Friday, June 20, 2008

Is Homo Economicus a Sociopath?

Two posts arrived this morning of which I received extracts only because they were truncated behind ‘subscription’ and ‘permission only’ barriers, but which nevertheless hint at an interesting theme: ‘are people universally self-centred or self-interested, and does this account for what they do?’

Not surprisingly, Adam Smith is drawn into this discussion, often not for what he actually wrote but for what neoclassical economists claim that he wrote.

Samuel Bowles of the Sante Fe Institute and Universitá degli Studi di Siena, Siena, Italy opens the debate with an article in Science (here):

High-performance organizations and economies work on the basis not only of material interests but also of Adam Smith's "moral sentiments." Well-designed laws and public policies can harness self-interest for the common good. However, incentives that appeal to self-interest may fail when they undermine the moral values that lead people to act altruistically or in other public-spirited ways. Behavioral experiments reviewed here suggest that economic incentives may be counterproductive when they signal that selfishness is an appropriate response; constitute a learning environment through which over time people come to adopt more self-interested motivations; compromise the individual's sense of self-determination and thereby degrade intrinsic motivations; or convey a message of distrust, disrespect, and unfair intent. Many of these unintended effects of incentives occur because people act not only to acquire economic goods and services but also to constitute themselves as dignified, autonomous, and moral individuals. Good organizational and institutional design can channel the material interests for the achievement of social goals while also enhancing the contribution of the moral sentiments to the same ends.”

Alan McDermid in The Herald (Glasgow) reports HERE on Samuel Bowles’s work:

“Or Adam Smith: "By pursuing his own interest (the individual) frequently promotes that of society more effectually than when he really intends to promote it."

He points to new experimental evidence that people often act against their own self-interest in favour of the common good, and they do so in predictable, understandable ways.

Among the examples he cites are six day care centres which imposed a fine on parents who picked their children up late. The effect? Lateness doubled, and it stayed high even when the fine was removed.

"Parents, it seems, stopped seeing lateness as an imposition on teachers, and instead saw it as something that could be purchased with no moral failing," says Mr Bowles.”

Comment
The problem is in the neo-classical model in the form of Homo Economicus, which wasn’t in anything Adam Smith said. As Lynn A. Stout, in reference to the cult of ‘Homo Economicus’, a pure invention of neoclassical economists from the 1870s that dominates teaching in universities here and in the USA: “Homo Economicus is a sociopath” (pp 158-9: ‘Taking Conscience Seriously' in Moral Markets: the critical role of values in the economy, edited by Paul J. Zak Princeton University Press, Princeton, 2008).

Incidentally, Paul Zak’s edited collection of essays is one of the most readable set I have read for some time. It should be read by sceptical economists (those sceptical about our own discipline or about those disciplines encroaching on our borders).

Alan Macdermid’s quotation from Adam Smith: "By pursuing his own interest (the individual) frequently promotes that of society more effectually than when he really intends to promote it" is misleading in this context. It comes from Wealth Of Nations (WN IV.ii.9: 456) and should be recognised immediately by regular readers as being part of the paragraph containing the ‘invisible hand’ metaphor. It is not a carte blanche for any and all exhibitions of self interest having beneficial effects, which is a view of Bernard Mandeville’s and not Adam Smith’s.

The example MacDermid quotes from Samuel Bowles’ paper about the school fining parents who were late in picking up their children (not having access to the paper in Science I have not read it) may not undermine the self interest arguments. The outcome of the fines was that lateness doubled: ‘Parents, it seems, stopped seeing lateness as an imposition on teachers, and instead saw it as something that could be purchased with no moral failing," says Mr Bowles.’

Surely, the neoclassical theorist would say that the parents who were in the habit of being late saw the fine as the school’s price for looking after their children when parents were late and judged accordingly that they could ‘buy’ more opportunities to be late, as well as those parents who were not in the habit of being late would judge the fine as a fair exchange for exercising lateness when it suited them more than the cost of the fine! Hence, lateness rose.

The choice for the school was to raise the price charged for late parents and for the school to pay an assistant to look after the children within the school. Clearly, relying on the parents to be ashamed of their behaviour from paying a fine was the wrong signal.

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