Saturday, March 7, 2009

Microstructure of Macro Behavior

In connection with the launch of the paperback version of his book The Logic of Life, Tim Harford has a nice video illustrating one of Tom Schelling's demonstrations of how market outcomes may not reflect the preferences of any individual market participant: The Logic of Life: Racial Segregation and Thomas Schelling.

Schelling's demo had to do with a residential real estate market in which everyone preferred to live in a racially integrated neighborhood in which people of their own race were in a slight majority, and how the resulting dynamics could lead to segregation that nobody wanted. Harford's video dramatizes this with brown and white eggs.

(The title of this blog post comes from Micromotives and Macrobehavior, Schelling's wonderful book on the subject, originally published in 1978.)

2 comments:

michael webster said...

One of my major disappointments with most social commentators who use game theory is that they don't reading Schelling simple and easy extension of 2 person dilemma games to n person dilemma games.

Schelling's technique can be used to extend any relatively interesting 2 person non zero sum game to a n person equivalent.

One neat result for the dilemma game is the observation that for any group that manages to coordinate, there is always a sub group for which it is rational to free-ride, and yet somehow that free-riding doesn't completely unglue the larger group's coordination.

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