The annual meeting of the British Science Association (BSA) Festival of Science took place on 5th-9th September. This report on the economics event comes from David Dickinson.1
Professor Oriana Bandiera (LSE), as President of the Economics Section of the BSA, organised the Economics event at the Festival of Science in Brighton. With her LSE colleagues, Professor Maitreesh Ghatak and Professor Nava Ashraf, the session, titled ‘How can caring for one another affect economic decisions’ explored the way in which the standard homo economicus model, based on the principle of self-interest, needs to be adapted to explain certain aspects of human economic choice.
The limits of self-interest
Oriana began with outlining how homo economicus could be described as nasty, but also imaginary. The concept has its uses, allowing economists to develop simple models, even though it is an incomplete explanation of behaviour. She used the map of the London Underground as an example of an explanatory device that fails to map the true geography of stations but provides the information we need to make journeys. She concluded that economic models based on a simple representation of human behaviour are fine as long as they do not lead to wrong conclusions. For example the standard model can explain the demand for cereals but not why people give to charity. She argued that giving up self-interest does not imply a lack of rationality. The key question is, with what do we replace self-interest. Can we improve welfare by abandoning self-interest? If so, what do other people care about? Is everything driven by financial incentives? For example is a doctor delivering better care because we pay her more?
Identity, reputation and social norms
Maitreesh Ghatak, observed that recent events such as the Global Financial Crisis, and the publication of Thomas Piketty’s book, have stimulated popular discontent with standard economic models. He noted that the limitations of these models, based on the principle of self-interest, have been known for a long time. Whilst The Wealth of Nations is seen as a starting point for much economic analysis, in the Theory of Moral Sentiments Adam Smith clearly understood that people have a variety of motivations when making economic decisions. But the assumption that markets work well allows us to separate these two aspects of individuals. Ghatak drew on his own previous work on labour markets (with his colleague, Professor Tim Besley) to confirm that many economic questions require a broader interpretation of behaviour especially when markets don’t work perfectly. Among a range of factors affecting the relationship between work and pay, he identified the role of identity, commitment to an ‘in-group’, reputation and social norms, rewards of status, intrinsic motivation as well as pure altruism. He pointed out that the increasing importance of private sector social institutions such as social enterprises, ‘not for profit’ organisations, NGO’s, indicated that economies tend to organise themselves in such a way, to cater for individuals who are not purely self-interested in their work commitments. This did not mean that the final outcome would not necessarily look like it is driven by self-interest. For example, he argued, someone may regard education as the most important economic activity but has a comparative advantage in making weapons. It may be efficient (but implausible) for that person to pursue self-interest and then donate their fortune to educational institutions. The key to understanding behaviour is to separate out intrinsic and extrinsic motivations. If people self-select according to intrinsic desires, when choosing employment, it may not be necessary to give high rewards.
Altruism and self-interest in Zambia
The third speaker, Nava Ashraf, moved the discussion on to field studies conducted in Zambia, to illustrate how both self-interest and more altruistic motivation provide explanations for observed behaviour. The first study she reported considered the distribution of female condoms through Hairdressing Salons and Barbers. The Zambian Government was working on the basis that a financial reward system to hairdressers, for selling these products, should be the most effective mechanism for promoting their use. The sample was divided randomly into four different groups: one group was offered a high financial reward, the second received a low financial reward, the third received a non-financial reward (a star) and the fourth received no reward. The group that received the social reward performed best. By separately considering donations made to charity this group were also found to be altruistic but not significantly different from the other groups. Ashraf moved on to another study examining the recruitment strategy for nurses. This considered two different promotional posters, one based around the idea that becoming a nurse opened up interesting career paths (and hence future financial gain), the other emphasising the (non-financial) rewards associated with nursing. These different campaigns were kept geographically discreet. The study found that the poster based on future career opportunities was much more successful in recruiting nurses who performed better (as measured, for example, by number of polio vaccinations, the number of children referred to hospitals). These two studies with their contrasting results lead to the conclusion that self-interest is an important but not the only determinant of behaviour.
The session concluded with a number of questions and comments from the audience. These ranged over observations about the link between pay and behaviour, whether gender matters, if high status jobs are more worthy than those with high pay, the extent to which application pools are self-selecting and the influence that organisational structures have on employees’ altruism. The audience participation confirmed the view that the way that economists think about behaviour is of significant concern to the general public.
1. University of Birmingham and Recorder of the BSA economics section. The meeting is supported by both the BSA and the Royal Economic Society whose generosity is gratefully acknowledged.