Thomas Schelling might be my new favorite economist, but the book used enough math to make my eyes glaze over. Although probably not intentional, the book thoroughly debunks the the idea that the invisible hand
of the market always guides society to a socially good result. In particular, Schelling explains how somewhat innocuous racial preferences can lead to almost totally segregated neighborhoods.
I don’t often include long passages from books, but I think this one is necessary:
The result is often characterized by the statement thatthe market works.Bymarketis meant the entire complex of institutions within which people buy and sell and hire and are hired and borrow and lend and trade and contract and shop around to find bargains. A lot may be wrong with the deductive reasoning of economists, but when they state the conclusion carefully and modestly they have a point. The free market may not do much, or anything, to distribute opportunities and resources among people the way you or I might like them distributed, and it may not lead people to like the activities we wish they liked or want to consume the the things we wish they wanted to consume; it may encourage individualist rather than group values and it may fail to protect people against their own shortsightedness and self-indulgence. It may lead to asymmetrical personal relationships between employee and employer, lender and borrower, and attach too much status to material attainments. The market may even perform disastrously where inflation and depression are concerned. Still, within these serious limitations, it does remarkably well in coordinating or harmonizing or integrating the efforts of self-serving individuals and organizations.
Schelling goes on to write that quite a number of activities operate almost entirely outside the purview of the market
and so cannot even be expected to receive market-like benefits or treatment: the languages we choose to speak, who we marry, who we live near, what games we like to play, etc. Although these things affect our economic status, that nexus between them is small enough that other preferences dominate. Those preferences are the subject of the book.
Schelling describes our preferences and how we act on them as part of a feedback loop. In other words, it’s game theory. We make our choices based on what other people do, and what we expect them to do. In making such choices, we affect our own circumstances and those of others. In most cases, we don’t consider the effect we have on others as part of the equation. In some cases, we can’t. This externality means that many of these situations are forms of the prisoner’s dilemma. The optimal individual solution leads to suboptimal group results.
Early on, the book explains some of the kinds of models that can be used to work through the circumstances. Key among many of the models is the notion of a critical mass. If enough other people are doing something, we will make the same choice. No one wants to be the only person at a club. So we go to a club only if we expect enough other people to be there to make it enjoyable. (We usually don’t consider the impact of staying home on the club or other possible patrons.) In the case of segregation, behavior could be due to similar effects. Minorities moving into a previously all white neighborhood may induce hard core white racists to leave. The overall percentage of whites to blacks is thus reduced perhaps below the tolerance level of the next group of whites, who then leave, further reducing the ratio. The cycle repeats itself. At some point, even the fairly tolerant whites who merely don’t want to be outnumbered 10 to 1 will leave, leaving a segregated neighborhood in their wake.
A number of the models relate to foretelling the future. Self-fulfilling prophecies is one class of these. Perhaps whites believe that blacks cannot run businesses. The expectation leads them to avoiding hiring blacks, who then never get the experience to run businesses. The expectation creates the situation where it’s true (assuming whites own all the businesses, which at one point in our history was predominantly the case). Other models include self-displacing prophecies (such as when everyone tries to tip just a little bit above average), self-negating prophecies (if we believe a place will be to crowded, we stay home), self-equilibrating expectations (everyone brought chips to the picnic last time, so I bring salad next time), and self-confirming signals (people expect diet soda to be in grey colored bottles, so soda companies start putting diet soda in grey bottles to indicate it’s diet).
After going through those and other models, explaining how they work generally, later chapters get into specifics, including a lot of math. Chapter four is devoted entirely to mixing races and sexes, starting off with some trivial observations. Mathematically, if race is divided into white and non-white, only one group can be numerically superior. Both groups might be tolerant of the other, but wish to live in a neighborhood where their own race is the majority. In that case, the only stable mix
is complete segregation. If a group merely prefers not to be a severe minority (say no less than 25% of the local population), the initial mix has a great effect on the final result. A neighborhood that is 40% black would remain viable. But one that is 24% black would result in total segregation. Blacks would move to neighborhoods where they feel more comfortable. The optimal solution might be to induce a few white families to leave to ensure a mixed race neighborhood, but the mechanics force a slow black evacuation.
Then Schelling really starts getting into the math. Neighborhoods aren’t uniform. Preferences of individuals differ. Some percentage of people might be okay with any percentage of people not like them
. Other are fine with 25%. Some with 75%. This can be graphed. If the preferences can be graphed on opposing axes. The intersection will show in what direction migration will happen (absent outside influence) and what population mixtures will be stable given the groups’ preferences. With some sets of assumptions and preferences, integrated neighborhoods are more likely. Moving from extremely segregated (which is stable, but not preferable) may take very concerted action, even when everyone involved would be fine with an integrated neighborhood. The individual incentives do not provide a path to get from A to B. Some of the steps along the way, if everyone is free to make individual choices, lead back to segregated neighborhoods.
I found it all very enlightening. Minorities may not want either segregated neighborhoods, nor gentrified ones. This shows why achieving acceptable mixes is so difficult. The market isn’t the operative factor driving living arrangements. And you can’t assume people won’t live in integrated places based on the fact they live in segregated ones naturally. There isn’t a natural market
mechanism that moves them to a place they would consider optimal, even on an individual basis.
Schelling covers a lot of other situations as well, such as mixing groups by continuous characteristics like age or income rather than dichotomous ones (like is or isn’t white), mechanisms in place when a dichotomous choice can be made (such as choosing the sex for one’s children). I won’t get into those here, as the discussion of segregation in the book would be enough on it’s own to pique my interest.
This edition of the book closes with Schelling’s Nobel Prize lecture. (Technically, the Nobel Prize in Economics is not a Nobel Prize, but I’ll save the bulk of my pedanticism for some other time.) To accept a Nobel Prize, a winner is required to give a lecture. Schelling’s lecture at first glance seems to have little bearing on economics. In it he recounts the history of the world’s aversion to using nuclear weapons. Read next to the rest of the book, it’s much clearer. Breaking the taboo is just as much a game of expectations on the part of world leaders as more prosaic considerations of whether to show up to a party in formal wear when one doesn’t know if a party is formal or not. I think it’s a fine example of the world-changing nature of games.
Other blogged reviews:
Title: Micromotives and Macrobehavior
Author: Thomas C. Shelling
Cover creator: John Lamb (photographe)
Series: Fels Lectures on Public Policy Analysis
Imprint / publisher: W. W. Norton
Format: Paperback
Length: 270 p. (includes index)
Publication date: 2006 (originally 1978)
ISBN-10: 0-393-32946-1
ISBN-13: 978-0-393-32946-9
Subject: Policy sciences
Subject: Choice (Psychology)
Subject: Social choice
Subject: Collective behavior
Subject: Social problems
LC classification: H61.S355 1978
This one sounds thought-provoking and I think the use of game theory is intriguing. Nice pick. :-)