FutureIQ Knowledgebase

Fairness is Mostly an Illusion - Game Theory Schelling Point | Future IQ

4,154 views Wait, is this logic right? • Dec 19, 2025
Open in YouTube
Slog Reference: Understanding Schelling Points

Description

Why do some choices feel obvious even when no one explicitly chose them? Why does one leader emerge over others, why does 50–50 feel “fair,” and why is it sometimes easier to quit something completely than to do it in moderation? In this episode, we explore Schelling Points, a powerful idea from game theory that explains how people coordinate their behavior without communication, negotiation, or agreement. When there are many possible options, the human brain naturally gravitates toward what feels most salient, familiar, or expected.

Using examples from Indian politics, leadership succession, border and property rights, marketing, traditions, and everyday social norms, we show how these invisible defaults quietly shape outcomes in the real world. From why Rahul Gandhi remains the leader of Congress, to why brands like Colgate dominate shelves, to why social norms persist long after they stop making sense.

We’ll also look at how Schelling points create groups, echo chambers, and divisions, how beliefs and identities cluster into “Schelling sorts,” sometimes producing stability and sometimes producing deep and lasting conflict. Finally, we bring the idea back to your own life. You’ll learn how Schelling points can be used deliberately to create bright-line rules, break bad habits, simplify decisions, and notice where defaults were set for you without your conscious consent.

This episode isn’t about how the world should work. It’s about how it actually works, and why changing it is so hard.

💬 Join Our WhatsApp Community: http://tapthe.link/futureiqwa

Videos you may like/referenced in today’s episode:
What is Prisoner's Dilemma? https://youtu.be/y9kOyRu6FGU
System 1 vs System 2: https://youtu.be/DIVTMooO7o4
Tradition vs Change: https://youtu.be/M42tCi_5wQE
Why Do We Follow Social Norms? https://youtu.be/_XhIECCt_P8
Why Politics Makes You Dumb: https://youtu.be/q3iroqvt8Vo
Credit Cards - Free Money or Debt Trapped?https://youtu.be/p6WHZHMLopo
Diamonds Are a Scam: https://youtu.be/EjJ4GmcgukU
Curate Your Consumption: https://youtu.be/ftSJN9R-IY4

Do hit us up on Twitter:
@ngkabra http://twitter.com/ngkabra
@shrikant https://twitter.com/shrikant

Sources referenced:
Book: https://en.wikipedia.org/wiki/Focal_point_(game_theory)
https://en.wikipedia.org/wiki/Schelling%27s_model_of_segregation
https://en.wikipedia.org/wiki/Keynesian_beauty_contest
http://www.daviddfriedman.com/Academic/Property/Property.html
Country borders are Schelling points: https://www.aeaweb.org/research/can-schellings-focal-points-help-us-understand-high-stakes-negotiations
https://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.104.10.3256

Chapters:
00:00 Keynesian Beauty Contest
02:08 Split the Pie Game
05:08 Why 50/50 is a Schelling Point
08:38 Thomas Schelling’s Discovery
15:15 Property Rights & Borders - Just another Schelling
18:20 Power Imbalances and Bargaining
22:19 Fairness as a Strategy for Stability
26:48 Cultural Variations in Coordination

Listen to it on the podcast provider of your choice: https://tapthe.link/FutureIQRSS

