This is from our pay-what-you-want collection of ideas from Tyler Cowen.
Equilibriums and incentives exist everywhere but not always in the same forms because conditions matter. “The key question is no longer: What’s the incentive?” Cowen said, “But to understand the incentive, you have to ask: What do people believe is the case? Subjective perceptions of the objective incentives out there become the new starting point for economics.”
The 2019 college admissions scandal is a situation where incentives and equilibriums existed and produced odd behavior which became criminal. Why would wealthy parents pay tens of thousands of dollars for their children to be admitted to schools, where in some cases, the kids didn’t even want to go?
Let’s pause our pursuit of Cowen’s ideas and introduce a set of cousins: the paradox of skill and the paradox of signalling.
The paradox of skill is the idea that if skills between people are relatively similar, then luck matters more. If Serena Williams shows up at a local racket club, she’ll win (in straight sets) against the local pro. However, at Wimbledon she needs every bit of skill and a little bit of luck to claim the championship.
That same idea exists in the world of signalling status. Ask the same question, and we get different results. If the incentive is to stand out from your peers, but your peers are already famous, already rich, and already take vacations to French Polynesia then what do you do?
You stand out through your kids.
The ring leader was Rick Singer, a once legitimate college counselor who found a side door for clients. Kids were flagged as recruits even though they sometimes never had or wanted to play the sport, but the coach was compensated by the kid’s parents through Singer. It worked because collegiate athletic departments didn’t actually check if the kids were on the team.
The thinking at the time was that coaches were incentivized to win because that’s how they kept their jobs and paychecks. But the violators followed the JTBD theory to include non-recruits in return for, what they claimed, were non-quid-pro-quo donations.
Ryan Singer solved for the equilibrium.
Parents wanted kids admitted. Coaches wanted compensated, and recognized. Singer wanted paid. Students wanted help. Like ingredients in a recipe, combining these things and it almost seems inevitable.
To solve-for-the-equilibirum means to also think about incentives, which we look at in the short piece from Cowen. It’s written as an alternative to Netflix or for the dentist who chronically runs late.