Mainstream economics tends to get a bad press. One reason is that many people see the dismal science using a deeply flawed model of human behaviour, the so-called homo economicus (a wholly rational being that is motivated solely by maximizing its own utility), and believe it paints us real humans as irrational hillbillies. This is not the kind of move that would endear a social science in the eyes of its principal subjects of study.
But perhaps even more grating is the notion that economics has us down as self-interested, even selfish, with no regard for the wellbeing of others, smugly in the centre of our universe. Given half a chance, we’d all turn into überhedonistic, “Greed is good” shouting Gordon Gekkos.
“What about altruism?” the critics say, “we see selfless behaviour all around us — isn’t it obvious that the economists have it wrong?” And they often go on to criticize the selfish behaviour of their fellow humans, and to plead for a more altruistic society.
The New York Times of 8 July 2016 carried an interesting column by David Brooks along precisely these lines. The first three paragraphs make it abundantly clear where Mr Brooks stands. The Hobbesian and Machiavellian world view that people are fundamentally selfish, the homo economicus motivated by material self-interest, the assumption of much of political science that people are driven to maximize their power: all “clearly wrong”.
Why? Because, Mr Brooks says, we already see altruistic behaviour in babies: they pick up things adults drop and hand them back. And because later in life, when we’re adult, it is financial incentives that makes us prefer an economic lens for making choices, rather than our inbuilt moral compass. One example he adduces for this is the story of a Haifa day care centre, where management imposed a fine on parents who arrived late to pick up their offspring (and so violated ‘moral’ norms). But instead of reducing the problem, this actually increased the number of late comers. (This is a classic study by Uri Gneezy and Aldo Rustichini, published in 2000.) What happened is that the fine turned “an act of being considerate” into “an economic transaction”. He goes on to assert that Adam Smith and the founding fathers laid the foundations of a society that tries to “turn private vice into public virtue”, by introducing this economic lens. That was OK back then, because there were institutions (often with religious inspiration) that provided the moral lens as a balance. But these have declined, and market and state now promote utilitarian thinking and a selfish frame of mind.
The use of terminology throughout the article lacks robustness. The terms ‘economic lens’ and ‘financial lens’ are used as if they mean the same (economics is about much more than money), and the concept of ‘morality’ is used where the scientific literature, in situations like the Haifa crèche, actually talks about ‘market’ and ‘social’ norms. And ‘altruism’, despite figuring prominently in the title, is never really defined.
And this is the problem: many people (presumably also including David Brooks) believe that the term does not need defining. It is of course the antithesis of the presumed selfishness that economists ascribe to us, the fact that we do care for other people to the detriment of ourselves. Wait, what? Is that actually what it is supposed to mean? Is that what people who behave altruistically really do?
Perhaps Wikipedia can help. It defines altruism in biological organisms as the action of an individual that, at a cost to themselves (e.g., pleasure and quality of life, time, probability of survival or reproduction), benefits another individual, without expecting of reciprocation or compensation. In economic terms, the cost to the individual is not outweighed by the benefit. But there is something wrong with this picture — several things, in fact.
If a biological organism would really act in a way that is fundamentally detrimental to itself, it would be hard to see how it could prevail over time. Unsurprisingly, the evolutionary explanations for apparent altruism invariably conclude that there actually is a benefit of one type or another for the altruist. It is easy to see how kinship-related altruism makes sense: if you make a sacrifice for someone who shares much of your genetic make-up, you are supporting the survival of the same genes. In species with more complex social constructs (like us humans), many more elements are at play — reciprocity, signalling, and group selection for example — that provide benefits to the altruist.
The kind of altruism that the NYT article appears to promote is therefore nothing of the kind. David Brooks (and with him many people) adopts a perspective that is as mistaken as that of the homo economicus: it emphasizes a material utility frame and ignores the immaterial frame. You are a proper altruist if you forego financial gain (or make a financial sacrifice) to benefit someone else. What this erroneous definition of altruism is missing is that, while the cost to the altruist may be in the material world, the benefit may be in the immaterial world.
The warm glow
There is nothing unusual about this: we continuously trade between both frames. Whenever we spend money on something that provides us with pleasure — a bar of chocolate, a pint of real ale, a picture to hang on the wall, a ticket to see The Book of Mormon… All these transactions make us materially poorer, yet we go through with them because of the immaterial benefit they bestow on us. If this is entirely rational behaviour — and it is — then incurring a cost that provides someone else with a benefit is no less rational, for the simple reason that doing so also provides us with an immaterial benefit. You can call it, somewhat condescendingly, a “Warm glow”.
It is thanks to our ability to look for and realize a win-win in trade-offs that we humans have survived and prospered for hundreds of thousands of years. Our economic and social constructs are founded on the simple observation that both parties in an exchange are giving something up, in order that both get more value in return. It doesn’t really matter which part of the sacrifice is outweighed by which bit of the gain.