Follow FutureIQ on Instagram: https://www.instagram.com/thefutureiq/

#futureiq

Related Slog Matches

Understanding Schelling Points

Keyword Search

0.00

Transcript

Why is Rahul Gandhi the leader of Congress and what does that teach you about breaking bad habits in your life? Okay. A why are we discussing a political topic and B related to bad habits. Uh but even before that C I'm curious to know your thoughts on why Rahul is the leader of the Indian National. We are going to discuss a fascinating concept called shelling points and it controls a lot of ways in which things happen in our lives right uh and Rahul Gandhi is a great way to explain it right but let's start with imagine okay there is a political party and the existing leader just died okay now you have to all have to get together
and choose a new leader this is more tricky than it sounds right Because if you are going to vote for some leader and this is not secret ballot okay you are voting in the open who do you choose I mean the naive answer would be that oh you choose the person who will be best for the party who you choose the person who is the most talented or something but no that is dangerous because if you pick say some guy and that guy loses somebody else wins now the person who actually won is going to look at you and not be happy with you, right? On the other hand, everybody who voted for the person who actually won is going to get
favorable treatment, right? So, you do not necessarily just vote for the best candidate. You do all these calculations and you want to vote for the person who's going to win. Okay? So, you don't just think about who I want. You try to think about who do they want, right? And at the same time they are thinking about who you want and everybody is thinking about what does everybody else wants and you can see how complicated that can get, right? Yeah. This has been studied in uh economics in game theory. This is called a Kenisian beauty contest. Okay.
Okay. Kinesisian beauty contest. Okay. And it is complicated enough that you know economists have to study it using differential equations. Okay. Wow. But now here is the thing. If everybody in the party was equal, then this would be a complete mess. Nobody would know whom to vote for, right? But in all of these, let's say, right? There are 300 people. They have to vote for a leader and just one person happens to be the son of the leader who just died, right? It just makes it easier for everyone, right? People will say, well, I don't know if he's the ideal person or not, but he clearly stands out. There's a good chance that other people will think he's uh should
be voted for. And even if they don't, they will think I want to vote for him. And this whole circular argument solidifies on him. And that's basically how dynasties get created, right? That's basically, if you think of it, that's how crystals also get created, right? I mean in water if there is uh you know copper sulfate too much of copper sulfate in the uh solution right where will the crystal form but if you put one little seed somewhere that's where the crystal starts forming and now the rest of the crystal will form there because that is one point which everybody can kind of agree on and I I can see how this argument translates into politics and human
nature because people will always sort of congregate around a charismatic personality Yeah. In fact, when you really think about it in the old days before democracy, this was even stronger, right? Primogenature, the idea that the oldest son of the king will become the next king. That just made it very clear who will be the king. No fighting, nothing. Uh right, easy decisions, easy coordination. On the other hand, the Mughals didn't have that. And guess what used to happen? Every time a Mughal emperor died, there used to be revolutions and there used to be fights and wars and whatnot.
I mean the basically the brothers would fight to kill each other. There still was a shelling point in the sense that the next king will be one of the sons of that leader but which son wasn't decided. So they would fight each other and they would kill each other. Right? There are plenty of examples. I mean there is for one I remember him and Darashuko and all of that from his one more interesting point here even after one of those guys becomes the emperor the point is that if there are say generals or courtiers or some powerful interests who don't like this emperor and don't like this emperor's way of functioning and they want to overthrow
him they can't just do it they need to all of them also coordinate and congregate under one leader and the best shelling point for a leader like that is one of his other brothers. Right. So the first thing he would do is either imprison or kill all his brothers so that there will not be a different shelling point for emperorship. Right. Yeah. And this pattern has been observed not just with Orurange and the Muggles. It has also been observed with the Peshawa line of succession with the Tudtors in England. This pattern is not just about leadership and politics. Okay, it appears all over in life. There is this really interesting research. Okay, let's look at this
image. I am seeing two boards. Okay, uh this is a game. Okay, uh each board is one game. And the idea is that L is one player on the left, R is another player. And the circles with the number in them is discs with money in them. Okay, the two players are placed in their positions and there the discs are there in front of them and they have 90 seconds to have a negotiation between them as to who claims which disc. Okay. Okay. At the end of 90 seconds they have to write down I want disk D1 or I want disk D2. Okay.
Uh and then those are opened and if both of them have claimed different discs then they get that money. But if there is any conflict, so both of them have claimed disc D1, then they will lose the money. Oh, right. What can happen? If you look at the disc uh the game on the left, right? Both will be fighting for D2 disc 2 because that contains more money, right? Correct. And in 90 seconds, if they can't agree who should get the disc with more money, then nobody gets it.
