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Economics and Ethics Summary
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Part one:The ethics of economistsIntroduction
Before we start studying ethical theory, we should be aware of our own ethical premises or principles
What we all have in common is that we are exposed extensively to the self-interest model, because we
study a lot of economy. Self interest model is about always maximising your own utilities. It is the basic
assumption in economics.
This raises the question that: does the self interest model influences our own ethical judgements?
An experiment
There are two players, called the proposer and the 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 the proposer. Which division would you propose?
For me: divide it equally
Are economists different, and if so, why? Article nr 1: Carter & Irons 1991
Introduction
Of course economists are different because they look at different things, in a different way than other
scientists. BUT, are they measurably different at fundamental levels?
Marwell & Ames in 1981 say that yes, because there are more free-riders either due to selection or
learning
1. Selection: economists are different because they are already different before they enter university.
Students concerned with economic incentives might self-select into economics.
2. Learning/indoctrination: economics students might adapt their behaviour over time to the basic
axioms of the theories they study.
• Learning relates to critical acceptance
• Indoctrination relates to uncritical acceptance
Objectives of Carter & Irons
1. Checking the results of Marwell and Ames
2. To test whether students behave in accordance with the predictions of the rational/self interest model of
economists
3. To distinguish between selection and learning
Their methodology
They had four groups of respondents
NON-economists freshmen & seniors and Economists freshmen & seniors
They can compare different groups. Like by testing freshmen non-economists or economists they can test
better selection.
They can also test non-economists freshmen and seniors and test out the maturation effect: we change as
we mature and grow
If they measure group 2 & 4 they could give some indication of the learning effect: do they become more
selfish by studying economics?
Participants get $2 + the money decided upon during the experiment. There was a simple ultimatum
bargaining experiment: proposer and responder that we learned about in the beginning.
,What did the economic theory predict?
The rational and self-interest model
The view of the economic man
Homo economicus= humans are seen as rational and narrowly self interested actors who have the ability
to make judgments toward their subjectively defined ends. Using these rational assessments, homo
economics attempts to maximise utility as a consumer and economic profit as a producer.
So the responder prefers anything above $0. The proposer knows this, thus he offers only $0.5 and keeps
$9.5. Responder accepts because anything is better than 0.
Results(Proposer)
The proposer’s amount kept: economists keep more while seniors keep less.
Economists are closer to the economic theory than non economists, but they are also keeping more for
themselves.
Seniors in total they keep less than freshmen. By getting older they are more into cooperation, they are
more given to the others and less selfish. Both groups become less selfish by getting older.
Results ( responder )
Economists accept less, and also seniors accept less
Economists need less on average than non economists.
Economists are more in line with what the economic theory predicts
Responder’s minimum amount as economists increases as a senior.
What does this mean?
Economists accept less and keep more: their behaviour is closer to that predicted by the model
Economists are also significantly different because regression analysis confirms this.
The difference between freshmen non economists and freshmen economists is selection.
The difference between freshmen and senior economists is the maturation effect.
The result is: selection: freshman economists accept less and keep more than freshmen non economists.
Economists are born, not made.
There is no support for the learning hypothesis. Amount kept widens slightly between freshmen and
seniors. The amount acceptable gap disappears, against the hypothesis.
, Can we say more?
Is the difference due to deductive skill? Calculation rather than different moral sentiment?
That has been controlled for, so no. It is more than just logic!
There seems to be something more than self-interest that guides economists.
The question: is it ethics? Why not accepting $0.5 and why not keeping $9.5?
Many participants go for $5/$5.
Behaviour was not accurately predicted by the economic model! We base the economic model on wrong
assumptions.
Why is behaviour not accurately predicted by the economic model?
1. Ethical reasons? Justice, equality or altruism?
2. Paternalist reasons: aiming to change the behaviour of others, punishment or learn a lesson. Some people
are prepared to punish themselves to prove a point.
3. Simple stupidity or total indifference
4. Irrational behaviour: satisficing versus maximising, overestimating probabilities(over confidence bias),
risk aversion(fear the responder will act irrationally)
5. Behavioural economics:explores why people sometimes make irrational decisions, and why and how
their behaviour does not follow the predictions of economic models.
Second article: Does studying economics inhibit cooperation(Frank et al. 1993)
Introduction
Does exposure to the self-interested model alter the extent to which people behave in self interested ways?
Why do economists behave differently? = their evidence?
In the literature review
Marwell & Ames with the free-rider experiments: yes economists act differently
• Their experiments was to allocate money to either a private fund or a public account
• You receive the money you put in the private one.
• The money of the public one is pooled, multiplied by a factor larger than one and distributed equally.
• Results: economists put on average 20% in a public fund, and non economists put on average 49% of
their in the public fund= FREE RIDING.
Ultimatum bargaining games: yes economists behave differently. YES
Survey data on charitable giving
• Economists give less to charities and average gift of economists is lower, although they earn more
money
The prisoners dilemma experiments also say yes that economists behave differently. It also does not
depend on gender.
Why do economists behave differently? Evidence
Is it training, self selection or both?
They compared upperclassmen(seniors) and underclassmen(freshmen)
Defection rates(=non cooperation) fall between freshmen and seniors for the whole sample. There is more
cooperation when getting older. This holds more strongly for non economists and economists stick more to
defection.
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