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The altruism in economics
Standard economic theory states that people are interested only in their own material gain. But new insights from behavioral economics show that altruism rather than avarice is our primary motivation.
With this wealth of new findings, the challenge is to build new economic models that will eventually translate into viable policies. Among the vanguard on this quest is the University of Massachusetts’ Gintis, who, as the lead author of Moral Sentiments and Material Interests
Gintis proposes a theory called “strong reciprocity,” arguing that bonds of trust and cooperation within a community often serve as greater motivation than material reward. The theory is based on the premise that humans evolved in small groups with strong social contracts and plenty of contact with strangers. Cooperation within the tribe was advantageous so long as free riders were punished. It was also the best gambit on encountering strangers. Cooperation, particularly in times of famine, was the only means of survival, so altruism became a favored evolutionary trait.
What this means, Gintis says, is that while financial incentives are important motives—perhaps even the most important—they can be trumped by a person’s selfless instinct. This instinct is responsible for some of humanity’s greatest achievements. “Movements for civil rights, civil liberties and political democracy in authoritarian states are responsible for creating modern liberal democracies,” writes Gintis, “yet participation in such movements cannot usually be explained in terms of self-interest.”
No shortage of real-world evidence exists to buttress Gintis’ theory. Successful non-proprietary projects, such as open source code or the emergence of socially responsible investments, wherein people accept lower returns to fund ethical projects, can’t be explained by standard economic models. So while a new theory like strong reciprocity isn’t a panacea, it could expunge the cynicism corrupting economic thought. Gintis offers a simple prescription: Teach business and economics the same way as law and medicine. “Doctors and lawyers learn that a moral code is a vital part of their profession, and that their profession is part of a broader human puzzle,” says Gintis. “This doesn’t prohibit them from making a good deal of money.”
It could work. Dan Ariely, a behavioral economist at Duke University in North Carolina, explored how society can foster honesty in his book Predictably Irrational
One of the grand creeds associated with standard economic theory is trickle-down economics, the idea that wealth flows down through society. But it appears that what has been trickling down is plain old greed and cynicism. It’s worth noting that in the 19th century, this construct was known as the “horse-and-sparrow model.” Feed a horse enough oats and it will eventually deposit some on the road for the sparrow. Standard economic theory feels an awful lot like that lump of sparrow’s lunch.
For 200 years, economics has slandered humanity. The claim hasn’t been that there are a few bad apples like Bernard Madoff, who has pleaded guilty to perpetrating the biggest financial fraud in history, but that everyone is a bad apple who will cheat, bully and manipulate to maximize personal wealth. Fortunately, we now have a critical mass of studies and a swath of real-world evidence that debunks this malicious smear. The truth is, there are a great, great many good apples out there.
As depressing as this recession is, it does provide an opportunity to review and rewrite certain economic principles. As Duke University’s Ariely says, “It’s a very sad event for the world, but it’s been very good for behavioral economics because now more people are willing to listen.”
And the voices for change are rising on all sides. In Britain, Cardinal Cormac Murphy-O’Connor declared, “Capitalism needs to be underpinned with regulation and a moral purpose.” In Australia, Prime Minister Kevin Rudd published an essay insisting that “neo-liberalism and the free-market fundamentalism it has produced [have] been revealed as little more than personal greed dressed up as an economic philosophy.” And in the same speech in which he praised workers’ selflessness, President Obama condemned the “greed and irresponsibility” that weakened the American economy.
In economic jargon, an “externality” is an unexpected cost or benefit that falls beyond the scope of the original transaction. The externality of the current recession that benefits us all is that it takes an eraser to the false notions that have been scrawled across the economic chalkboard. A fleet of economists is studying altruism and cooperation, and the blossoming of behavioral economics has filled both the halls of academia and the corridors of power with men and women who look beyond outdated models of human behavior.
It’s not that this new breed of economists will be Pollyannas or usher in a financial revolution, but they could help us transcend the poisonous lies of standard economic theory and build a truer foundation for our fiscal policies. And if this comes to pass, what comes trickling down from the economic heights will be far more appealing than the sparrow’s lunch of greed and cynicism we’re currently being served.
Jeremy Mercer is a former crime reporter from Canada who still believes in the goodness of people.
Getting to the heart of money
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Well, not quite so.
What the author misses is that the act of saving thei co-worker was in the self interest of the firefighters. Just because you are helping someone does not mean you are altruist. What makes you one is to live by what others expect from you, not what you want do do yourself. The selfishness exists, it might not be always about the money, it might be about other interests.
posted by fabiolr on 5/29/2009 10:36 am