Nobody gets it. A kind of a prisoners dilemma situation here. Correct. Right. So, sure. And that happens, right? There is agreement in many games but some games there is no agreement. Now same game is repeated. Look at the diagram on the right. This time you will see that the disk's position is such that the disc D1 with six money is near left and this is near right. Oh, and over hundreds of games when they look at it, they found that in the first game, earlier game about half the time left got six and right got uh five and half the time it was the reverse equal chance.
But in the other game where the positions were asymmetric, right, 70% of the games left ended up with the more money, right? Oh, because clearly there is a shelling point. The disc being closer to me means I am going to fight more to get that disc just psychologically and psychologically you are primed to agree to that. Okay. This is how system one the irrational brain that you have works. Okay. So the players already know that D1 has six and D2 has five. Yeah. Yeah. Yeah. Of course they have all of that information.
Yeah. It's just a negotiation, right? I could just sit there and say no I want the six. Yeah this is close to me so this is mine. Yeah and you can try to fight or you say fine whatever at least I'm getting five. So wow that's how the brain works. So point being that a shelling point is of when there are multiple options and it's not easy to choose between the options. If there is one option that stands out for reasons that have nothing to do with the choice, right? It stands out for a completely different reason, but that makes it easier for our brains to pick that and for everybody to agree that is good enough. Right?
Okay. But now I'm actually trying to figure out what is this standing out comprised of like what makes a shelling point. Correct. So one is a word called salience which means that a central point is a good shelling point right like a centrist kind of a leader yeah or if we have to divide cake and I say 50/50 both of us quickly agree right or it can be a extreme point you know tallest guy or something like that or it can be something that is historically important right that which place in Pune should we make the uh you know should We celebrate everybody agrees, right? See, even symbolically loaded or just simple round numbers.
Makes sense. Makes sense. It is easier to split according to some correct round number. So, common knowledge culture dependence is important, right? So, like we said in Pune if u I mean the the famous example for shelling point uh is it's from economist Shelling who came up with this idea. uh and his example was that two of you had decided to meet today in Pune right but you forgot to decide where to meet and what time to meet right what would you pick right so if it was happening in Agra and both of you now you can't communicate with each other there's no cell phone nothing but you have to try to meet where would you go and meet
I would go and hang around the Taj Mahal assuming that he uses the same logic and or she same logic For Agra, Taj Mahal is the shelling point. But in Pune, if the two of us are meeting, we'll end up at Shaar Vada because we know about Shaada. Correct. But if somebody from North India shows up, he probably has never heard of Shaarada. He doesn't know about the Maratas. So then you know maybe the JW Marriott becomes the shelling point in so it is very culture dependent or Korea park but or Asham or whatever it is. There are plenty of good tourist spots in Pune.
come to Pune. Another thing that becomes a shelling point is based on marketing. A lot of marketing is an effort to establish a selling point. Right? Let us say that there was a competition where you and I both have to show up in Ankur's office without coordination. We have to both bring the same food from the same shop. If yes then we get a price otherwise we don't I mean there is only one food I'm bringing in that case bakari from the dean outlet of chit exactly right and that is because chare over the decades have spent a lot of money in establishing bakari as the unique pune thing right which is a much better example of this
which what what do you give your fiance when you get engaged When you propose a diamond ring, this was not a shelling point 100 years ago. This was established by Wers by having a major marketing campaign and now pretty much a diamond ring is a shelling point. We've done an episode on it, especially speaking about why diamonds are a scam and how the fact that the engagement ring is essentially a marketing tactic. Line it up. Much simpler example, okay? uh is you know you go to a shop, you want to buy toothpaste and there are like seven brands uh that you don't recognize and they're all roughly the same price, right? Six brands you don't recognize
and the seventh one is Colgate. What are you going to buy? Colgate. Colgate. In fact, for a long time toothpaste was Colgate, Colgate was toothpaste. This is in spite of the fact that when a Colgate ad comes on TV, you look away and you say, "What is this stupid stuff? How does this I mean you know how can this work on anybody? We are not so stupid as to fall for these two silly marketing tricks right? Skolgate will make some tall claim about total shi or something like that and you say this is dumb and then when you go to the shop you buy colgate because in your system one colgate is a shelling point for
decent toothpaste. I mean we've not uh spoken about it as a shelling point but we have spoken about various marketing tactics and shelling point is also just one more reason why that marketing tactic works. I also want to demonstrate two things. One is that shelling point explains a lot of things about how the world works and it is applicable in many domains. Right. So let me ask you this question. Okay. In India the president is the head of state. Right. But if you read the constitution, the president has zero powers, right?
