Friday, June 20, 2008

Sam Bowles on policies designed for self-interested citizens

The title of his article -- Policies Designed for Self-Interested Citizens May Undermine "The Moral Sentiments": Evidence from Economic Experiments -- makes it clear where Samuel Bowles stands on the desirability of such policies. Here's the abstract:

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.

The paper itself is behind a paywall, but a popular science version is worth reading too:

A basic tenet of economics is that people always behave selfishly, or as the 18th century philosopher economist David Hume put it, "every man ought to be supposed to be a knave."

But what if some people aren't always knaves?

Sam Bowles argues in Science June 20 that economics will get it wrong then, sometimes badly so. He points to new experimental evidence that people do often act against their own personal self-interest in favor of the common good, and they do so in predictable, understandable ways. Poorly-designed economic institutions fail to take advantage of intrinsic moral behavior and often undermine it. .

Take this example: Six day care centers imposed a fine on parents who picked their children up late. The effect? Tardiness 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.

Another example is a study this year which showed that women donated blood less frequently when they were paid for it than when it was an act of charity.

These examples show that economists ignore human altruism at their peril.

In a post that may be of some relevance here, Dan Ariely comments on a recent story about "a new movement among doctors and hospitals to admit their mistakes rather than continue with the more traditional approach of denying and defending them"; the apparent benefit of this move is that these hospitals are sued less often! Here's Ariely:

... We live in two worlds. The first is governed by social norms, which generally implies that all parties involved share a level of trust and a general understanding that everybody will act with the best intentions, bearing in mind the well being of others in addition to their own. In this social world, small transgressions are usually acknowledged and both parties work together to respectfully fix the situation in a manner that does the least damage to the other. The second world is generally governed by market norms-things like contracts, numbers, and hard facts. In this world both parties tend to be so concerned with sticking to the terms outlined in a contract that the slightest transgression is treated without an ounce of empathy often causing it to evolve into something larger. After all it is a violation of the contract. In this world intentions do not matter and it is only actions that count-you are either fulfilling your contract or you are not.

I suspect that the doctors and the hospitals that have enacted these disclosure policies, have tapped into the power of operating in accordance with social norms so that both the doctor and the patient can work together to prevent a bad situation from becoming worse.


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