The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life (18 page)

The incentives that Becker studied were not just money. Hating someone could be a strong motivation to discriminate against him. According to Becker’s theory, people who bear this kind of animus don’t just hate the “other,” but they would also willingly surrender
money—profits, wages, or income—to cater to their prejudice. For example, a white man who harbors animus toward blacks would rather work for $8 per hour alongside a fellow white man than for $10 per hour alongside a black man. In this case, the “animus incentive” overcomes the monetary one.

Still, when he first traveled around the world presenting his work on
The Economics of Discrimination
, a common objection from other economists was that “this is not economics.” Basically, their argument against Becker went like this: “It’s not that this work isn’t interesting or important; it’s just that you should leave it to psychologists and sociologists.” But things began to change with the advent of the civil rights movement of the 1960s. Soon, people were fiercely interested in the topic of discrimination and economics, and Becker’s was the only serious book out there.

“Suddenly, influential people began reading it, and the whole thing snowballed,” he recalls. The book was reprinted in a second updated edition in 1971 and is considered a classic because it forever changed the way we understand discrimination. By the time the Nobel Committee gave Becker the Nobel Prize in Economics in 1992, its members specifically praised
The Economics of Discrimination
. “Gary Becker’s analysis has often been controversial and hence, at the outset, met with skepticism and even distrust,” the Nobel Committee noted in its press release announcing the prize. “Despite this, he was not discouraged, but persevered in developing his research, gradually gaining increasing acceptance among economists for his ideas and methods.”
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Prejudice Is Shrinking

Obviously, animus-based discrimination is still virulent. Sometimes, it breaks out into the open, as anyone who has ever listened
to “hate radio” shock jocks can attest. Whites and blacks still don’t necessarily get along in all parts of the world. And gays are still the objects of bullying, beatings, and bullets.

Despite all this, we have come a long, long way. If the average American had gone into a coma in 1957 and woken up today, he would no doubt be amazed at the changes in social attitudes. Culturally speaking, life is not the same as it once was; people’s social proclivities and preferences have evolved. For example, there is no longer the widespread assumption that women are inferior to men or that their lives should be only focused on husbands, children, and home life. Nor are those women who work outside the home relegated to so-called pink collar professions such as teaching or nursing. Approximately 39 percent of Harvard’s MBA class of 2013 was comprised of women, the highest percentage ever; and in 2011, women surpassed men in the number of master’s degrees awarded.
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In fact, plenty of employers now fight over the opportunity to hire qualified women, and they happily pay for maternity leave in order to keep women at the firm after they get pregnant.

Additionally, innate animosity of whites toward blacks appears to be dropping overall.
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According to a USA Today/Gallup poll conducted in 2011, the public accepts interracial marriage more than ever. The poll showed that 43 percent of Americans think it is good for society; 44 percent say that such marriages make no difference. More than a third of those surveyed said that a relative of theirs is married to someone of a different race, and nearly two-thirds said it would be fine if a family member decided to marry someone of a different race or ethnicity.
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Many African Americans are no longer marginalized when it comes to public policy; policy makers are now focused on shrinking the educational achievement gap between white and minority children. Americans even elected a black president twice. In short, we
are no longer living in the twentieth century, which is a good thing when it comes to ending animus.

Economic Discrimination: A Rising Problem

While this cultural evolution of the incentive to discriminate based on hate is good news, another variety of discrimination is on the rise today, and it shows up in a very different form than the animus of Becker’s youth. Economists call this different kind of prejudice “economic” discrimination,
⁸
and though it is more subtle than bigotry, homophobia, or sexism, it is increasingly widespread, multifaceted, difficult to parse, and often quite nefarious. And it’s based entirely on financial self-interest and “looking out for number one.” Animus is about self-interest, too, though the hater is not interested in money but rather in satisfying his desire to harm others.

You are probably already aware of economic discrimination because it shows up in your bills. If you are a smoker, your medical insurance may cost you more because, economically speaking, you run a higher risk of contracting diseases that cost a lot to treat. If your credit rating isn’t stellar, banks will charge you more for loans because you present a comparatively higher risk of defaulting on them.

Another very straightforward example is car insurance. If you are a male driver, you pay as much as 20 percent more for car insurance than a woman does for identical coverage. You might wonder if this unequal treatment is illegal, because civil rights laws clearly state that discriminating on the basis of arbitrary characteristics such as race and gender is illegal. On average, however, women have fewer driving accidents than men. The costs of insuring women are therefore less than for insuring men, so the courts have ruled that charging women lower—or men higher—rates is legal.

In this case, society seems to accept that discrimination based on differences in the
cost
to provide the service (such as insurance) is okay. But there are movements abroad to curb such economic discrimination. For example, the European Union is debating banning economic discrimination for car insurance. If it is banned, car insurance companies say men can expect their rates to fall by about 10 percent. (Of course, if such bans occur, women can expect their insurance rates to increase; the insurance companies won’t lose.)

Economic discrimination also springs from the beliefs that people have information—correct or not—about others’ economic situations. For various reasons, people and companies may believe that they have incentives to discriminate between individuals in order to make more money. For example, a contractor might charge 20 percent more than his going rate to repair the roof of a fabulous house of a millionaire CEO because he thinks the owner can pay more than people with more modest homes. A company might be thinking that in order to meet its stockholders’ profit expectations, it must increase the prices some consumers pay. This type of discrimination is not based on animus. It is based on a cold, hard, monetary incentive.

