Kevin Burke

Game Theory Final Paper

December 18, 2009

<b>Social Status as an Institution

Social status is the prestige or reputation afforded a member of society by the other members of the society. High status people have their pick of partners, lots of power and desirable friends; low status people must suffice with whatever the high status people do not want. Despite the inequalities inherent in the status system, it facilitates economic cooperation and, if the members pursue status games that enhance welfare, it can lead to a society’s economic prosperity.

Why do people have social status? All human life is governed by scarce resources, and desires that outstrip nature’s ability to provide resources. For example, men compete for access to women, children compete for the love of their parents, the members of a tribe may compete for the choicest cut of meat from the deer that they killed, etc. In the course of competition, the most fit competitor will claim the prize. Because the rewards are unevenly distributed, there exists some inequality between members, suggesting that the players can be ranked.

Social status must be conferred by the group; one can’t award high status to oneself. Why do we assign social status to others; specifically, why do we acknowledge that some people have higher status than we do? High status people may demand it, by forcing you to acknowledge their status by winning fights, demanding your loyalty or claiming the best mates. Furthermore, we gain higher status by affiliating with high status groups, like fans who hop on the best team’s bandwagon. If we don’t acknowledge someone’s high status, then we cannot affiliate with them.

Let’s say ten men arrive in a town, or ten boys arrive at a new school, and there’s some doubt about their status. The man who earns highest status, the alpha male, has the most power and first pick of all the women, so each man wants to become the alpha. One way to settle matters is for all of the men to fight each other until only one is still standing. The survivor proves his status by defeating all the others, but makes the village worse off, by rendering most of its members unfit. Alphas are better off with others around, and others prefer being alive and healthy to being killed in a fight. Instead of fighting duels every time a member’s status is challenged, most societies develop proxies, called status games. Status games provide a good heuristic for the outcome of a fight between two members of a society, while keeping them both alive and healthy. At their most basic level, status games facilitate economic development by keeping people alive; people value being alive, so status games are welfare increasing. If people had to fight to the death to defend their status every day, they would not stay alive too long. So most people are content to use status games to earn status, instead of engaging in fights.

Note that it doesn’t really matter what status game we are playing; we could give high status to whoever wears the biggest paperclip necklace. All that matters is that the participants are distinguishable, and that the game is a relatively good proxy for evolutionary fitness.

Assigning every man equal social status is not an equilibrium. If everyone treated everyone else equally, one person could find something that they were better at than the others, like wearing cool clothes or playing chess or cooking, and make everyone aware that she is more desirable because she is better at that skill. Members of the opposite sex are looking for the fittest person they can mate with, and so they’ll desire anyone who demonstrates that they’re most fit, and any system that allows them to rank members of the opposite sex. As long as the opposite sex acknowledges differences in status, the equal status of members falls apart.

Competing for social status is an equilibrium; how is it enforced? If you want high status, you have to play the same game that everyone else is playing. In Nash terms, given that people confer high status to the best basketball players, my best response is to become good at basketball. If I have low status, then I probably couldn’t win high status by fighting; I estimate that I would lose a fight with people that have higher status than myself (If I could win the fight, I would probably have higher status). If I try to play a different game, telling everyone that “Basketball is a silly sport,” people are going to suspect that I am bad at basketball and give me low status. If I have high status, and I’m good at playing basketball, I could change the status game to cricket or soccer, but why would I want to do that? I already have high status. Players who have incentive to change the game lack the ability to do so and players who have the ability to change the game lack the incentive.

This framework is similar to the framework of the rival claimants game in David Myerson’s paper, “Justice, Institutions and Multiple Equilibria.” In that game, two players fight over a common resource, and can choose to claim the resource or walk away. There are three equilibria; if one player is expected to claim, the other is better off walking away, and one mixed strategy equilibria where each player walks away sometimes and claims sometimes. Myerson’s intuition is that any set of instructions that steers the players toward one equilibria is better for both players than the situation where they both end up claiming, in which the players enter a war of attrition. The only key is that both players need to be aware of the instructions; if they are then they’ll choose one equilibria of the three.

Myerson focuses on justice as a framework to guide people toward the equilibria. He uses an example of a cab driver and a passenger playing the rival claimants game over a $20 bill, versus a game played between the cab driver and a random pedestrian. In the first game, our notion of justice leads us to expect the cab driver to claim because he provided a service to the passenger, and in the second, we expect the pedestrian to claim the money because it fell out of his pocket. The difference is due to our sense of what is ‘just;’ we believe it is just that the cab driver should be compensated for his service and that it is not just for him to shake down random pedestrians for money.

