choose the convenient and relatively inexpensive option of driverless taxi services over vehicle ownership.

Driverless cars would also increase efficiency and reduce the amount of fossil fuels burned.  Volvo has researched driverless “road trains,” where driverless cars would group on the freeways to improve aerodynamics and reduce wind drag. This alone could improve fuel efficiency by 30%. Additionally, driverless cars could be built using lighter materials and smaller engines because of their improved safety compared with human-operated vehicles, further improving fuel efficiency. Enormous societal benefits, including lower levels of air pollution, a healthier population, and a significant reduction of the nation’s carbon footprint, would likely result.

Industry effects

For many, the real interest of driverless vehicles involves nascent economic markets. Technology to set up vehicle-to-vehicle and vehicle-to-infrastructure communication would need to be developed and built. Interaction between smart phone technologies and vehicles would be also inextricably linked. Mobile apps allowing driverless cars and users to interact (e.g. texting a vehicle you are ready to leave work in 10 minutes and the vehicle is waiting outside to pick you up) would need to be developed and operated. Transportation companies offering driverless trucking and taxi services will probably emerge. Hospitals nationwide would no longer annually treat millions of accident-related injuries. Companies greening urban landscapes of unneeded parking garages will find plenty of business. Urban designers will be in demand to find new and inventive ways to create urban environments that optimize the efficiency of driverless vehicles.

The possibilities offered by driverless cars are endless. Introduction of such technology would alter nearly every component of our lives: where we live, how we spend time while commuting, the design of cities and vehicle ownership, among others. This being said, mass production of driverless vehicles is still years away. Some automotive experts believe we could see driverless vehicles on the road in the next 10-15 years, while others believe it will be upwards of 50 years. Driverless cars would require extensive infrastructure investment and the estimated time of arrival of driverless vehicles depends on the cooperation between auto manufacturers and the government. Insurance and legal issues would also need to be clarified before driverless vehicles become commonplace. Moreover, consumers will have to buy-in to the technology to create sustainable demand. Although initial buy-in may be slow, once consumers recognize the safety of the technology and the utility gained, this blogger believes everyone will be jumping on the driverless train. So don’t buckle up and don’t get your hands on the wheel – just jump in the back, flip on your favorite TV show and enjoy the ride.

So you're saying there's a chance...

Opening day is just a weekend away, and baseball fever has reached its peak. I thought this would be the perfect opportunity to dig into a unique ticket-pricing promotion by my hometown Milwaukee Brewers. The package is called Chance 2 Advance and lets fans upgrade their tickets to better seating areas for minimal cost when the Brewers win select home games. Here’s an explanation of the package from the Crew’s website:

For just $99, we'll give you a Bernie's Terrace ticket to nine select Tuesday games at Miller Park. And, on Tuesday, April 30, you'll sit in Bernie's Terrace for the first game of the plan. When the Brewers win, you advance!

Every time the Brewers win, you exchange your Bernie's Terrace ticket for the next game in the plan for just $2 to the next best seating area (see list below). You remain in that seat location until the Brewers win the next game in the plan. If the Brewers don't win, you simply exchange your Bernie's Terrace ticket at no cost for a seat in the same section where you last advanced — no backsliding.

If the Brewers win the first eight games in the plan, the ninth game would enable you the opportunity to sit in the Field Diamond Box!

1. Bernie's Terrace

2. Terrace Reserved

3. Terrace Box

4. Loge Outfield Box

5. Loge Infield Box

6. Club Outfield Box

7. Field Outfield Box

8. Field Infield Box

9. Field Diamond Box

This sounds like an entertaining promotion and a great way to be even more interested (if that is even possible) in seeing the Crew win. But I couldn’t help wondering: Is this package a good value?

The short answer is yes. If you bought nine individual tickets for Bernie’s Terrace (the starting point of Chance 2 Advance) at $11 a ticket, you would pay $99, the exact same amount you would pay for the Chance 2 Advance package. So unless the Brewers lose all of their first eight games (keep in mind, we are talking about the Crew, not that poor excuse for a baseball team 90 miles south), you would end up with a better deal by purchasing the package because you will watch at least some of the games from a better seat.

But how much better? That depends on how many games the Brewers win and requires some probabilistic thinking.

Let’s start with the basics: They play eight games that give you an opportunity to advance to the next best seating area. That means there are 256 (or 2⁸) different combinations of winning/losing during this eight-game stretch. And let’s suppose for the sake of this analysis (and to make the math easy) that the Brewers have a 50% chance of winning each of these games. This means each of these 256 possible outcomes is equally likely to occur. For example, one possible combination could look like this:

Win, Win, Loss, Win, Loss, Loss, Win, Win

In this scenario you would watch the nine games in these seating locations:

If you bought the Chance 2 Advance package, you would have paid $109 for these tickets ($99 initial payment, plus $2 for each of the five times you advanced). If you decided not to buy the package, however, and bought these exact same tickets individually, you would have paid a whopping $261 (see table for assumed face value individual game ticket prices). That means for this possible outcome, you would have saved $152 for the exact same seats by purchasing the Chance 2 Advance package. Not bad!

