Most of you will recall the running gag. Charlie Brown would be taunted by his friend Lucy to kick a football. Lucy would hold the football and Charlie Brown would attempt to kick it. Charlie would enthusiastically run up and wind up for a powerful kick. Then, at the last moment, Lucy would withdraw the ball, Charlie Brown would whiff, and he would fly up into the air and land on his back humorously.

The funny part was how the dynamic continued year after year. Charlie Brown seemed to learn that Lucy was untrustworthy. He would often protest that he could not trust her, and that the only reason she offered to hold the ball was to pull it away and mock him. But Lucy was crafty, and time and again she came up with new reasons why Charlie Brown should trust her. Lucy would appeal to anything and everything to get Charlie Brown to attempt the kick. And inevitably, Charlie would get duped and land flat on his back.

There is a nice Youtube video about one of the attempts. Here is an incident where Lucy gives a seemingly legally binding promise to Charlie. (skip to about 7 seconds in the video to get to the clip)

Link to Youtube video Charlie Brown

Link to Youtube video Charlie Brown

Transcript of video (starting from 7 seconds)

Lucy: Say Charlie Brown, I’ve got a football. How about practicing a few placekicks? I’ll hold the ball, and you come running and kick it.

Charlie Brown: Oh brother. I don’t mind your dishonesty, half as much as I mind your opinion of me. You must think I am stupid [to fall for this gag again].

Lucy: Oh, come on Charlie Brown.

Charlie Brown: No.

Lucy: I’ll hold it steady.

Charlie Brown: No.

Lucy: Please!

Charlie Brown: You just want me to come running up to kick that ball so you can pull it away and see me lying flat on my back and kill myself.

Lucy: This time you can trust me. See, here is a signed document testifying that I promise not to pull it away.

Charlie Brown: It is signed! It’s a signed document. I guess if you have a signed document in your possession, you can’t go wrong. This year I am really going to kick that football.

[runs up to kick the ball, but Lucy pulls it away and he falls flat on his back]. AARG!

Lucy: Peculiar thing about this document–it was never notarized.

The game theory interpretation

(I became familiar with the game theory interpretation from Avinash Dixit and Barry Nalebuff’s classic lay text Thinking Strategically (this is also discussed in the revised version The Art of Strategy). Here is my take, which is largely based on Dixit and Nalebuff’s idea.)

The incident was one of my first introductions to game theory, albeit unknowingly.

The problem is that Lucy’s promises always appeared credible but they never were. There are ways to make your claims sound credible, and in this respect, Lucy was a game theory expert.

A rational player needs to think about the loopholes and incentives outside the stated claims. And amusingly, Lucy would always explain in victory the loophole to her original promise–like how a non-notarized note may be invalid and not binding.

To think about the situation more generally, we can draw out the following game tree:

Charlie can either reject Lucy’s offer or accept it. If he rejects, then the game is over and he walks away. But if he accepts, then Lucy has a choice. Lucy can either hold the ball or pull it away. What will happen?

We can use the idea of thinking ahead (backwards induction) to solve the game. If Charlie accepts, then we think about what Lucy would choose. Based on experience, it is obvious that Lucy prefers to pull the ball away. This will happen whenever Charlie accepts. And so, Charlie must reject the offer if he wants to be pain-free.

But Charlie never appropriately uses backwards induction. He is always tricked into thinking that Lucy will somehow hold the ball. He unfortunately never learns.

One can only take solace that perhaps Charlie’s fictitious misfortune can be an example that helps us avoid the same mistakes.

Have a happy Thanksgiving!

The game of chicken is so dangerous that it would be nice if we could just avoid it. But an unfortunate reality is the same incentives describe many other situations–schoolyard fights, drinking contests, and negative campaigns to name a few. In a competitive world, one has to learn how to play the game of chicken. Here are a few strategies that can help you be the winner:

1. Make yourself immovable

In the game of chicken, your flexibility is a weakness. One of the best solutions is to prove that you will not change course. There is a great story about the Navy that illustrates the strategy in action:

Believe it or not…this is the transcript of an actual radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland in October 1995. The Radio conversation was released by the Chief of Naval Operations on Oct. 10, 1995.

