Left to their own devices, hockey players invariably skate without helmets. Yet when they vote in secret ballots, they almost always favor a rule requiring the gear. If this rule is such a good idea, why don't players just wear helmets on their own?
Thomas Schelling posed this question in his book Micromotives and Macrobehavior, published in 1978. I had described Schelling, a professor emeritus at the University of Maryland, as the greatest living economist not to have received the Nobel Prize -- a description rendered obsolete when he won it this month, jointly with Robert Aumann of the Hebrew University of Jerusalem.
Although the Nobel committee cited Schelling's 1960 book, The Strategy of Conflict, history will judge Micromotives and Macrobehavior as the more important work. The earlier book was justly praised for framing the debate about nuclear deterrence in the Cold War, while many questions in the later book seemed almost pedestrian. Yet Schelling's answers transformed the way many economists think about the relationship between competition and social welfare.
PHOTO: EPA
Adam Smith's celebrated theory of the invisible hand is the idea that individual pursuit of self-interest promotes the greatest good for all. When reward depends primarily on absolute performance -- the standard presumption in economics -- individual choice does indeed turn out to be remarkably efficient.
But when reward depends primarily on relative performance, as in hockey, the invisible hand breaks down. In such situations, unrestricted choices by rational individuals often yield results that no one favors.
To explain why, Schelling observed that by skating without a helmet, a player increases his team's odds of winning, perhaps because he can see and hear a little better, or more effectively intimidate opponents. The down side is that he also increases his odds of injury. If he values the higher odds of winning more than he values the extra safety, he will discard his helmet.
Yet when others inevitably follow suit, the competitive balance is restored -- everyone faces more risk and no one benefits. Hence the attraction of helmet rules.
As in hockey, many of the most important outcomes in life depend on relative position. Because a "good" school is an inescapably relative concept, each family's quest to provide a better education for its children has much in common with the athlete's quest for advantage.
Families try to buy houses in the best school districts they can afford, yet when all families spend more, the result is merely to bid up the prices of those houses. Half of all children will still attend bottom-half schools.
Schelling's example suggests a radical new perspective on the various ways societies restrict individual choice. Consider the similarity between helmet rules and workplace safety regulations. Because riskier jobs pay higher wages, workers can gain advantage by accepting them.
Just as unrestricted hockey players may feel compelled to discard their helmets, workers who are free to sell their safety may realize that unless they seize the higher wages, they will consign their children to inferior schools. In each case, limiting our options can prevent a mutually disadvantageous race to the bottom.
The logic of Schelling's example also challenges the cherished theory of revealed preference, which holds that we learn more about what people value by watching what they do than by listening to what they say.
If someone chooses a risky job paying US$1,000 instead of a safer one paying US$900, the theory concludes that he must value the extra safety at less than US$100.
Maybe, but only in the sense that a bareheaded hockey player reveals that he values winning above safety. In both cases, we may learn more about what people value by examining the rules they support than by studying their individual choices.
A similar interpretation applies to the Fair Labor Standards Act, which requires employers to pay overtime premiums for all hours worked in excess of 40. Free-market economists often denounce this, noting that many workers would voluntarily work the longer hours that employers would have offered in the absence of premiums. Yet here, too, the incentives confronting workers are much like those confronting hockey players. Thus, as Schelling's fellow Nobel laureate, George Akerlof, has written, individuals can often increase the odds of promotion by working longer hours, but when others follow suit, everyone's promotion prospects remain roughly as before.
The result is often a rat race in which all must work until 8 o'clock each evening merely to avoid falling behind.
Schelling is no fan of heavy-handed bureaucratic interventions. Still, as his examples make clear, there can be no presumption that the self-serving choices of rational individuals produce the greatest good for all.
The invisible hand assumes that reward depends only on absolute performance. The fact is that life is graded on the curve.
NO-LIMITS PARTNERSHIP: ‘The bottom line’ is that if the US were to have a conflict with China or Russia it would likely open up a second front with the other, a US senator said Beijing and Moscow could cooperate in a conflict over Taiwan, the top US intelligence chief told the US Senate this week. “We see China and Russia, for the first time, exercising together in relation to Taiwan and recognizing that this is a place where China definitely wants Russia to be working with them, and we see no reason why they wouldn’t,” US Director of National Intelligence Avril Haines told a US Senate Committee on Armed Services hearing on Thursday. US Senator Mike Rounds asked Haines about such a potential scenario. He also asked US Defense Intelligence Agency Director Lieutenant General Jeffrey Kruse
INSPIRING: Taiwan has been a model in the Asia-Pacific region with its democratic transition, free and fair elections and open society, the vice president-elect said Taiwan can play a leadership role in the Asia-Pacific region, vice president-elect Hsiao Bi-khim (蕭美琴) told a forum in Taipei yesterday, highlighting the nation’s resilience in the face of geopolitical challenges. “Not only can Taiwan help, but Taiwan can lead ... not only can Taiwan play a leadership role, but Taiwan’s leadership is important to the world,” Hsiao told the annual forum hosted by the Center for Asia-Pacific Resilience and Innovation think tank. Hsiao thanked Taiwan’s international friends for their long-term support, citing the example of US President Joe Biden last month signing into law a bill to provide aid to Taiwan,
China’s intrusive and territorial claims in the Indo-Pacific region are “illegal, coercive, aggressive and deceptive,” new US Indo-Pacific Commander Admiral Samuel Paparo said on Friday, adding that he would continue working with allies and partners to keep the area free and open. Paparo made the remarks at a change-of-command ceremony at Joint Base Pearl Harbor-Hickam in Hawaii, where he took over the command from Admiral John Aquilino. “Our world faces a complex problem set in the troubling actions of the People’s Republic of China [PRC] and its rapid buildup of forces. We must be ready to answer the PRC’s increasingly intrusive and
STATE OF THE NATION: The legislature should invite the president to deliver an address every year, the TPP said, adding that Lai should also have to answer legislators’ questions The Chinese Nationalist Party (KMT) yesterday proposed inviting president-elect William Lai (賴清德) to make a historic first state of the nation address at the legislature following his inauguration on May 20. Lai is expected to face many domestic and international challenges, and should clarify his intended policies with the public’s representatives, KMT caucus secretary-general Hung Meng-kai (洪孟楷) said when making the proposal at a meeting of the legislature’s Procedure Committee. The committee voted to add the item to the agenda for Friday, along with another similar proposal put forward by the Taiwan People’s Party (TPP). The invitation is in line with Article 15-2