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 Selfishness goes only so far, we also like a fair system

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RR Phantom

RR Phantom

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PostSubject: Selfishness goes only so far, we also like a fair system   Selfishness goes only so far, we also like a fair system Icon_minitimeFri Mar 21, 2008 7:32 pm

In the minds of many people - including many economists - capitalist economies are powered by selfishness. No, not quite.

The father of economics, Adam Smith, seemed to establish that proposition in 1776 in a famous quote from his book, The Wealth Of Nations: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

But Smith's views are rather more complicated than that. In the book he wrote 17 years earlier, The Theory Of Moral Sentiments, he observed that "how selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it".

Pioneering research by an inter-disciplinary group of economists, anthropologists, biologists, psychologists and sociologists suggests that, in his earlier theorising, Smith was on to something.

Their experiments imply that people are not simply the selfish, materialistic creatures assumed by economic theory, but rather "conditional co-operators", who behave altruistically as long as others are doing so as well, and "altruistic punishers" who apply sanctions to those who behave unfairly according to the prevailing norms of co-operation.

So people aren't selfless saints, but they're far from being relentlessly selfish competitors. They have a predisposition to co-operate with others, and to punish (at personal cost, if necessary) those who violate the norms of co-operation, even when they're unlikely to recover those costs at a later date.

In the book Moral Sentiments And Material Interests, published by the MIT Press, this condition is called "strong reciprocity". The book is edited by three economists - Herbert Gintis, Samuel Bowles and Ernst Fehr - and an anthropologist, Robert Boyd. Their findings challenge two assumptions of the economists' standard model. First, that people care only about the outcome of economic transactions, not about the process by which the outcome is obtained.

Second, that people care only about what they personally gain or lose, not about what other people gain or lose.

In truth, people care about process as well as outcomes, and care about the deal others are getting - not just their own deal. In other words, they care deeply about what they perceive to be fair.

These conclusions have been drawn from many laboratory experiments, one of which is the "public goods game". The participants play the game over, say, 10 rounds, playing for money. They play in groups of four, but are anonymous to each other.

Each player is given, say, $20. A player divides the money between her private account and a common account. Any money contributed to the common account is increased by, say, 60 per cent, then distributed equally between the four players.

So if one player contributes her whole $20, this is increased to $32, with $8 going to each player. She has lost $12 ($20 - $8), but her three partners are better off by $24 ($8 x 3). She'll be ahead only if her partners also make generous contributions to the common account.

If people were as self-regarding as the economists' model assumes, each would try to "free-ride", contributing nothing themselves but hoping for a share of what the others kicked in.

But, of course, the others being just as self-regarding, none of them would contribute either, so that no one would gain from the benefit-multiplying power of the common account.

The condition of anonymity should make free-riding all the more likely. But repeated experiments of this kind show that groups exhibit a much higher rate of co-operation than the economists' model predicts. Players typically begin by contributing about half their money to the common account. But the proportion declines until, by the last round, most are contributing nothing.

This demonstrates the common finding that people co-operate until they realise others aren't bothering and are, as an Aussie would say, bludging on the system.

Asked after the game why co-operation declined, the players say they became angry with others who contributed less than themselves and retaliated against free-riding low contributors in the only way available to them, by lowering their own contributions.

However, when you give players the option of incurring a cost to themselves in order to punish free-riders, they use that option and it causes the rate of co-operation to stay high.

This happens even though, because the benefits of restored co-operation are shared equally between the players, individual punishers don't gain as much from their action as it costs them. Again, if people really were completely selfish, they wouldn't be prepared to punish others at a net loss to themselves.

In yet another version of the game, where players stayed in the same groups for successive rounds, punishment was more effective in maintaining co-operation than where players kept changing groups.

This suggests that strong reciprocity has a greater effect on co-operation when groups are more coherent and permanent.

You see from all this how concerned people are with their perceptions of what's fair or not fair. The standard economic model abstracts from all considerations of fairness ("equity") and this explains why its attempts to predict human behaviour can be astray.

Note, too, that what we see here is the tendency of people to enforce "pro-social norms" - generally accepted standards of behaviour that serve to advance the interests of the community as a whole.

Why have humans evolved in a way that makes them worry about the welfare of the group rather than just themselves and their close relations? Probably because groups with pro-social norms outcompete groups that are deficient in this respect.

It's not surprising that the great religions - Judaism, Christianity, Buddhism, Islam, Hinduism, and so forth - stress the pro-social norms such as helping your neighbour, giving each his due and turning the other cheek.

These research conclusions have implications for government policy. Economists, convinced of people's simple selfishness, usually propose to deal with antisocial behaviour by raising the material cost of that behaviour. Increase the penalty if you're caught and increase the chance of being caught.

But this research suggests a principal purpose of publicly proclaimed laws and regulations is to stigmatise anti-social behaviour and thereby influence people's values and codes of behaviour.

To put it more positively, the authors say that "effective policies are those that support socially valued outcomes not only by harnessing selfish motives to socially valued ends, but also by evoking, cultivating and empowering public-spirited motives".


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