US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.

CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision.

US Ship: This is the Captain of a US Navy Ship. I say again, divert your course.

CND reply: No. I say again, you divert YOUR course!

US Ship: THIS IS THE AIRCRAFT CARRIER USS CORAL SEA, WE ARE A LARGE WARSHIP OF THE US NAVY. DIVERT YOUR COURSE NOW!!

CND reply: This is a lighthouse. Your call.

(Ok, so this is actually a joke…)

Limiting your options, and metaphorically becoming immovable like a lighthouse, can show the other side that you will not back down.

In the driving story, a teenager could become immovable by publicly showing he is forcibly locking himself into staying on course–either by using a steering wheel lock or even by detaching the wheel and throwing it away.

2. Get a reputation for being tough

If you can’t credibly limit your actions, the next best option is to get a reputation for being tough so people don’t bother messing with you.

Consider a consumer that comes up with a frivolous lawsuit against a big company with damages on the order of $100,000. Should he pursue action? The lawsuit will put both the consumer and the company in a game of chicken. The loser is the side that backs out, but if neither backs out, the consumer may end up wasting time and legal fees and the company may lose out from negative publicity. Of course, the company can decide the whole process is too risky and simply settle out of court.

The result of that course, unfortunately, would be consumers raising more frivolous lawsuits in the hopes of out of court settlement. One of the ways a company can get out of this cycle and win is by creating a reputation for being “tough” and pursuing all lawsuits. The strategy may come at the cost of some losses and some bad publicity, but the long-term effect of fewer lawsuits may be a net gain.

A more cost-effective method would be to gain reputation not through lawsuits but by some other means (for instance, after seeing this video and this video, I would think twice before messing with Microsoft’s Steve Ballmer).

3. Go for broke

Sometimes you cannot lock in your actions but instead have to fight head on. In this case it might be wise to show you are serious by going for broke.

In the movie Nothing to Lose, a robber played by Martin Lawrence is trying to steal the car of Tim Robbin’s character by gunpoint. The situation is a game of chicken: the person that relents will not get the car, but if neither relents the gun may go off and there may be bloodshed–Robbin’s character will die and Lawrence’s character will have to face murder charges.

Robbin’s character wins the game by announcing that he won’t give up. He explains he has just learned very bad news and he therefore has nothing to lose. Then, in a strange twist to prove his point, he kidnaps the robber and takes him to the desert. The fate of the mismatched couple is joined and movie hilarity ensues.

The player that has nothing to lose is more dangerous and such threats will be taken more seriously.

4. Raise the risk to your actions (brinkmanship)

Brinkmanship is a strategic move where you raise the risk of the game–bringing everyone closer to the brink–unless the other side relents. While you may prefer not to use these “scare tactics,” you should understand them because your opponents may employ them.

An interesting example of brinkmanship is currently taking place in New Jersey. The electric supplier PSE&G is proposing a large expansion to a transmission line and seeking a rate increase. Taxpayers are not sure about the project. The situation is similar to a game of chicken: the side that relents will lose out on money, but if both sides continue a protracted regulatory battle then they both lose by delaying other constructive means to improving the system.

PSE&G made their demands vivid in a recent ad displaying brinkmanship. On January 15, 2009, PSE&G ran an ad in the Star-Ledger indicating that if the transmission project does not pass, then residents may face outages like the 2000 blackouts in California or the 2003 blackout in the Northeast. The idea of the ad is to make a threat by raising risk. It would be unpopular (and illegal) for an electric company to create blackouts because it didn’t get its project passed. The ad sends the message that without action, PSE&G will not have enough control, and therefore everyone will get closer to the brink–electric companies and taxpayers alike. We shall see how this game plays out.

(details from NJ voices public blog)

5. Bonus tip: change the game

In some situations, you can avoid the game of chicken by thinking creatively. Change the game and you can create incentives to cooperate rather than intimidate.