The president has to pretty much do everything that the prime minister says. The president can't say no, right? And yet at the time of election of the president, the parties get very very worked up and they are very clear that they want their person to become president. Yeah. Because the president still has to finalize the decision that the parliament president does not have a choice in the matter right president has to sign that whatever the parliament sent right does is a figurehead so why do the parties give so much importance to the president ah I I will tell you right let's say there is an election and there is you know no clear majority so
now coalitions are forming And now the president has to invite one of the people to say come try to prove that you have a majority. If that works sure they get to form the government. If that doesn't work, president will invite someone else and that process will repeat. Correct? If you look at it mathematically, this still doesn't give the president any power because you know only the person who has the majority will be able to prove it. So it doesn't matter what order the president calls them in.
But remember that proving a majority across when there are many small parties is a Canadian beauty contest, right? So the first person to get invited Mhm. becomes a shelling point and there is a higher chance that if there are equal factions right there's a higher chance that that one is going to form the government and that shelling point is why the president is important h and now that you've brought politics into it I actually can see a lot of shelling points in global leadership situations also but like I said I don't want to stick just to politics so I'm going to give examples from many other areas, right?
Interesting. Go on. Most important thing is property rights. Okay. That um if you have a house, I have a house. Okay. Uh and so far there is just some land between us. This was supposed to be like our commonish garden. Uh right. But at some point you have to draw a line and then this side is my land, that side is your land. Right? I'm just imagining like many hundred years ago when uh these were not plots of land by made by the government, right? Where do we draw the line?
We take a midpoint between the two houses because a midpoint is a shelling point. 50/50 is a nice round figure. You put it, you feel that sounds fair, right? It's easy for us to argue. If I say that, okay, it has to be 60/40, then you will say why not 60/40 in my favor, right? uh or you know then why not 59 and if I try to convince you that I need a little more because XY Z then you say why not 59 why not 58 right and basically anything other than 50/50 is not a number a division that is unique in any sense right or even acceptable in any sense because of system one and morality and all that
that's one thing second thing not morality ethics but yeah go on second thing is just property. Uh, right. I mean, the reason you own whatever your house is that you brought it from someone who bought it from someone who bought it from someone, but if you go far enough back, it was just some guy who used weapons to take control of that. Yeah. Right. But now we pretty much treat it as sacrosan that oh, whoever currently owns it is the owner and I have to buy from him. So all current property rights are just a shelling point established because of centuries of possession.
I mean I've always called it a social contract where all of us have come together to agree that certain things are inviolated. Yeah. And the only reason we have agreed to that is just because we have agreed to that for a long enough time. Right? Yeah. Because the day we disagree society will descend into chaos. Very important point. Okay. Shelling point is a very very important method by which we agree in situations where you know agreement is difficult in situations where agreement is difficult but if you don't agree nobody gets anything because there's going to be chaos there's going to be war there's going to be fighting right so yeah but you know just think about it that
original inhabitants of any country it's just a shelling point because you know there was some point at which they were not original. They came and they kick killed the existing people and now they're calling themselves the original inhabitants, right? Yeah. So here is another thing right that the Taj Mahal example was that you know you did you couldn't communicate with each other and that's why you will pick Taj Mahal right I could ask the question that well we now all have cell phones right so why are we talking about this shelling point uh where you have to coordinate without communication right the point is that communication doesn't fix things because of trust issues right Right?
Even if I tell you that oh this is uh you know we'll do it this way because then I will I promise to do this you promise to do that you may not trust me right so until say in case of the leadership election right we come and we agree and it's like okay fine let us all vote horse trading in the background let's all vote for this but then at the time of the actual vote you might switch right and it has it has happened it has happened all kinds of tricks happen So the fact is that although the toy examples are of you can't communicate but the point is that communication doesn't uh actually solve the problem
and that is why shelling points are important. Yeah, I can imagine in the example of the factions that you are giving if there happened to be a certain person full of charisma who could sort of convince everybody else that you know you can crystallize around me and I will make a good leader then we will end up having that person as the leader. Okay, consider another problem, right? You have these powerful vehicles where you press an accelerator and it goes at 80 kmp, right? And you want to drive around on roads, right?
