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Summary - Economics and ethics (HBA28C)
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Ethics & economicsThe Ethics of Economists
1.1 Introduction
An experiment: There are two players, called Proposer and Responder, whose task is to
divide $10 between themselves. Proposer proposes a division of the $10. Any division is
permissible as long as the two amounts are in multiples of $0.50 and sum to $10. Responder
decides whether the proposed division is acceptable. If Responder accepts the proposed
division, the $10 is divided accordingly. If Responder rejects the proposed division, each
player receives $0.
- Suppose you are Proposer => $0.50 for responder, $9.50 for proposer
- Suppose you are Responder => $0.50
1.2 Are Economists different, and If so, why?
Economists are different; look at different things, in a different way than other scientists
Are they also measurably different at fundamental level?
Yes, more free-riders either due to selection or learning
- Fundamental levels= at level of making ethical decisions
Selection: students concerned with economics incentives might self-select into economics
Learning/ indoctrination: economics students might adapt their behavior over time to the
basic axioms of the theories they study
Learning= critical acceptance
Indoctrination= uncritical acceptance
Objectives of Carter & Irons (1991)
- Checking results of Marwell and Ames
- To test whether students behave in accordance with predictions of rational/ self-
interest model of economists
- To distinguish between selection/ learning
How might we tell if economists are different?
Freshmen Seniors
Noneconomists (1) (3)
Economists (2) (4)
4 different groups
- (1) & (2); difference means they are different at beginning of university => self-
selection
- (1) & (3); difference means by getting older, people make different ethical decisions
and become less selfish => maturation effect
- (2) & (4): difference they become more selfish during their studies => learning effect
,Respondents get $2 + money decided upon during the experiment
Simple ultimatum bargaining experiment:
<simple; only done once, ultimatum; you can yes or no, bargain; no discussion
- Proposer: divide $10 between 2 persons; in multiplies of $0.50; total equals $10
- Responder; either accepts offer or rejects offer (both get $0)
What does economic theory predict?
- Rational/ self-interest model
- View of economic man
- Homo economicus= humans as rational and narrowly self-interested actors who
have the ability to make judgments toward their subjectively defined ends. Using
these rational assessments, attempts to maximize utility as a consumer and
economic profit as producer
Prediction:
- Responder prefers anything >$0
- Proposer knows this
- Thus, he offers only $0.5 and keeps $9.5
- Responder accepts
Rational and self-interest
Proposer’s amount kept;
Economists keep more
Seniors keep less
$ Freshman Seniors Total
Noneconomists 5.65 5.2 5.44
Economists 6.3 6.02 6.15
Total 5.93 5.61
Responder’s minimum acceptable amount:
Economists accept less
Seniors accept less
$ Freshman Seniors Total
Noneconomists 2.85 1.98 2.44
Economists 1.38 1.98 1.70
Total 2.21 1.98
Result 1
Economists accept less, keep more
Economist’s behavior on average is closer to that predicted by economic model
Economists are significantly different
Regression analysis confirms this
Result 2
Regression analysis looking for;
Difference between (1) and (2) =selection
Difference between (1) and (3) = maturation effects
, Result: selection! Freshman economists accept less and propose to keep more than
freshman noneconomists
Result 3
Does economists’ training shape behaviour according to self-interest model?
Compare freshman and seniors: initial gap between economists and non-economists should
widen (1-2 vs 3-4)
Puzzle: no support for learning hypothesis
Amount acceptable: gap disappears
Amount kept: gap widens slightly
“We find that economists are different, but they are already different when they begin their
study of economics. Our results are mixed as to whether the difference persists, but we find
no evidence that it widens with economic training. Of course, this is perilously close to saying
that economists are different because they are different.” (Carter & Irons, 1991, p. 175)
Something “more”/ “else” than self-interest that guides economists
Why is behavior not accurately predicted by economic model?
- Ethical reasons; justice, equality, altruism…
- Paternalist reasons; aiming to change the behavior of others, punishment, learn one
a lesson …
- Stupidity or indifference
- Irrational behavior; eg. Satisficing vs maximizing, overestimating probabilities, risk
aversion
- Behavioral economics explores why people sometimes make irrational decisions and
why and how their behavior does not follow the predictions of economic models
1.3 Does studying economics inhibit cooperation?
Does exposure to the self-interested model alter the extent to which people behave
in self-interested ways? (Frank et al., 1993, p. 159)
Do economists behave differently? = literature overview
o Free-rider experiments; YES
Allocate money to ‘private’ and ‘public’ account
Money of public one is pooled, multiplied by factor larger than one
and distributed equally
Economists put 20% in public fund <-> noneconomists put 49% in public fund
Why do economists behave differently? = their evidence
o Ultimatum bargaining games: YES
o Survey data on charitable giving: YES
Economists give less to charities
o Prisoner’s dilemma experiments: YES
Economist do behave more self-interested
Player x defects; you defect
Player x cooperates; you defect
Best thing to do; defect
Better to cooperate
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