I wrote about this strategy before in an article discussing a flawed system for answering phones in the office:

Here’s a story along those lines. My friend works at an entry-level consulting job in small office. About a year ago, his office had a problem because the administrative staff could not handle all incoming phone calls. It looked terrible that calls from clients went to voicemail during normal business hours.

So a new system was put in place: calls from the main line would roll over to all entry-level employees after the first two rings. At the outset, the system seemed great because administrators would pick up most calls as usual, and the safety mechanism meant entry-level employees (an additional five people) were available to answer. And yet just two days after the installation, an important call was missed.

The resulting investigation was embarrassing. It turned out there were two entry-level employees who could have answered the phone. The administrator was furious and scolded them for not picking up the phones. Was it right to yell at them?

I compared the situation to a game of chicken and offered a way to solve the phones constructively.

I’m on vacation through the end of the year so I’m mixing things up. I’ve been seeing a lot of good articles on the web about game theory and want to share them with you. Enjoy and happy holidays.

(If you’re looking for more to read, check out the game theory archive which now has 70+ articles.)

The financial crisis (game of chicken, tragedy of the commons)

Chuck Prince Dances, Banks Play Chicken: Game Theory for Crisis

When John Q. Public views the credit crisis, he sees pinstriped bankers getting bailouts and the worst global stock-market slump in more than three decades. Len Fisher sees a game of chicken, an overgrazed pasture, and bankers lighting their own gray trousers on fire.

Fisher, an affable scientist who splits his time between Australia and the U.K., specializes in explaining abstruse concepts in pop titles such as “How to Dunk a Doughnut.” What connects the chicken, the pasture and the liar-liar-pants-on-fire is game theory, a branch of mathematics explored in his spunky new book, “Rock, Paper, Scissors.”

Madoff’s Ponzi Scheme (Prisoner’s dilemma and games of coordination)

Madoff’s Willing Partners

The facts should have been enough to make anyone suspicious. Madoff’s accounts were only perfunctorily audited, and his statements were printed with a dot-matrix printer on lightweight copier paper. Above all, his business returns were consistently good — too good — and he never reported a down month, let alone a down quarter or year. Let’s be honest; such oddities had to have set off alarm bells. So why did so many professionals continue to invest with him?

Only one answer makes sense. Some of those investors must have suspected that he was a cheat but continued to invest because they thought they were benefiting from that cheating.

Financial takeovers (games of threats, brinkmanship)

Would Yahoo! have Swallowed the Poison Pill?

We recently saw that Yahoo had removed the so called “Severance Benefits” that it had planned to implement were it ever subject to a hostile takeover. In this article, we take a closer look at this mechanism as well as how effective “Poison Pills” like this can be.

Why you should avoid swoopo.com (it’s like the dollar auction game)

Profitable Until Deemed Illegal

I was fascinated to discover the auction hybrid site swoopo.com (previously known as telebid.com). It’s a strange combination of eBay, woot, and slot machine. Here’s how it works:

* You purchase bids in pre-packaged blocks of at least 30. Each bid costs you 75 cents, with no volume discount.
* Each bid raises the purchase price by 15 cents and increases the auction time by 15 seconds.
* Once the auction ends, you pay the final price.

I just watched an 8GB Apple iPod Touch sell on swoopo for $187.65. The final price means a total of 1,251 bids were placed for this item, costing bidders a grand total of $938.25.

So that $229 item ultimately sold for $1,125.90.

But that one final bidder got a great deal, right? Maybe. Even when you win, you can lose.

Also see:

An All-Pay Auction

What starts off as a feel-good exercise to take advantage of a generous professorial offer suddenly becomes a sickening war of attrition, where the last two bidders pay more than what the prize is worth. These games routinely end with the winning bid being 50 percent higher than the value of the prize. Since both the highest and second-highest bidders pay, this means that the professor rakes in about three times the amount being auctioned.

This is an example of what auction theorists call an “all-pay” auction, and it’s a game you want to avoid playing if you possibly can.

But Barry Nalebuff pointed me toward a scary website — called swoopo.com — that seems to be exploiting the low-price allure of all-pay auctions. And it seems to be working.