Now, if you couldn't all agree, you're going to crash into each other all the time. Yeah. Right. And at that time when you are going 70kmp m there isn't enough time to call them on the cell phone and say you know what I will go from the left you go from the right so we don't crash into each other right correct so traffic rules are a shelling point right that is a good example of a shelling point where we came up with uh something and everybody agreed on that and everybody sticks to it and that is good for everyone. Okay. On the other hand, there are bad shelling points also.
At some point, we all got together and we said that women will sit in the kitchen and they will cook while men will go out and do all the stuff that gets the money and the power. I was I was just going to say that a social contract sounds like a really good shelling point. But then this example which is also a social contract, yeah, was an example of a bad shelling point. In general, this is how we have always done things is a shelling point which can be good or bad depending on the situation, right?
On what things have been done. Another example, right? That uh there is a doctor's office and when people come in, you can't all go into the doctor's office at the same time. Then there will be chaos, right? So there is queuing. There is queuing, right? First come, first serve is a shelling point. There is no reason why first come first serve is the best way of queuing up, right? I mean, you could imagine situations where most needy first or oldest first or the whoever pays most goes in first, right?
That actually happens in hospitals that is triage. Triage is basically when the hospitals take account of people coming in and it happens at it happens at tirupati devastanam where people who pay more go first. Right? Point is that we just you know without thinking about it we just go and we queue up in first come first serve order in most places unless there is another shelling point already established like triage but we just assume that is going to work and everybody else also assumes and nobody fights over it.
Yeah I'm I'm beginning to realize that a lot of shelling points are social contracts and a lot of social contracts are built out of a sense of ethics and morality. Or it is just this is how we do things. Okay. I tell you how changing of shelling points can cause problems. Changing. Okay. Yeah. So I mean I can you know whenever you meet new people the Indian style was you quickly figure out who is older or who is higher in respect and the lower in respect touches the feet of the other person. Right? We are now because of western influence India one the rich people are shifting to modern methods. Right? We shake hands or the even more modernized people will
hug. Yeah. Right. And we are in the middle of that transition. So a lot of us are in a situation where two people come in front of each other and you are not sure are we going to hug are we going to shake hands or are we or am I expected to touch feet right? So that is you know because the shelling point is shifting right in front of our eyes. It's a bit of a mess. Right. What a fascinating example Naven. Love it. But going back to the beginning, you mentioned that this concept shelling point would help me break bad habits in life.
Right? So first of all understand that a shelling point is useful because it is something that multiple parties who normally can't agree can quickly agree upon agree upon and part of the reason is because your system one brain feels huh this is right okay for whatever reason. Now the thing is that when you have a bad habit like oh I want to reduce the amount of junk food I eat you can really think of it as there being a disagreement between your system one brain and your system two brain right you're not agreeing and that's why ultimately the system one brain wins and you are trying to reduce junk food but you are eating more right
an excellent shelling point is zero okay what do you mean zero I will eat zero junk food. Okay, there will be no junk food in my house. I will not eat at all. Right, that is much easier to follow as compared to I will reduce the quantity. Right, reducers in first system one can then say h reduce means t can I can eat two. Well, three is also low enough and then you know people like this, right? where you start with I will reduce and then that reduce is just a very variable number whereas zero is a very bright clear number it's a shelling point and it is not easy to argue with zero like oh one is better
than zero no it is not right one is acceptable is not easy to say when you're at zero but two is acceptable is easy to say when you're at one this is making me uncomfortable in a good way because suddenly the concept of getting addicted to junk food or getting tempted by junk food has taken on a completely different meaning right if I mean wow okay I'll have to actually seriously reframe my entire thinking around junk food with this in mind lot of um atomic habits that we talked about in earlier episodes right you can reframe in terms of shelling point right one of the things it says is that let's say if you're going to have a habit of
exercising he says that you know you should do something every day I don't care if you do 1 hour of exercise or 3 minutes right but you should get up every day wear the exercise clothes and do something right that's a shelling point that I will do I will do most of the days five or six days a week I do very soon becomes four or five days a week then it becomes three or four days a week but I do something every day whether it is 3 minutes or 4 minutes or 1 hour is a very clear shelling point that your brain cannot easily wiggle out of right Yeah, because on the days that
you don't do then you're breaking that commitment, that bright line of I will do something every day. Correct. And in the credit cards episode, uh we said that yeah, you should use credit card for convenience, not for debt. But a lot of people prefer not to use credit cards at all for the same reason. Zero credit card use is much easier than saying I will use credit cards but not for debt. Right. Yeah. But then we also gave the example or gave reasons for why you should be using a credit card in that episode.
