Larry Craig
Tyler Cowen
Maybe I spent too much time reading Thomas Schelling (is that possible?), but my main reaction was to wonder how such trade-maximizing conventions get started. I mean the foot tapping, the leaning of the bag against the stall door, and the like. In the early stages of such conventions, I can think of a few paths:
1. Signal something harmless and non-incriminating and hope for reciprocation. Yelling out a clue-laden but non-obscene word or phrase ("Fire Island!") might do the trick. But if the other guy yells back "Berlin!", is that enough to act upon?
2. Signal something costly -- incriminating or at least potentially embarrassing -- in the hope of establishing your credibility as a social transgressor. Of course you hope to get a costly signal in return. A step-by-step escalation of the signals then follows, so that trust in mutual social deviance is established prior to action. At some point in the escalation the action is worth the risk because the other person is sufficiently out on a limb. As the years pass the escalation of signals proceeds more quickly and cuts out some of the intermediate steps.
3. The initial gains from trade are so high that most participants are willing to run the risk of the blatant signal and the equilibrium is inevitable.
4. High-demanding and reckless "pioneers" establish the convention, by signaling blatantly but against their self-interest. Nonetheless the convention becomes relatively safe once it spreads to many traders.
5. The convention never become so safe (ask Larry Craig) and so we have a separating equilibrium in which only the risk lovers manage to trade in this public environment.
My intuition suggests a mix of #2 and #4 as the most likely paths.
How might you signal your willingness, to a friend, to make fun of or gossip about a common acquaintance?
September 3, 2007 at 06:27 AM in Economics | Permalink | Comments (14)
George Clooney
Tyler Cowen

George Clooney is under attack:
In his new film, George Clooney plays a man who is at the end of his ropes so goes along with the schemes of a huge multinational corporation that harms people in their quest for making money.
In real life, George Clooney is a man who makes lots of money, but takes money to promote the products of a huge multinational corporation who promotes products that harms children.
The movie is the new Michael Clayton and the product is Nestle, in case you didn't know. Clooney responded: "I'm not going to apologize to you for trying to make a living every once in a while.''
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