(Thanks Kristjan, Roscoe, and Kyle for the links)

The HPV vaccine for cervical cancer (a game of incomplete information and signaling)

Fears of Promiscuity Pose Barrier to Cervical Cancer Vaccinations

There is an ongoing public health campaign promoting the vaccination of girls against HPV to prevent against genital warts and cervical cancer, but the Yale study showed the public believes that the benefits are outweighed by potential disadvantages. The Yale researchers—Sanjay Basu, a Ph.D. candidate, and Alison Galvani, assistant professor in the Division of Epidemiology of Microbial Diseases— studied how concerns about adolescent promiscuity and everyday economics lead many parents and guardians to not have their children treated.

The vast majority of those surveyed believed the risk of cervical cancer and genital warts (which are largely spread through sexual contact) is far lower with the HPV vaccine. But the same group of 326 adults in the United States also thought adolescent sexual activity would nearly double among those receiving the vaccine. Concern about increased promiscuity was the single biggest factor in the decision not to vaccinate, according to the study.

Bipartisanship and strategy (coalitional game theory and the theory of voting)

Isn’t it Grand

Typically, there is too much bad blood, ideological division and competition between the parties who compete to govern for them to join together.

In addition, it is rare that they need to join together. For instance, right now the Conservatives could govern with the support of any one of the three opposition parties, or even with just nine MPs from any party voting with the government.

But the principle driving factor–according to proponents of game theory and students of politics–the theory of minimal winning coalitions.

Macs and malware/viruses (tipping point…for a similar example, see racism and game theory)

When Malware Attacks (Anything but Windows)

Where is all the Macintosh malware? In a time when it would be conservative to say that one-quarter of all Internet-connected client PCs are compromised, it’s curious that we’ve seen so little malware on Macs. Apple has highlighted its supposed invulnerability to viruses in various marketing campaigns, and for good reason. According to F-Secure, more than 250,000 new pieces of Windows malware were identified in 2007, and, if current trends continue, we are set for another 500,000 to appear by the end of 2008 (www.f-secure.com/2007/2/index.html). Meanwhile, the number of total pieces of Mac malware is rumored to be less than .1% of that total, with the majority of that total appearing only last year.

Here, I introduce a model based on game theory for predicting if, and when, Mac malware will arise based on a reasonable number of measurable parameters. But first, let’s review a few theories on how Macs have been able to avoid malware.

Game theory and test-taking (game of expectations)

The Art of SATergy

My son took the SSAT exam this past Saturday. And while I was sitting in the Choate athletic facility waiting for him to finish, I remembered that Avinash Dixit and Barry Nalebuff’s new book, The Art of Strategy, has a great example concerning standardized testing. Game theory is so powerful it can help you figure out the correct answer without even knowing what the question is.

Consider the following question for the GMAT (the test given to MBA applicants). Unfortunately, issues of copyright clearance have prevented us from reproducing the question, but that shouldn’t stop us.

Which of the following is the correct answer? [analysis follows]

Fish and game theory (game of cooperation..has to do with fair division)

Take ‘em to the cleaners!

Wrasses are a family of bright coloured, smaller, marine fish that are marked by a jaw structure with separate jaw teeth that jut out. A group of them are the cleaner wrasses which provide a service to other fish by feeding on parasites and dead tissue in the clients’ mouths and gill cavities. Client fish are known to seek places where wrasses congregate, to seek ‘cleaner service’ and predator fish leave wrasses alone because of the latter’s value as cleaners. But the cleaners are not entirely benevolent, they also like to snatch a bit of healthy tissue and mucous, which is an extra charge the clients usually do not agree to pay! When a client fish is being cleaned by wrasses, it patiently allows its parasites and scales to be cleaned, till the cleaner takes a nip at healthy tissue. The client discourages this behaviour usually by swimming away, so that the feeding session ends for the cleaner. How soon a cleaner is likely to chance a “cheating bite” and whether a cleaner behaves differently when working with a partner can be matters of mathematical study.

