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  • Antal Ertl

The Tipping Point, Or: How Micro-Behavior Turns To Macro

Updated: Jun 23, 2020

A question a number of economists ask themselves is what effects does society have on the economy? While this question may strike you as mundane, consider this argument: the market economy and capitalism works as it is because all the transactions happening are voluntary in nature. When you need something, you go to the market and consider your options and the different deals you encounter. If you don’t like the deal you have been given – may it be because of price, quantity, or quality – you can reject the offer and go search for other options. If you don’t find the goods you were looking for, then you might be inclined to search for substitutes.


Many philosophers and economists questioned the nature of these transactions, whether it is intrinsic evaluation and rational thinking that drives us, or something else. Rousseau had his famous argument that civilization had awakened amour propre (or: self-love) in people, leading to pride, vanity and envy. While in the old, natural environment, people were searching for things that were intrinsically good for them, moving to cities caused people to determine their own individual well-being as a comparison to their neighbours, friends and family. This lead to people looking for extrinsic values, instead of focusing on intrinsic ones.


Considering social choices, Veblen (1899) argued that there are two kinds of goods: one that is intrinsically good, and you find “utility” consuming it, while the other is a “social good”, which is good for signaling your social status (while you cannot enjoy it directly, you can enjoy the consequences coming from owning/consuming it). Herd behavior is also something worth considering, as it’s one of the most well-known habits among people in a social (and often economic) context. But what might induce herd behavior? And how do we get to certain social decisions?


A nuclear scientist and an economist walk into a bar


Many economists and economic thinkers from the 20th century had inspirations from various scientific theories, or had come from different scientific backgrounds. John von Neumann, for example, who with Morgenstern created the expected utility theory, was a mathematician and a physicist, and is known as one of the fathers of computers. Similarly, Thomas Schelling was an economist who also happened to be an expert in foreign policy and national security (and inspired Stanley Kubrick’s famous picture “Dr Strangelove”).


Schelling made a great contribution to economics by analysing conflicts as well as cooperational problems using game theoretical analysis, for which he received a Nobel-prize. He had an idea built on the concept of “critical mass”, which is used in nuclear physics. Critical mass denotes the smallest amount of material needed to induce nuclear fission. He used this as an analogy to why certain electable seminars at Harvard are doomed to fail.


He came to the conclusion that there are two points which are of stable equilibrium when considering voluntary, after-hours seminars – one where (nearly) everyone is present for a long period of time, and one where the whole thing dies out. Going back to nuclear fission, the more fissile material there is, the higher the probability that nuclear fission will occur. Translating this to social context: the more likely a certain group of people act in a way, the more likely people will follow this trend. If you see that less and less people attend a seminar, you might be inclined to not go next time. Later you could rationalize that it’s because you think that other people have some excess information (that the seminar is not that useful), but in reality, it matters little – you just know it is not as popular as it should be. 


He also argued that there are exactly two kinds of people in these sort of “transactions”. Firstly, those, who have some sort of intrinsic evaluation of the situation, and they will act accordingly. Or in plain english: they know whether the course they are currently sitting is valuable to them or not. The second group, however, are those who look at the social environment – to them, the amount of people present is an important signal of quality. Consider the members of the second group. They all have a somewhat individual threshold where they consider a seminar “popular”; for some, it is 80 people present out of 100, for some it is 65, etc.. If we take this (and the knowledge we acquired by studying herd behavior), we can quickly realize that it takes only a couple of people to leave class to quickly start a domino-effect.


Micromotives and macrobehavior – the concept of tipping point 


Thus, Schelling used this argument to define the so-called “tipping point” in social contexts – the point where the steady state of such social or cooperative games gets defined. It can be best depicted as an “s-curve” shown below:


Source: http://marktruelson.com/welcome-to-the-s-curve-of-personal-disruption/


The part depicted as “hypergrowth” is the most interesting part, where an exponential growth occurs. From the point of the dying seminar: until the tipping point, one or two students leave. After hitting a threshold, those who just go to the seminar because others go as well start to drop out – and suddenly, the majority of the students  leave in a relatively short period of time. It also has an interesting implication: if everyone in the population does something only because everyone else is doing it, this will become a social norm, since theoretically nobody will go against it. If, however, a loud minority started arguing against such an action, it might change the whole environment. Others argue that in this area, with little additional added work, great impact could be achieved: if you are currently at a tipping point in your project, one little extra effort could change everything.


This is also a key concept when considering COVID-19. The tipping point in this case is the start of an exponential growth in the number cases. Of course, this is a completely different context, as in this case, it is rather the parameters of pandemics that define this exponential growth rather than individual properties (however, the speed of the virus being transmitted can be affected by reducing personal interactions – the idea behind social distancing).


The previous examples show that the concept of tipping-point has been widely used. It has been used in economic growth models, as well as in social settings, such as the growth in the number of people attending church (see here). More recently, as mentioned before, it has been used for analysis of the coronavirus: not only with how it spreads, but also it’s potential economic effects. In an analysis done by Christian Aid (available here), they warned that in third-world countries where health-institutions are basically non-existent, COVID-19 could cause a humanitarian disaster not seen in decades. That is why developed countries should help prevent these countries reaching the tipping-point of a disaster involving both economic well-being and health.



References and Further Readings


Church Growth Modelling: https://www.churchmodel.org.uk/enhancerevival.html


Christian Aid (2020): Tipping Point: How the Covid-19 pandemic threatens to push the world’s poorest to the brink of survival.  https://reliefweb.int/sites/reliefweb.int/files/resources/tipping-point-covid-19-report-May2020.pdf


Schelling, Thomas C.  Micromotives and macrobehavior / Thomas C. Schelling  Norton New York  1978


Veblen, T. (1899). The theory of the leisure class. New York: MacMillan.



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