None of this apparent inequity is particularly pleasant if you are the person being targeted for higher prices, but it doesn’t mean the contractor who is charging you more bears animus toward you. It’s because he’s looking out for his bottom line. From his (or the insurance company’s) incentive-driven point of view, economic discrimination is a way of making more money. It’s as simple as that.

On the surface, economic discrimination in our transaction-based economy may seem perfectly acceptable, but it can be very nasty, especially because the victims often don’t know it is happening to
them. Economic discrimination is even expanding because of the Internet, along with the wealth of data that is collected on each of us. Consider the overwhelming amount of personal information collected about us daily by the Internet firms. Companies can easily slice and dice data to figure out who is a “preferred” customer and who isn’t—and so they put these data to good use by engaging in economic discrimination to enhance their bottom line.

As an example, consider the case of Robert Cole, a sixty-five-year-old resident of Ferguson, Missouri, who likes to do research online. To help out a friend with diabetes, Cole searched websites for information about the disease, and passed the information to his friend. Not long afterwards, Cole began to notice that he was receiving direct-mail and online advertisements for diabetes testing supplies. Who had gotten hold of Cole’s identity and personal information? How were the search terms that he put into Google being tracked, analyzed, and used? “Am I in somebody’s database as a diabetic? Because I’m not. I don’t even know how to correct that,” he told a reporter.
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This is scary stuff. What happens if the electronic fingerprint you leave behind—the detailed information about your purchasing history, the websites you last visited, and your financial status—are used against you?

In fact, most Internet sites use search information in ways consumers don’t understand. Automated bots sweep the Web for consumer information, and websites use cookies and browser fingerprinting to follow users, while third-party data brokers sell users’ projected online behaviors in real time. Every time you shop online, or even search, you leave an electronic fingerprint that allows businesses to collect detailed information about your purchasing history, the websites you last visited, and your financial status. Many websites use this information, in turn, to set prices. Companies
use the information out there to understand your incentives and act on it to enhance their profits.
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An online company that engages in such economic discrimination may be able to analyze your financial status by looking at your purchases over time, and decide that you are able to pay more than the next person. If you happen to be better off than others, or are willing to search less than others, you will likely be the victim of economic discrimination.

But, you may ask, what is really wrong with this kind of discrimination? After all, in the real world, customers often pay different prices. Anyone who has bought an airline ticket, booked a hotel room, or rented a car has faced such economic discrimination. Companies vary prices between customers all the time, trying to figure out what incentives to offer customers to buy their products. If you are a well-heeled businesswoman who needs to fly from Chicago to San Francisco for a quick one-day meeting, you may care less about the price than if you are a teenager on a tight budget. Why shouldn’t the airline charge you, the businesswoman, more?

The problem with the online world is that customers don’t know they are the objects (or victims) of discriminatory behavior because they can’t see the differing prices. The person who walks into a car dealership in a costly suit and gets offered the most expensive car on the lot likely knows what’s going on, and that the sticker price serves as a starting point for further negotiation. But the same person, buying a plane ticket online, may not realize her high wages and lifestyle are translating into pricier plane tickets—and she is powerless to do anything about the discrimination.

A website’s pricing is based on a computer algorithm—one that contains information about shopping history, home address (having sorted “desirable” from “undesirable” zip codes), spending patterns, credit card accounts, and more. And such programs are incredibly adept at recognizing and taking advantage of even subtle differences
among people. Even if the customer knows the website has offered the same ticket to another consumer for a lower price, she cannot necessarily use this information to haggle over the price; the website simply doesn’t let her purchase the ticket at the lower price.

You might say, “So what? If a rich person can afford to pay more, maybe she should.” But think about it: in the brick-and-mortar world, when women, minorities, and people in wheelchairs are quoted higher prices than others, it seems wrong. While economic discrimination is a gray area under the civil rights laws, most people believe that this type of behavior is unfair.

Like animus, economic discrimination also occurs in all kinds of everyday situations—when people ask for directions on the street, when they go shopping (whether online or in the “real” world), when they apply for jobs, when they get their cars repaired, and so on. But deciding what is and isn’t bigotry is often difficult. And awareness of this difficulty is important, because until we understand what really motivates people when they discriminate, policy makers cannot begin to protect people from injustice.

So how do we sort out animus-based prejudice from economic discrimination? We took to the streets to find out.
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Dress for Success

Jan, a fifty-year-old white mother of teenagers, had graying hair, gold-rimmed glasses, and a nose red with cold. She wore a navy wool coat warmed by a beige muffler, and she was our secret agent. We paid her to ask random people on the street for directions to Chicago’s well-known Willis Tower (formerly known as the Sears Tower). The first person she asked was a middle-aged white woman. She told Jan that the tower entrance was a short distance away. “Walk down two blocks to Michigan Avenue, cross the street, and walk down a block to Van Buren, and the entrance will be on your
right,” she said obligingly. Jan thanked her for the directions and walked on. Were the directions correct?