Myerson expands the model to provide a more general interpretation of property rights. Political institutions may form from the ground up, as a body that can tell everyone who should claim when. By assigning property rights to individuals, everyone then assumes that people will claim when they are on their land and walk away when they are on someone else’s land. Thus, political institutions can guide people toward a focal equilibria, where players are playing a game with more than one equilibrium. Because both players prefer to avoid the “war of attrition” scenario where they both claim, political institutions increase economic welfare.

But the framework of justice does not provide good guidance in situations where the circumstances don’t discriminate well between the competitors. Consider a situation where there are 5 women in a bar and ten men, or ten women in the marriage market, some of whom are prettier than others, or a box of donuts on the table to be shared amongst members of a team, some of which are glazed and big, and some of which are small. If players are aware of each other’s social status, then we can expect that in these types of competitions for scarce resources, the higher status player will always claim first. As Myerson showed, this is a stable set of events; as long as everyone expects the higher status player to claim first, then the lower status players are better off taking the second pick. This is not cooperation in the traditional sense, but from an economic perspective, the players are cooperating because they agree on the outcome and they are both happy with the payoff.

If higher status people are always expected to claim, low status people have little incentive to invest in their future, as Myerson points out in part 6 of his paper.[1] In feudal times, the local lord or knight claimed all of the best women, and imposed high taxes on the peasants. For this and other reasons, most farmland was unproductive and the medieval economy stagnated for centuries. We can also regard high school shootings as an extreme example of low status people disregarding their future; high school society is brutal to low status players.

Authorities can step in here to create rules that encourage investment from people who have low status. They could encourage monogamy, which will prevent the accrual of wives by high status men. They could encourage the proliferation of religion, the large majority of which promote rewards in the afterlife, and emphasize a sense of content and appreciation for one’s social situation. They need to rigorously defend the property rights of the poor, and/or a tax schedule that rewards increases in investment and earned income at the margin.

Myerson also uses his theory to explain why countries and neighbors can fight wars because of disputes over a small amount of territory. If any part of someone’s territory is disputed, even a small part, and one side backs away from the dispute, the other side may decide to start being aggressive everywhere. Thus it’s rational for them to get involved in a large fight over the small territory, to avoid having to fight along every inch of their border.

We may not have physical property associated with our social status, but one can think of reputation and prestige as territory that need to be defended against even small slights. If a girl lets someone make a joke about her boyfriend, she may open the door to many more jokes in the future; it’s better to demand an apology or quickly put the joker in their place. In some societies, this can be deadlier than others; consider the case in urban areas where a deadly gang war begins because one person stepped on another person’s shoes. If the victim lets the perpetrator get away with this small slight, he is signaling to everyone that they can walk all over him. For most, it’s better to risk prison than to be assigned low status.

If someone steps on my shoe in the Coop, they apologize and we get on with our lives; if someone steps on my shoe in the hood, I might pull out a gun and shoot them. The difference indicates that the status games we play have a significant role in facilitating or hindering economic development, by choosing games that increase people’s welfare. Let’s say that we assigned status to others based on who could assemble the biggest rock pile, so those who are biggest and strongest would probably assemble the biggest pile. While this game would distinguish between participants, and presumably do a good job of picking out those who are most fit, it would have negative economic value, as people would have to take time away from hunting or earning salaries to assemble their pile. Compare that to a game where we assign status to players based on how much legal income they have, so Bill Gates is #1, Warren Buffett #2, etc. Everyone would try hard to increase their income by producing valuable services, which would increase everyone’s welfare, as every economics textbook will tell you. But if our status game is wasteful, it will have a deleterious effect on productivity and economic development.

Clearly, money increases status in our mainstream society. The American Dream, for many people, is a house in the suburbs with a picket fence and a convertible in the garage. “Keeping up with the Joneses” is a term to describe competition among neighbors in the suburbs. The Joneses are constantly buying new things to advertise their status, and the neighbors must also spend money to keep up with them. Advertisements mostly display high status people using the targeted product, with the implication that if you buy the product, people will give you high status. With hundreds of billions of dollars spent globally on advertising each year, people clearly believe that purchasing things will give them higher status.