But that’s just one scenario. What if we did this for all 256 possible scenarios? You would find that you could expect to pay $107 for tickets with the Chance 2 Advance package and $223 for the exact same tickets if you purchased them individually. That means you could expect to save, on average, $116 by going with the package instead of buying the tickets individually.

So we know the Chance 2 Advance is a great deal, but let’s add one caveat: If you are buying the tickets with an expectation of watching the ninth game in the luxurious Field Diamond Box, prepare to be disappointed. Once again assuming the Crew has a 50% chance of winning each of these games, there is only a 0.4% chance you will be watching the last game in the Field Diamond Box.

But on the flip side, it’s just as unlikely you will be stuck in Bernie’s Terrace all nine games, so you have a great Chance 2 Advance, if you will. In fact, you have a better than one-in-three shot of watching the final game in Club Outfield Box or better. So no matter what, it’s a great value and another reason to visit Miller Park this season—just in case the Sausage Race wasn’t reason enough.

I'm going to steal

I can’t believe it’s March already. It seems like 2013 just started yesterday and I was resolving to work out more. But, like my fellow fools who decided to stop smoking, lose weight or read more books, I already quit. I couldn’t even make it two months. It shouldn’t really surprise me that I didn’t stick to my resolution; about 88% of people fail. Lucky for the weak-minded, economics provides a helpful tool for following through with achieving our goals: strategic precommitment.

If the dismal science teaches us only one thing, it’s that people respond to incentives when they make decisions. When I make the decision whether to work out today, I need to balance the long-term incentive of being healthier and looking buff with the short-term incentive of watching TV and avoiding sore muscles. My short-term incentives are well-defined: I don’t need to spend time punishing my biceps, and instead I get to watch the Situation punish his. My long-term incentives, however, are more abstract. If I workout today, it will only contribute sparingly to my future health. And how much does better health translate into better quality of life or increased life expectancy? I don’t really know; there’s no good way to compare it to the enjoyment of watching TV right now. So you can see the incentives are heavily stacked against working out. The same applies to saving for retirement: I know buying a 60-inch flat-screen television will make me happy now. Who knows if I will even be alive when I’m 65?

So the key to forcing yourself to work out (or save for retirement) is to change your incentives. Either make it more rewarding to work out now or make it more painful to not work out right now. That’s where strategic precommitment comes in. Before you attempt to change your workout habit, add a disincentive for failing to reach a workout goal. For example, you could commit to giving away $100 if you fail to lose 10 pounds in two months. Now your incentives have changed. Instead of weighing the pleasure of watching TV against the abstract benefit of better health, you’re weighing it against the possibility of losing $100, which is much more tangible. And to prevent you from reneging on your deal with yourself, it’s best to make the deal with a friend. Tell your friend you will pay them $100 if you don’t make your goal. Now you can’t back out when you don’t reach your goal and you added the social pressure of avoiding public failure—that’s an incentive double-whammy.

Keep in mind that strategic precommitment is not a fail-safe method for reaching your goals. Let’s not forget Congress tested the same tactic when trying to reach a deficit-reduction deal in August 2011. In an attempt to force itself to agree on plan, it decided to impose drastic cuts of $1.1 trillion to defense and civilian spending—known as the “sequester”—beginning March 1 if a plan wasn’t reached. You already know how this story ends. Like the resolver who doesn’t put a dear enough price on failing to meet his resolution, Congress was unsuccessful in reaching a deficit-reduction deal, instead allowing the sequester to take effect. As this post by The Economist argues, the reason the two parties didn’t reach an agreement was because the sequester wasn’t a legitimate disincentive for politicians who weren’t up for reelection for at least two years.

A more entertaining example of a precommitment strategy comes from an obscure U.K. game show called Golden Balls. The rules of the game are simple: Two players are awarded a sum of money based on their simultaneous decision of whether to split that money with the other player or steal it all for themselves. If both players choose to split the money, they do. If one chooses to steal and the other chooses to split, the stealer takes it all. If both choose steal, neither gets anything.

It’s a classic example of game theory (prisoner’s dilemma) in which the player has a dominant strategy to choose to steal from their opponent because:

• If their opponent chooses to split, the player will get all the money.
• If their opponent chooses to steal, the player will get nothing regardless of whether they choose steal or split.

Watch this clip to see how one player uses a strategic precommitment to his advantage in the game:

So keep this blog post in mind the next time you’re debating whether to work out. Because strategic precommitment might just be the thing you need to get back on the treadmill. Or ensure your friend doesn’t rob you blind on U.K. television.