The Bus-wait formula (an overly scientific way to analyze a common situation…like how to find true love)

Bus-wait Formula, The

You arrive at the bus stop to catch the ride to work, but the bus isn’t there. Your destination isn’t very far, so you think, Hmm, maybe I should just walk. But then you might find yourself halfway between stops when the bus whips past, which would be deeply annoying. What to do? Should you walk or should you wait?

This question has plagued commuters for years, but this year three undergraduate students at Harvard and Cal Tech decided to resolve it.

(Update: see the original research paper)

My friend joked the company would only realize her value after she left. By chance, it happened much sooner. My friend became very ill for one week and her projects suffered. Upon her return, she quickly fixed the problems. It was this incident that impressed managers at review time.

The peculiar part of the story is my friend didn’t really change herself. She didn’t take a class, or learn a new skill, or even demonstrate a hidden talent–she had cleaned up messes at the office before. What she did inadvertently do by being absent was illustrate her co-workers’ incompetence. Negotiating isn’t always about what you can do but rather what others can’t do.

One of the few credible ways to demonstrate what others can’t do is by withholding supply. This means strategically working less or producing less if you are truly in a position of power. Contrary to popular opinion, working longer and harder isn’t always the best negotiating tactic.

Withholding supply is a powerful negotiating strategy. It has been used controversially by big players such as Microsoft, Nintendo, and the Oakland Athletics. But before we get into these examples, let’s explore the theory through a simple card game.

The card game

The game comes from Co-Opetition and is quite interesting:

It’s a slow day at Harvard, and Adam and twenty-six of his M.B.A. students are playing a card game. Adam keeps the twenty-six black cards and distributes one red card to each of the students. The dean is feeling generous and agrees to put up $2,600 in prize money. He offers to pay $100 to anyone–either Adam or a student–who turns in a pair of cards, one black and one red.

That’s the game. It’s a free-form negotiation between Adam and the students. The only stipulation is that the students can’t get together and bargain as a group with Adam. They have to bargain on an individual basis. Where would you expect the negotiations to end up?

At the outset, it would appear Adam has a tremendous advantage. He has all the black cards so all pairs have to be made by trading with him. Adam can therefore exert his power by selling his cards at a premium or buying red cards at a discount. So what price will prevail during the trades?

We can make a guess using game theory. One way to proceed is by calculating how important each player is to the game. The relevant concept is a player’s “added value.” In this game, the added value is how much money a player’s presence contributes to the game. The examples below will make the idea clear.

Let’s calculate Adam’s added value. Adam has all the black cards. When Adam is in the game, he can contribute to each of the 26 pairs worth a total of $2,600. If Adam were not in the game, then there would be no black cards, and hence no chance for prize money. The difference between the two scenarios is Adam’s added value–it is $2,600.

What about each student’s added value? Each student has exactly one red card. When that student is in the game, he allows for one pair to be made worth $100 of prize money. If that student were not in the game, then there would be exactly one fewer pair. Each student’s added value is $100. The 26 students combined sum up to an added value of $2,600.

The symmetry in added values of the two sides suggests an even split of power. To make any particular pair, Adam’s black card is as important as a student’s red card. Adam cannot lowball students because they can hold out until a fair offer is made.

Here’s why. Suppose that every pair had been made except the last one. At this stage, both Adam and the student understand there is $100 up for grabs. The student’s card is as vital to the prize as Adam’s card. Neither side would likely agree to anything less than half of the $100. The result is an even split. Since each student could think this way, every student ends up with half of the prize money for the pair. The prize money is therefore split evenly between Adam and the students.

Can Adam do better? Yes-withhold supply

Adam’s monopoly on black cards surprisingly yields him no more than half of the money. But he can do better, if he withholds supply.

The trick is creating an artificial scarcity of black cards. Imagine Adam burns one of his black cards in front of the students. Now there are only 25 black cards. While burning a card will lower the total prize money by $100, it will provide Adam with incredible negotiating power.

We can see this by calculating the added values. In this setup, Adam still has all the black cards and is necessary in creating each pair of cards. Adam’s added value is still the whole pot, which is now $2,500.