And it matters even less whether the sacrifices or the gains happen in the material or in the immaterial domain. Our internal economic circuitry sorts it all out, and tells us — subject of course to biases, fallacies and so on — whether a transaction is worthwhile or not. In one of the first comic strips I came across a situation that I remember to this day, mumble years later: two cowboys are sitting down around a fire in the evening. One of them has a portion of beans, the other some rashers of bacon. As they heat up their food, they are staring into the night, thinking aloud something like “I’ve got a big portion of beans — if only I had some bacon to go with it” (and vice versa). Until they both, at the same time, realize the solution is staring them right back in the face: simply share. This was a material zero-sum game, but it provided immaterial benefit to both cowboys — a truly wonderful early lesson in human economics.
So the kind altruism that demands that we are, on the whole, worse off in order to serve the benefit of someone else, the kind of altruism implied in David Brooks’ article, is unreal. It would violate the most fundamental of our urges, and we wouldn’t be here if it was part of our system.
We are all altruists
But the kind of altruism that means we are conscious of the win-win outcome of a transaction, and in particular how the other party benefits from it (as well as us), and that means we seek to maximize the overall collective gain, that kind of altruism most definitely exists. And despite what is being claimed in the NYT article, this is exactly what Adam Smith was describing. The self-interest of the baker cannot exist without an appreciation of the benefit his activity bestows on the customer. It is precisely because the provision of bread is beneficial to the customer, and the baker knows that this is the case, that the baker is motivated to bake. (And likewise, it is precisely because the customer knows that the money exchanged for the loaf is beneficial to the baker that she is offering up her money for bread.)
Yes, some people try to game this system — you don’t even need to dive into game theory to find examples: just think of a simple thief. But theft and cheating are not the norm. Most societies seek to punish individuals who do not adopt the win-win approach, and instead look for wins to the detriment of someone else. More significantly, most of us do not act honestly out of compulsion, but because we intrinsically think it is the right thing to do — because that is how we are.
Intriguingly, explaining all this (with the exception of theft and fraud) does not require morality at all. We do stuff, we transact, because we believe it makes us better off. Whether we are purchasing a chocolate bar, popping a quid into the cup of a beggar, mowing the neighbour’s lawn (she is recovering from a broken leg), or being Mick Jagger prancing about on a stage for two hours for a fee of a couple of million — it all makes us worse off in one way, but better off in another way that outweighs the loss.
Which (if any) part of the equation involves real, material money does not matter at all. And in all cases we are being altruistic (in the right sense of the word). Buying a chocolate bar provides the shopkeeper, and everyone else in the supply chain with an income — even though we get to eat it. The pound in the begging bowl makes the beggar a tiny bit richer — even though we get the warm glow, which we also get from spending our time mowing our neighbour’s lawn (the benefit of which she gets). And even Mick Jagger derives, I am sure, a warm glow from experiencing tens of thousands of fans in the arena enjoying themselves while he sings Honky Tonk Women. The fact that he gets a tidy sum for it does not really detract from that.
Practical altruism — or rather, the warm glow one gets from doing something that benefits someone else — is an economic preference, much like a preference for chocolate, with one small difference: not everybody likes chocolate, while (almost) everybody likes a warm glow. But it is not an absolute concept, just like a preference for chocolate. A bar of chocolate may makes us happy, but eating several kilos in one go probably won’t. So it is with altruism: we are willing to make a certain sacrifice for a certain amount of warm glow, but no more.
Which brings us to the final problem in the NYT article: the projection of one’s own moral values onto someone else. If we frame altruism as a moral choice, we introduce a normative element where it does not belong. We don’t think that it there is a ‘morally right’ amount of chocolate to eat, and accept that everyone has their own preference. Everyone will trade off the price of the chocolate bar, the emotional utility they derive from it, the potential health and waistline disadvantages etc according to their preferences.
Neither is there a ‘morally right’ level of altruism. It is certainly not a binary affair that allows you us to divide the world into altruists and selfish bastards. But nor is it a linear affair, in which more is better. Altruism is a trade-off between cost (which may be material — sacrificing money, time, or some other scarce resource, or immaterial — foregoing something pleasurable) and benefit (the warm glow).
We could all give more to charity than we do right now and so be ‘more altruistic’. All it would take is to spend more on what gives us the warm glow, and less than we currently do on other things that give us other forms of pleasure — eating out, buying clothes or gadgets, going on holiday and so on.
But that would mean making a poor trade-off: one in which the benefit does not outweigh the cost. No matter how much morality you misguidedly introduce in economics, such trade-offs go against the grain.
This is why the form of altruism that the NYT article describes, and that is so often discussed, is an illusion. It does not exist.
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Originally published at koenfucius.wordpress.com on July 15, 2016.