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.
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