What about the students? It is here that things change dramatically. There are 26 red cards but now only 25 black cards. This means one red card is in surplus and will not be paired in the end. If we removed any one student from the game, the total prize money would stay the same. Consequently, each student has an added value of zero. Suddenly, no one student is essential!

Now, the asymmetry in added values of the two sides suggests Adam has much power. No single student’s card is essential for making a pair and inevitably one student will be left out at the end. Since any student could end up with nothing, those that end up with any money-even $1-could consider themselves better off.

Another way to see this is by considering the end-game. Suppose 25 of 26 students would have ended up with $50, similar to the outcome of the first scenario. Then there is one student that gets nothing and is left out. It would be in that person’s interest to sell the card for less–say $49. When Adam accepts that offer, it will put some other student out of game. Now that person will sell for even less, say $48, rather than get nothing. In essence, the student that is left out drives down the selling price. Since every student fears getting left out, every student would settle for any money rather than get nothing. And so the price of red cards will drop.

The end result is that Adam can buy the red cards at a steep discount and end up with almost all of $2,500. This is a better individual outcome than getting half of $2,600. The trick was withholding supply to increase negotiating power.

Examples: Microsoft, Nintendo, and the Oakland A’s

If done right, big companies can similarly withhold supply for individual benefit. The actions are always controversial because withholding supply comes at an expense to society (notice that Adam destroyed $100 of value by burning a card).

It’s best to learn from real examples. Here are three ways companies have been alleged to withheld supply.

• Microsoft

Microsoft has long been charged of withholding supply. Randal Picker, at the University of Chicago Law School, describes some tactics of Microsoft. Check out the examples in this paper that directly compares some of Microsoft’s actions to the card game described above (pdf, search for “scarcity”).

• Nintendo

Nintendo also been charged with creating artificial scarcity when it introduced the Wii and stores had shortages of it. If Nintendo did withhold supply, what might have been its reason?

Nintendo may have been combating the buying power of big retailers. Stores could not simply order all the Wii units they wanted, but they had to wait for a limited quota. The retailers were turned into students hoping they would not be left out. This would shift the power and profits to Nintendo.

Interestingly, this is not the first time Nintendo has been alleged of withholding supply. Some economists have wondered this about Nintendo since 1997 (abstract, download the full paper and search for “Nintendo”).

• Oakland Athletics
  

A final example comes from baseball. We can think about selling tickets to a game as a kind of matching game. Each occupied seat is a pair of a seat plus a fan and is worth a certain surplus. The fans and owners split the surplus depending on negotiating power, just like in the card game. The owners have all the seats (like Adam with the black cards). When demand is poor, people may only buy the cheap seats. Owners can counter by withholding supply and restricting seating.

This is what the Oakland Athletics did a few years ago in the Coliseum by cutting seating capacity by 22 percent. The result was unpopular, but it did increase revenue.

In conclusion

Withholding supply can dramatically increase negotiating power but it has risks. It comes at an expense to society and can possibly be illegal. Also, the tactic fails if you lack sufficient leverage. If you were a student in the card game, burning your red card would have done you no good.

In summary, use with care and caution.

Fidel Castro says America is “profoundly racist.” What do you think?

His statement made me think about segregation. I thought about racially divided neighborhoods in big cities. I thought about the “racial cliques” I observed among peers at Stanford. I thought about how few CEOs are of color. Is Castro right-do these things mean America is deeply racist?

The surprising answer is no. There is an alternate and perhaps more convincing explanation of why segregation happens.

During the 1960s the economist Thomas Schelling researched segregation and racial preferences. He suspected segregation was the result of a subtle interaction and he created a model to investigate. Not only did the model confirm his suspicion but it showed something very surprising: even very small preferences among otherwise civic individuals could lead to segregation.

I’ll cover the model and then explain its implications which affect everything from housing sales to company hiring policies.

Agent based models

Schelling analyzed racism by a technique called “agent based modeling.” It’s a computational idea that’s now being used to model everything from traffic flows to the spread of a disease.

