High heels were invented in the near east around the year 900 with the very practical purpose of making it easier for a man riding a horse to keep his foot in the stirrup. This was crucial for the Persian cavalry, all of whom wore heels. This is the same reason why contemporary cowboy boots often have a heel. This trend eventually made it's way west, and upper class men began wearing boots with a heel in the late 1500's. But a curious thing happened - men who did not ride began wearing boots with heels in order to emulate men who were rich enough (and thus high status enough) to own a horse. High heels stopped being a practical measure to stay in the saddle and became a social signal. To indicate wealth, fashionability and social status, men and women walked around town in stylized riding shoes.

At this point, it would not be unreasonable to discuss the "Heels Bubble". Much like the Tulip Bubble and the South Seas Bubble, people were purchasing high heels mainly for the reason that everyone else did, believing it was an investment in the world's perception of them.

500 years later, the bubble has not popped. Men stopped wearing heels somewhere in the early 1700's when the enlightenment encouraged men to signal intellectual depth, rationality, education and practicality over wealth. But women, being perceived as sentimental and uneducatable creatures, continued to display colorful and impractical social signals. In contemporary society, women continue to waste billions of dollars on heels. They knowingly damage their bodies and risk injury (last week an acquaintance broke her ankle as a result of high heels) and show no sign of stopping this behavior.

The High Heel Bubble was a fundamentally different creature than the Tulip Bubble. People purchased Tulips because they believed the price would increase. But any individual who understands that tulip prices will not increase has the incentive to sell their tulips, reduce the price of tulips, and help pop the bubble. Whoever gets out of the bubble at the right time will be extremely wealthy - just look at John Paulson and Michael Burry [1]. If you buy gold while all your friends buy tulips, you become wealthy. Every individual has the incentive to push the markets closer to their global maxima.

The High Heel Bubble had no such mitigating mechanism. No individual has any incentive to defect. Any woman who chose to wear flat shoes would be perceived as unfashionable. Even in the present era, a woman who chooses not to wear high heels may face social penalties from her friends and coworkers [2]. This is a stable Nash equilibrium, but not a global maxima. The optimal strategy for women collectively would be to switch to flat shoes, but no individual woman can play this strategy since she will face social penalties. Thus, the situation is locally stable. The High Heel Bubble isn't a bubble at all - it's merely a transition into a suboptimal Nash Equilibrium.

It's my belief that the Education Bubble is closer to the High Heel Bubble than to the Tulip Bubble. People purchase education because it serves as a useful signal to employers of conscientiousness, intelligence and high human capital. Unfortunately, this means that no individual has an incentive to defect. I believe education is overvalued but I would still encourage my children to receive an education. If they don't, many employers will pass them over for a job in favor of someone with a degree.

I sincerely hope education is a bubble. If it is a bubble, it will eventually pop, and we will find our way to a global maxima. But I don't see much reason for optimism. I expect that rather than popping, the education industry will level off at a high level and the world will be stuck in a Nash Equilibrium which is less optimal than where we are now. Our children will all waste 4 years of their life and $100k of our money and educators will become wealthier. It would be great if this could be prevented, but I see little mechanism by which that would occur.

[Edit: after reading some comments on Hacker News, I want to clarify something. I'm not attempting to discuss the economic impact of a bubble bursting, or compare the personal harm of a $500 shoe to a $50,000 student loan. I'm only discussing the game theoretic aspects of a signalling bubble vs a speculative one. ]

[1] For simplicity, and because they are tangential to the point of this blog post, I'm ignoring issues like the bad incentives created by "too big to fail".

[2] Obviously I'm generalizing. The dynamics I describe apply to the world of fashion, investment banking and other sectors. There are plenty of fields of work and groups of friends who don't insist on foot pain as a cost of entry.


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