A close friend recently made the observation that there is an unusually high proportion of beautiful women in New York. This is certainly true and is a very visible effect of the structure of the sexual economy. Let me explain.

It is natural to use economic analysis for sexual selection because it is based on the relative scarcity of desired attributes. Many attributes are routinely held to be desirable by males and females. Its not a question of their moral value or socio-cultural origins, what matters is that such regularities exist. So, (heterosexual) females looking for life partners look for healthy, good looking, emotionally stable, intelligent, successful, and financially secure males. Similarly, men judge women on certain attributes like beauty, intelligence, character et cetera. Its arguable that men value female beauty too much and that this is a recent phenomenon. Regardless of the merits of such arguments, we only care that it actually holds statistically for the male population. Note that some of these attributes are more easily discernible than others. Its easier to tell if someone is physically attractive than if they are emotionally stable, of good character or likely to be more successful.

The theory of asymmetric information can shed some light here. It is best formulated in terms of the job market. There is a firm that wants to hire from a pool of potential employees. Suppose there are two types: those with high productivity (High type) and those with low productivity (Low type). The workers know their type but the firm does not. In a pooling equilibrium, the firm hires without distinguishing the types and the equilibrium wage rate is the average productivity of the whole pool. Now suppose the high types can obtain an education with little effort, while the low types find it costly to do the same. Then there is another possibility. In a separating equilibrium, the high types get an education that is too costly for the low types, the firm can then distinguish between the two types and there are two wage rates in equilibrium. Note that education is purely a signalling device.

The application to the mating market is straight forward. Let us suppose that a male is either a high type or a low type. The males know their type but the females do not. Clearly, we have separating equilibria with signalling. This was understood a hundred years before game theory. That it exists among humans is hardly a revelation. What is more interesting is the dominant signalling device in the modern period. I am, of course, talking about money.

For a substantial section of the sexual economy, earnings have become the primary signalling device. Note that females’ preference for high-earning males does not make them gold-diggers. They are responding optimally given the structure of the market. The high types–capable, intelligent, educated males find it easier to make the moolah that allows them to distinguish themselves from the low types–their incompetent, dumb cousins.

There is another point to note. The above is a toy model and is at best a first approximation. In reality, given a particular self evaluation, a female does not necessarily want to look for a very high type if she thinks he might leave her for other, more competitive females. This serves as a sort of self selection mechanism. To put it ridiculously: suppose there are only two cities, New York and Detroit. Further, suppose that we are given that all the high type males find it easier to find a well paying job in New York and that all the low types find it too costly to live there so they have to live in Detroit. We will find females who think of themselves as competitive congregate to New York, while the ones who evaluate themselves as not being competitive will move to Detroit.

Put this together with the fact that Wall Street alone paid out $35 billion in bonuses in 2006 and its clear why there are an unusually higher proportion of attractive women in New York.

[Update: it can be taken to extremes.]

[Update: Ok folks. There is a lot of misunderstanding about what I mean by attractive women. A lot of people claim that there is no such thing as intrinsic beauty. Which may or may not true depending on whether you agree with Akeel Bilgrami. In either case, we can meaningfully talk about it. Here is a thought experiment.

Suppose we have two rooms labeled H and L, and a hundred randomly selected women. Imagine that Rahm Immanuel gets to pick the 50 he finds most attractive and puts them in room H. The rest go to room L. Now we remove the labels from the rooms and you get to walk into them and decide which one was H. 

Would you bet that you would be able to tell the rooms apart?]