While people may be unaware they’re doing it, and deny their status seeking behavior if asked directly, it’s clear that there is a status seeking explanation behind most of our actions. This suggests that authority can play a significant role by steering everyone toward a status game that increases overall welfare, and away from one that has toxic effects on overall welfare. As I mentioned above, it’s hard to change a status game because the high status players have no incentive to change; look at the prevalence of duels in the 1800’s, and the persistence of violence in urban areas today. But the rewards are large for a society that is successful in changing the game.

Social status provides a stable solution to the rival claimants problem, thus increasing welfare. While two people may have different status, they are better off cooperating, with the lower status person accommodating the higher status person, because fighting incurs a positive cost to both members. Status games are not formed in a centralized way; put any group of people together and high and low status members will quickly emerge. We can turn anything into a status game, but by aligning our status competition with activities that increase economic welfare, we can make everyone better off. Authorities can steer people toward a good status game, and make rules that encourage investment from low status members.

While status is an effective institution for encouraging growth, or at least avoiding the destruction of growth, how can we encourage cooperative equilibria in situations where the players meet infrequently? What’s stopping people from lying or being deceitful about their status? There are several problems, as Paul Milgrom, Douglass North and Barry Weingast point out in their paper on trade in games with many players and infrequent meetings: “Individual members of the community must be induced to behave honestly, to boycott those who have behaved dishonestly, to keep informed about who has been dishonest, [and] to provide evidence against those who have cheated.”[2] Social status can provide answers to each of these problems, to keep people away from the equilibrium where everyone cheats all the time.

First, high status is extremely difficult to fake, because people give off unconscious clues about their status all the time. I can make a good guess about someone’s status by observing their clothes, their accent, their vocabulary, their posture (slouched or upright?), the way that other people address them, the way they respond to things that I say (laugh at my jokes or disregard them?), and the types of stories they tell, among other things. All of these give clues to someone’s status and they are involuntary; we are not, as a general rule, aware of what our body language says about us. In the movie Ocean’s Eleven, Brad Pitt must coach Matt Damon’s character on how to convincingly portray a mid-level employee: “You look down, they know you’re lying and up, they know you don’t know the truth. Don’t shift your weight, look always at your mark but don’t stare,” and so on.[3] Many people can’t lie very well. Lying causes people to feel anxious, and liars give off other clues such as a lack of eye contact and shifting weight. This suggests that despite people’s best intentions to deceive others about their status, most attempts at deception are easily discovered, so people should be honest. We can also easily punish cheaters or high status frauds by assigning them low status.

If we interact often with people that we don’t know, and there are no judges to affirm our high status, then we need some way to advertise our status. If our society shares a common status game, we can advertise our status by signaling. Signals of high status include buying an extravagant mansion, telling stories about the time we met Michael Jordan, setting new fashion trends, etc. The signal can be anything, but it must be costly to acquire, and give you status in some way. If our society shares a common status game, and you’re signaling properly, then your status should be fairly easy to determine, even if we’ve never met before (and if you’re not signaling at all, I will assign you low status). In addition to all of the clues in your body language, I can look at your house, your watch, the degrees on the wall in your office, or the type of car you drive to get a sense of how much money you have. Signaling encourages wasteful consumption, but it is necessary in the absence of objective outside judges of status.

We have to be our own judges about the social status of others. We might get it wrong every now and then, but most of the time our judgments about the status of others are accurate, because people display their status unconsciously, and if we catch cheaters, everyone can assign them low status. This facilitates cooperation because people must be honest about their status. Gossip is a way that communities share information about the status of other members; providing evidence against cheaters is valuable gossip for the provider.

To conclude, social status is an effective way of avoiding a war of attrition in the rival claimants game, by providing an expectation that the higher status person will claim in situations where “justice” does not provide guidance about who should claim the shared resource. If competitors play a status game as a proxy for a fight, instead of fighting to exhaustion any time their status is challenged, both members can stay healthy, which benefits both members (the high status person does not have to wear himself out in defense, and the lower status person doesn’t get beat up). Many status games involve lots of wasteful signaling, and some are economic disasters, but if the status game also rewards economic growth, then welfare increases as the members seek status.

Works Cited

Milgrom, Paul R., Douglass C. North and Barry R. Weingast. “The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the Champagne Fairs.” Economics and Politics 2, no. 1 (1990): 1-21.

Myerson, Roger B. "Justice, Institutions and Multiple Equilibria." Chicago Journal of International Law 5 (2004): 91-107.