Evolutionary economics

Monday, July 18th, 2005

In Evolutionary economics, Bob Rowthorn reviews Paul Ormerod’s latest book, Why Most Things Fail:

Ormerod gives many examples of social interaction leading to outcomes which are impossible to predict. The most striking example is Schelling’s model of residential segregation. In the US, there are few racially mixed communities and most blacks and whites live in neighbourhoods which are populated almost entirely by their own kind. This might suggest that there is a strong antipathy between the two groups. Yet a large amount of evidence suggests that this is not the case. Most blacks and whites would like to live in neighbourhoods where their racial group is in a majority, but they are perfectly happy to have a large minority of people from the other group as neighbours.

To explore the implication of such preferences, Schelling ran a number of simulations in which individuals were allowed to move house if they found themselves surrounded by too many of the other racial group. These simulations demonstrated two things. In the course of time, the typical result was that blacks and whites spontaneously relocated themselves into highly segregated neighbourhoods. It was impossible to predict where the boundaries of these neighbourhoods would lie or where any particular individual would end up. But it was a safe bet that the bulk of people would end up surrounded largely by people of their own race. This outcome showed clearly that social interaction may magnify small variations into very large differences. It also showed the limitations of the conventional approach to social phenomena, which assumes that large differences must have large causes.

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