Imagine you're walking along Galle Road. You see a person staring at the sky, what do you do? What happens if there are five people - all staring at the sky? The answer to these questions formed the basis of one of the first psychological studies on herding effects in humans carried out by Stanley Milgram (famed for his research on obedience to authority) way back in 1968.
 Milgram set up on a busy New York City street. He used crowds of hired help of varying size to stare at the sky, and then recorded the number of passers who looked up or indeed stopped and joined the crowd. When there was just one person standing looking up around 5% of passers by stopped and joined them, and almost 40% of passers by looked up. By the time the crowd had grown to 15 people standing staring at the space, 40% of passers by were stopping and joining them, and over 80% of passers by were looking skywards!
This is an excellent example of herding. Of course, herding can be perfectly rational. For instance, in the savannahs of Africa zebras herd together to avoid being eaten by lions. The membership of the herd reduces the probability that each individual will be eaten, conferring a clear survival advantage to the herd.
From an evolutionary perspective, imitation and herding may well have benefited mankind. After all, if you look around and see all your fellow cavemen thriving by doing something that you aren't doing, the chances are you will either start doing it or perish.
Herding is an extension of a larger set of behaviours that shape identity, which is a crucial driver of individual success and failure. According to Nobel laureate economist George Akerlof, who together with Rachel Kanton have written an interesting book on the subject, "As an example, neither gender nor racial discrimination arises from purely personal preferences. Instead, they reflect social codes that tell people how they are supposed to think of themselves and how they are supposed to interact with each other. People take such codes seriously. For example, in the case of gender, those who identify as men also want to behave as men are supposed to behave; those who identify as women want to behave as women are supposed to behave."
When we examine people's decisions from the perspective of their identities and social norms, we get new answers to many different economic questions. Who people are and how they think of themselves is fundamental to decisions that they make. Their identities and norms are basic motivations.
As an individual, "identity" can and should be monetized - identity is the ultimate "intangible" value, only it is actually very tangible. Research shows that those with a true understanding of their identity tend to move higher-up in their chosen careers and lead more fulfilling lives. Identity becomes more pointed in a fast evolving world and for those whose lives are increasingly internationalised. New migrants provide a great subject for research on this topic. It's too early to make definitive comments (and we may never be able to), identity explains why certain immigrant groups like to stick together and live in proximate neighbourhoods. Identity (or lack of) also explains the inconsistent outcomes of many migrants.
For some, success comes from "sticking to their own kind" and finding opportunities through networks within their own communities. Others find that "switching identities" is a more fruitful path and chose to embrace their adopted societies more closely. Neither guarantees success, but switching carries the risk of isolation (stuck-in-the-middle in strategy parlance) and the butt jokes of society (the white English-speaking people of the world referring derogatorily to second generation South Asians as coconuts).
The bigger point though is around the ability of identity to explain the divergence of pay for migrants. The most financially successful migrants are not only highly and uniquely skilled, but exhibit an aura of confidence which allows them to navigate trough a web of prejudice. Confidence is often linked to higher scores of Emotional Intelligence, but most importantly to a very high mastery of soft-skills. Identity helps to anchor an individual, while they acquire the skills needed to move through society.
These soft-skills then transfer to much higher wages.
No strength of identity or soft-skills can rid the world of entrenched discrimination (what economist Kenneth Arrow described as statistical discrimination where most whites assume all other races to be less skilled than them) or a nasty boss who refuses to grant a pay hike. Identity gives individuals a frame of reference to address an otherwise intractable problem of being highly educated and skilled, yet not being rewarded or recognisedfor their work.
(Kajanga is an Investment Specialist based in Sydney, Australia. You can write to him at kajangak@gmail.com). |
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