Tuesday, December 17, 2013

M-m-m-my Fedora

The most powerful incantation in economists' spellbooks is "multiple equilibria." To cast this spell, all you have to do is 1) observe a stable, sub-optimal arrangement 2) flutter your hands a little bit (this part is both to impress your audience and to summon the ancient spirits) and 3) mutter something about transitional gains traps and path dependency.

I'm only half joking. The half that isn't joking really does help explain how it is the US has ludicrous agricultural policy, nonsensical occupational licensing statutes, and rabbit-hole non-violent crime prevention. The half that is joking comes from hearing too many over-eager economic polliwogs improperly citing a phenomenon that has a rigorous game theoretical definition.

So at the risk of outing myself as a legless anurial amphibian, consider a claim I made in yesterday's post. I urged you to consider if Simpson's Paradox applied to the marriage market. It occurred to me last night that I left that comment dangling. Here's what I mean.

Under legacy (I hesitate to invoke "tradition" here because of my sensitivity to charges of parochialism) institutions, families started earlier and lasted longer. These days, in the secular west, folks are delaying marriage, decoupling (lol) sex and marriage, and raising children in single-parent homes at an increasing rate. At least, so goes it in the aggregate.

Was the old equilibrium coercive? Did the compote mashed from the fruit of pulpit-pounding, social obligation, and old-timey paternalism contain trace amounts of force? If so, was it to avoid the prowling menace of endemic foppery?

The Original Foppish Swiss Libertine
You see, what we seem to have run aground on is a peculiar, fedora-shaped reef (f/t PJS). the separating equilibrium is, borrowing from Arnold Kling, characterized by Vickies (stable, high-conscientiousness, high-IQ, 2-parent households) and Thetes (unmarried, underemployed, directionless, single-adult households). Whereas before the rift, betas were shanghaied into quasi-compulsory participation in the institution of marriage, they're now free to pursue their own interests and senses of fashion.

Ah, you say, Simpson's Paradox has us de-omit a variable for analysis. Isn't the treatment the liberalization of sorting behavior? Well, maybe. I think the interesting bit of analysis is still in the non-ergodic aethershpere, a yet-to-be-applied treatment. Namely, how will the fedora and Pinkie Pie crowd adjust to their new marginal freedom? The revealed preference theorem suggests that these folks genuinely prefer celibacy and outre pursuits to the 2.2 kids, white picket fence road more travelled, cheap talk to the contrary notwithstanding.

The abiding puzzle is this: old institutions about family life solved some sort of collective action dilemma. In their absence, we can expect a new equilibrium. How will that new equilibrium compare with the old both within subgroups and across the entire population? Is this one of those instances where moving towards more euvoluntary institutions is a mistake? What's the appropriate metric? What's the appropriate counterfactual?


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Do you have suggestions on where we could find more examples of this phenomenon?