AEC 810

Interdependent Binary Choices

Interdependent Binary Choices.*

Consumers' action affects supply and demand simultaneously.

Hard to predict actions of others

Hard to contract to control others' choices.

1. Markets--

Marked by individually

piecemeal marginal


1. The aggregate result

preferred by most is

not achieved

(e.g. 50-50 mix of genders). No equilibrium.

Schelling's examples of

Mixing and Sorting:

Dorm gender.

Racial mix.

2. Administration -

Location is assigned

2. Achieve some desired

dimension (e.g. 50-50),

but lose individual


Problem is not IUG

resource scarcity primarily.

3. Status--

e.g fraternity-sorority

Hour dances (mixers).

3. Achieve desired aggregate

and participants learn to

regard the process as

natural - just the way

things are.

* It is not like MPD where there is a dominant choice regardless of the acts of others. Here there is a marginally preferred choice which apparently moves the individual closer to the preferred outcome, but has an undesired outcome when combined with similar acts of others whose volume is not predictable.