An economist’s visit to a nightclub

Living 3 years in Sydney I finally found a free weekend to make my second visit to a nightclub.

Nightclubs are weird. Both women and men spend many hours if not days to prepare their outlook in order to simply impress a bunch of strangers. A guy from our company practically spent the whole evening trying to impress me with his drinking skill by indiscriminately engaging all kinds of alcohol and by illustrating his achievements from the past with pictures.

As turned out later when we went to the dance floor that guy’s act was the least weird thing that night. Men making awkward attempts to bond and jumping around a hoping to get a woman’s attention. The funniest of all is a little tribal circle that exchange studends and work collegues tend to create. Why is it happening?

Imagine that a manager at the company wants to pick the most productive guy for a job, or a girl that tries to pick the most devoted admirer for a boyfriend, or even a member of an admission committee that has to pick the ablest college applicants.

An ideal solution is to rank all candidates along an important for particular context characteristic and pick the best one. Then the most hardworking gets a job, the most loving gets a girlfriend and the smartest goes to college. The problem, however, is that such a ranking requires us to see what can’t be seen. The true level of productivity, devotion or ableness are unobserved. Asking candidates won’t work, all of them have an incentive to lie to be selected.

The solution, however, can be found by recognizing that the most productive is likely to have the highest educational degree, the most devoted is likely to bring the biggest present on Valentine’s Day, and the smartest is likely to have highest exam marks.

These relationships are not accidental. All three were intentionally created as a cultural truth-telling solution in the contexts where knowing the observable is important but candidates lack an incentive to reveal them truthfully.

In fact, the efficiency of a market economy is built on this truth-telling property. An economic system achieves maximum efficiency if those who value resources the most also possess them. Simply asking won’t do due to misaligned incentives, that is why we ask everyone to name a price they comfortable to pay. A willingness to pay contains information on the importance of a good to an economics agent. That is how a resource gets an efficient allocation.

Ok, that was cool, but how does it relate to what is happening in the club?

Dating and friendship, while being deeply important are not very well defined. The key game theoretical gimmick of a common knowledge does not capture a belief formation process of the participants in the slightest. The alcohol messes up rationality.

But are not participants usually decide to visit the club much earlier in the week while being sober? Are not they know exactly what they getting into and what they want from the club’s visit? I think there is a really cool way to capture all of it in a game theoretical framework. I’ll certainly do it, in a little while.

Here is, however, one exciting  way to explain that. Check this picture

Next time you go to club you have to realize that what you see is a version of Maasai jumping dance — a device created to reveal an unobservable to facilitate sorting on the marriage market. A man capable to jump the highest gets a chance to distinguish himself and drastically increases the chances of marrying the most desired woman. The jump contains an otherwise unobserved information about how good of a hunter a man can be. Even though participants hope to reveal an unobserved quality of a hunter, it is not about animal hunting per se.

Today Massai barely hunt to avoid unnecessary animal killing, yet success of the member of this community is defined entirely by hunting skills. For example, to become a man a boy needs to survive a night in a camp without a fence, which induces a non trivial probability to be eaten by an predator. The key point is that the one who jumps the highest has the highest chance to do well in other competitions of the community, which all happened to have a common theme — hunting. Likewise in the club one is not interested in someone’s expensive cloths, generasity or friendship. The interest is in those in possession of the same type of endowment that let do well in related culturally self-imposed competitions.

So even though we not particularly fond of seeing ourselves as a tribesman who tries to jump the highest in front of the whole tribe, conceptually and behaviorally we are. We constantly pick and being picked. In fact, forming groups with the person with an unobserved quality is and always was essential for human and communal survival and prosperity. It is noted that the human’s capacity to play a non-zero sum games with large number of genetically unrelated players is unique to animal world. Labels “bad”” and “good””, morality and other fictions are evolutionary hard wired into out brain as a decision making short-cuts to facilitate sorting for a better group formation. When the human activities were limited the preference relation “good is better the bad”” that is uncovered by rumors was sufficient to aid welfare beneficial sorting. However, as the societies grew in size and complexity sorting people along many other dimensions became important. Thus, humans attempted to improve upon sorting by inventing novel cultural solutions for further bolstering quality of matching.

In general, however, one does not need to go to college to be smart, or to church to be kinds. It is done for a show, and there is someone paying to see it. Thus, going to clubs is rational and in fact has a very importan social role.

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