Reshaping Standard Microeconomics for Political Action: Kenneth J. Arrow and Thomas C. Schelling’s Rand Corporation Projects on Racial Issues

The paper focuses on Arrow statistical discrimination theories and Schelling’s models of segregation, and how their work can be considered as an illustration of “the introduction of the same policy tools [as war game theory] into domestic politics in Lyndon B. Johnson’s Great Society Program” (Amadae, 2003: 10). In both contributions, abstract and formal theory serves as “a public policy tool” (Amadae, 2003: 9). We underline how (i) certain methods employed within RAND Corp. during the Cold War like its “interdisciplinary approach” or its “system analysis” are applied in Arrow and Schelling’s work on discrimination, and (ii) how certain tools which became the core of neoclassical economics are at the same time pervasive and challenged in Arrow and Schelling’s respective work. In that sense, our analysis is slightly different from Amadae’s one (2003) who sees in their work the illustration of the domination of rational choice theory in neoclassical economics. In our opinion, the two contributions have in common to be embedded in a neoclassical framework and illustrate a movement to amend this general framework for policy purpose. The paper discusses the epistemological status of Arrow and Schelling works, i.e. how they shape a new trend of scientific knowledge, by their specific methodologies, and how their works stress the usual dichotomy between economics as a normative or a positive science. Methods have consequences on political actions and Policy recommendations. The tiny threshold between prediction and explanation in Arrow and Schelling’s works imply a reflection on their epistemological status, especially because their respective amendments to standard theory are driven by the necessity of policy recommendations.