But that was you know if you're disciplined correct for undisiplined people there is an interesting shelling point there. Right. Very true. Now I'm actually thinking of and I'm sorry to say this but ways in which uh shelling points can be manufactured and used if you know what I mean. Absolutely. Right. If you go back to our original example of those two games where five and six rupees were being divided, you will notice that just by arranging the money in a different way. The actual content hasn't changed. The actual amount of money hasn't changed.
Just their positioning has changed. But because of that, you created a shelling point in the second game which wasn't there in the first game. And because of that, you changed the outcome of the agreement. Right? Yeah. So by manufacturing selling points you can drive decisions when large number of people who are fighting each other is concerned right and the people who are best at doing this are political leaders. Charismatic political leaders of course the purpose of all marketing is to establish shelling points. Okay. One of the greatest examples of shelling points in the history of humankind is religion. Right? All religion does is establish shelling points of good behavior, right? Yeah.
And that is great because there are certain behaviors, real good behaviors which would not have been possible without religion. But also bad because there are certain definitions of good which are you know wrong and religion drives this. So yeah, my mind is racing with all of the possibilities of what can happen if you manufacture a bad shelling point and especially if you manufacture it with an intent to cause chaos. I should really Is this the start of my villain arch or something? I don't know. But so I think I'm just going to put one interesting thing not discuss this in detail but when you just manufacture a shelling point out of thin air right uh like uh
you know uh Hindus and Muslims can't get together okay okay now imagine a small town in which they were all getting together okay and then there is the shelling point because of which a few of them start fighting and because of that a Few people in a building start saying we will not rent to Muslims. Okay, not everybody, just a few people and because of that you know one less Muslim in that building then two less Muslims. After a little while the other Muslims who are already there start feeling uncomfortable and they move out and similarly now they have a Muslim area where there is same kind of discrimination against Hindus. So if there is a Hindu living there, the
Muslims are like you know are you sure you want to be here and so on. We have seen this happen in our lifetimes, right? This is called a shelling sort and it happens in many not just politics. It happens in many different areas, right? In we are seeing it happen in real time with the entire hate against Indians. Forget in America much simpler, right? Um my wife is a CA, right? So her entire friend circle before getting married was people studying for CA, commerce, accounts background. M and when we got married we realized that my entire friend circle was engineers right and that was clearly a shelling sword. We had just gravitated towards our own thing and then when we got
married we realized that well what are we doing right and so over time I mean we have taken extra effort to break the shelling swords that are happening in our life. Yeah. And they decided to break the shelling swords by including uh people who are in the media, people who are charismatic, people who are smart, brilliant, intelligent. I'm not talking about and people with beards and people with beard. So anyway, the big picture is that understanding shelling points leads to an improved understanding of how the world works as how I mean you know I'm not talking about how the world should work. Okay.
Shelling point explains how the world actually works and how things get decided without you having explicit uh agreements. Right? And do not confuse this is how things work with this is the right way. Okay? Uh the way something is happening is probably because of some shelling point which you aren't even aware and that might not be the most fair, the most smart or the most well thought out. Right? So you keep that in mind and changing them isn't easy, right? By definition, shelling point is something everybody has agreed on and getting everyone to agree on something else is difficult. Part of it is also because you know coming up with something like this is easy but changing
the actual rules is even slower and changing the culture of people is even slower as we talked about in the episode on base layers, right? But you know you can still change things if you have a long enough horizon and you do enough marketing around that concept the way the diamond people did that right and of course when you are using it in your own life it is much easier because just two people involved your system one and your system two right there are so many episodes you referenced in explaining this concept of the shelling point that I can't even list all of them we will list them in the description but uh what I also
realize is if you combine the concept of shelling point with all of the other concepts, all of the other first principles that we've discussed so far across the channel, then you will have a better idea of how to live a better life for yourself. You can coordinate with others better. You can negotiate more smoothly, right? You can use bright line personal rules to drive your uh habits. And you will notice where defaults have been set for you without you realizing it. And all of these are episodes by the way. We will line them up one by one for you. So go do check them out. And while you're here, why not create future IQ as
a shelling point in your life, your community by joining our WhatsApp community. Good segue. Shriant Naven, Future IQ. QR on your screen, link in description.