The focus of such models is on creating autonomous “agents” who act according to relatively simple rules. Some rules of interaction might involve learning or randomness. The interesting part of these models is seeing how these simple agent rules can create complex global patterns or emergent behavior. (In Schelling’s language, the agents have “micro-motives” and the emergent pattern is a “macro-behavior”).

The Schelling Segregation Model (a.k.a. Schelling Tipping Model)

The model is easy to create if you have common household items. Here is how it is set up:

1. The game takes place on a checkerboard, which represents a city.
2. The checkerboard is filled with dimes and nickels representing two different types of agents.
3. The different types of agents can be thought of a different races, genders, etc.
4. Each agent evaluates its current position based on a “happiness rule,” which depends on the adjacent squares.
5. Unhappy agents are allowed to switch places with each other (there are various ways one can model this).
6. The game continues until agents are happy, and this represents the equilibrium outcome.

The outcome primarily depends on the happiness rule. One example of a happiness rule would be “I want all my neighbors to be the same race.” Not surprisingly this rule leads to an outcome of complete segregation.

The interesting part is playing around with other rules. Schelling found even small preferences could result in complete segregation.

Try playing yourself

Schelling played the game during the 1960s and 1970s with nickels and dimes on a physical board. Now we can simulate them on computer. I highly encourage you to try a few simulations to get the feel for how things work.

NetLogo has a good model here with instructions. Here’s a link directly to the simulation (requires Java).

Here’s a simulation I ran with 2500 agents and a happiness rule of wanting 30 percent of neighbors to be of the same color (red or green). This is a mild preference of race.

The results are absolutely stunning-there appear to be neighborhoods that are completely segregated! Although each run is different because the initial setting is random, these results are typical. Try it for yourself.

What do these results mean in practical terms? I’ll rephrase an explanation from The Atlantic. A 30 percent happiness rule would mean the following:

[Notice that] these “people” would all be perfectly happy in an integrated neighborhood, half red, half [green]. If they were real, they might well swear that they valued diversity. The realization that their individual preferences lead to a collective outcome indistinguishable from thoroughgoing racism might surprise them no less than it surprised me and, many years ago, Thomas Schelling. (source)

Four implications of the model

The Schelling model is not perfect but it can give us good insight into racial and other segregation. Here are a few insights:

1. Don’t assume groups are deeply racist

I would imagine most people are not racist but have small preferences. Schelling’s model illustrates how these individual preferences can aggregate into complete segregation. It’s impossible to assign blame to any particular person, and it is not necessary that group members are deeply racist (though that is a possibility).

2. If you can, get it right the first time

In the Schelling model, initial conditions matter. If some neighborhood starts highly segregated, natural interaction would keep it that way.

The implication is that if you want diversity, you should try to get it right from the start. This applies for races as well as for other categories. For instance, teachers that want genders to interact in class should not leave it to chance. They should assign alternate boy-girl seating from the start. Who knows, the students might even like it.

3. Intervention may be necessary to maintain diversity

How can a neighborhood maintain integration? The issue is the integration may not be a stable: if one or a few families of one race moved out randomly, there might be a flight that could lead to complete segregation. This is the concept of “tipping.”

The book Thinking Strategically explains one city’s effort to maintain diversity:

The racially integrated Chicago suburb of Oak Park provides an ingenious example of policies that work. It uses two tools: first the town bans the use of “For Sale” signs in front yards, and secondly, the town offers insurance that guarantees homeowners that they will not lose the value of their house and property because of a change in the racial mix. (page 244)

Such policies seem to work but they have been criticized. Some point out the ban on “For Sale” signs is unconstitutional. Here is another good article (pdf) that analyzed and questions the practices.

4. Intervention may be needed to “fix” things

What should you do when a group has become segregated? In the NFL, head coaches are predominantly white and there was an investigation about why. The Schelling model implies it might not be deep racism but the consequence of mild racism.

The NFL changed its free-for-all hiring practices and adopted the Rooney rule. This rule stipulates that teams must interview at least one minority applicant when filling a head coaching position. This intervention has created much controversy and some question its effectiveness. But one thing is evident: since the rule, more minority coaches have been hired.

What is your take on segregation in America?