The term “positional arms race” refers to an escalating pattern of mutually offsetting investments undertaken by rivals whose rewards depend on relative performance. Such arms races are abundant in social and economic interaction – advertising wars, anabolic steroid consumption, cram courses for the SATs, social and professional wardrobe expenditures, even cosmetic surgery.

A variety of formal mechanisms – such as random drug testing of athletes and chronological age mandates for kindergarten students – have been used to control positional arms races. In this chapter, I explore how less formal mechanisms such as social norms have served a similar function. Examples include social ostracism of “nerds” by students, norms favoring modest standards of consumption, and implicit agreements among news organizations not to dwell on sensational or lurid news stories.

I begin with a brief description of the payoff structure that gives rise to positional arms races and then discuss why this structure often leads to inefficient outcomes. Next, I investigate the circumstances under which social norms will be sufficient to curb positional arms races. I then describe a series of examples in which social norms may be plausibly seen as achieving this purpose. Finally, I discuss economic forces that have caused many such norms to break down in recent years and suggest an alternative mechanism whereby the aims of these norms might be achieved.

Positional arms races

Economic and social life is replete with situations in which people's rewards depend not only on their absolute performance, but also on how well they perform relative to immediate rivals.