Monday, August 30, 2010

Can economics re-discover fairness?

Back in 1981, some researchers decided to do some experiments on "free-riding" - the process by which people take advantage of not paying for public goods, even though they benefit from it. Their conclusions were quite surprising:

Summarizing most of the results seems ridiculously easy: over and over again, in replication after replication . . . People voluntarily contribute substantial portions of their resources - usually an average of between 40 and 60 percent - to the provision of a public good. This despite the fact that the conditions of the experiment are expressly designed to maximize the probability of individualized, self-interested behavior.

That seems remarkable. First of all, it would be useful to repeat this experiment today, to get a sense of how far our culture has become corrupted by the "free-riding-is-OK" mentality that pervades current discourse, as evidenced by media praise for business folk of all kinds who get rich not by producing genuinely innovative new products, but by avoiding taxes or finding other ways to game the system.

But here is another strange result from the research.

"There was surprising unanimity of thought regarding what was considered fair. Using all subjects except the economics graduate students and [another group], more than three out of four thought that ‘about half’ or more of a person’s resources should be contributed, and more than one out of four thought people who were fair would contribute ull of their tokens."

Again, remarkable. But unpacking one detail from that paragraph:

Comparisons with the economics graduate students is very difficult. More than one-third of the economists either refused to answer the question regarding what is fair, or gave very complex, uncodable responses. It seems that the meaning of ‘fairness’ in this context was somewhat alien for this group. Those who did respond were much more likely to say that little or no contribution was ‘fair’.

This is important - as the blog that led us here (via FT Alphaville) explains, economists try to behave like scientists whereas what they are studing is a social science.

"If you push a pendulum a few times it doesn’t suddenly start avoiding you but if you prod a human hard enough they’ll start taking the long way home or bring their big friend with them next time. People are reflexive, they change what they do based on their experiences and this is the great problem of the social sciences. Economics of course, solves this by basically pretending to be something else

The entire economics profession is currently flailing around for a Plan B following the spectacular failure of predominant Chicago-centred thinking. Perhaps if they had worked hard to incorporate words like fairness, justice and morality into their papers, instead of filling them with impenetrable mathematics, the world would be a far better place. As our name implies, this is exactly what we are trying to do.


Blogger Physiocrat said...

Fairness is too vague. We need justice. The notion of economics with justice is the subject of "A new model of the economy" by Brian Hodgkinson, of which a summary can be downloaded here

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