Working paper no. 98: Productivity or privilege: Game-theoretic and experimental models of social class
The Central Bank of Iceland has published the working paper “ Productivity or privilege: Game-theoretic and experimental models of social class“ by Anna Gunnthorsdottir at the University of Arizona and the University of Iceland and Pálmar Thorsteinsson at the Central Bank of Iceland.
Social stratification, segregation and inequity invite concerns about fairness and social harmony. Our game-theoretic and experimental results indicate that they can also be detrimental to productivity, efficiency, and welfare. Class is defined by players’ resources, incentives to make a public contribution, and social mobility. We discuss the model’s real-world applications, and ways to increase efficiency and welfare through increased equity, mobility, or competition. We also describe how the model can be adapted to represent and experimentally test different class structures, the interaction between demographic characteristics and class, and the effectiveness of policies that modify incentives. We experimentally test a two-class model. The poorer L-class are socially mobile: for them, effort is linked to social positioning and earnings akin to what is often referred to as a Middle-Class mindset. The productive L-players support a relatively efficient equilibrium that encompasses both classes. Upper-class H-players, notwithstanding their guaranteed privilege and superior resources, are relatively unproductive and display behavior akin to class-consciousness by contributing only what is necessary to remain above the L-class. The experimental results confirm that humans respond swiftly to incentives associated with their material status and economic opportunities and suggest that policies aimed at increasing welfare through incentive modification can be successful.
The working paper can be accessed here: Productivity or privilege: Game-theoretic and experimental models of social class