"What Left A Mark, No Longer Stings"*

My friend (who was too smart to get a PhD in economics) would call List's “The Nature And Extent Of Discrimination In The Marketplace: Evidence From The Field” “Gonzo-economics”. I would call it “Freak” economics after Levitt and Dubner's book. Gonzo or Freak economics involves economists examining popular issues with the economic way of thinking. Many times they put themselves in the research (hence the term “Gonzo.”) Their work is also accessible to a wide audience not just economists. I do not know what Hunter S. Thompson would think, but I like it.

I can imagine List writing a book or a long magazine article about this research. I am sure he met enough interesting characters to sell copies without too much embellishment (but names changed to protect the innocent). “Fat Charlie had sold cards for thirty years. Well, twenty nine and half years, he spent six months in jail for stalking his ex-wife.” “Chris and Janet collected together. They had met at a card show three years ago. They both fought over a Sheffield rookie card. At their wedding, instead of rice, they threw worthless cards. The other collectors called it the event of the Spring.” I do not know if List would approve of these stories, but the creativity of his work is hampered by the Quarterly Journal of Economics. Freak economics tells stories about human action. And it does not apologize for these stories.

List conducts a field experiment at area card shows to test for market discrimination. Discrimination is a complicated issue that is misunderstood. Many people confuse prejudice with discrimination. My grandfather was prejudiced. With his white friends, he would degrade African-Americans. His sons excused this behavior with “he grew up in a different time,” but he was prejudiced. Even though he was prejudiced, he did not discriminate. He cared much more about money than his prejudices. He hired the best man available. Many times the best men were minorities. Prejudice consists of talk. Discrimination concerns action. I know this does not perfectly match the theoretical definitions of discrimination, but economics teaches that it is important to distinguish between talk and action.

List's experiment recognizes the complexities of discrimination. Again it is not enough to be prejudiced, a person has to do harm to another person. List does a thorough job of looking at theoretical preference-based and statistical discrimination. He not only looks at the different bid offers of dealers to different races, ages, and sexes on the same card, but he plays dictator games, looks at bargaining expertise through Chamberlain markets, and pre-show preferences for the card. He randomizes. He runs the most complicated but controlled field experiment I can imagine. He covers the bases. He does not run a single game but multiple games to better tease out how people discriminate.

List comes up with a number of results. The most important economic result is some discrimination is profit maximizing. Experienced dealers know how and who to low-ball. They look for marks. Most marks are minorities. Experienced traders know how to negotiate. Even though it might take minorities' longer, they still get the same price as majorities. Another implication from List's study is tacit knowledge comes with experience. This knowledge could never be formalized, and I doubt dealers or traders know they have this knowledge. But it exists. Experienced dealers know how to trade and maximize their surpluses. Hayek would be proud.

List's most important result is discrimination is complicated. Segregation and apartheid were clearly wrong. But different offers at a card show are pretty meaningless. (List has almost convinced me that no discrimination (by my definition) exists in the card market.) There is nothing inherently evil about unintentionally charging minorities different prices. There is nothing inherently evil in maximizing profits. It would be evil if minorities were not allowed to attend the card show. Real evil involves interfering with others' rights because they are a different color or a different religion. Racism lives, but we are talking about a complicated issue that cannot be completely explained by economics or sociology or psychology or any academic discipline.

I wish List would have explicitly concluded with these complexities and humbly “threw his hands in the air.” But pride and the profession probably will not allow it. It worries me that papers like this one will be misconstrued, and politically deft people will use it to help say something the paper never intended to say. I wish List would be happy with his story and remind people we have come a long way. I wish he would admit the best policy is to ensure freedom and let the market do the rest. But the problem with the “Freaks” is they are positivists. List does not want to “solve” the discrimination problem. He just wants to use economic tools to describe it. He leaves the important discussions to politicians. And this scares the hell out of me.

*U2's Grace