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Economics of Altruism
Singer’s Lake
What type of person are you?
Emotional intelligence
Altruism quiz
Empathy quotient
Are Economists less altruistic by nature?
“Homo economicus”“ECONS” - Thaler
• Humans are rational, self-interested actors• Origin
– Term used by critics of John Stuart Mills work on political economy in 1936
– Mills:
man is “a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained.”
ADAM SMITH
• 18th century Scottish philosopher
• Wealth of Nations• Competition is good• Invisible hand
“By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.”
Limitations of selfish rationalitySen: Absurdity of selfish rationality
Imagine a man asks a stranger for directions.
"Where is the railway station?" he asks. "There," she says, pointing at the post
office, "and would you please post this letter for me on the way?"
"Yes," he says, determined to open the envelope and check whether it contains something valuable.
Adam Smith’s largely ignored softer side…..
The Theory of Moral Sentiments
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.”
HUMANS VS. ECONS
HUMANS• do not always use
cost/benefit analysis to make decisions
• things unrelated to money are important
• can be distracted, impulsive, and inconsistent
ECONS• rational decision
makers • use cost/benefit
analysis • Maximize individual
satisfaction
First homework
Read Chapter 1 of “Born to Be Good” by Dacher Keltner, Prof. Psychology, UC Berkeley(available as link on class webpage)
Do assignment posted on webpage for next class
First altruism assignment:Get educated and get involved
Sat. Jan. 14: 8:30 - 1
Are humans and animals hard wired for selfishness?
Pursue self interest– 1954 study: rats press bar for hours on end
that stimulates the “pleasure center” of the brain (septum) when neither hungry or thirsty
Compete with others: Darwinism, survival of the fittest (Herbert Spencer)
Prioritize the bad: poison berry, hidden snake
- Losing $20 elicits stronger reaction than finding $20
Reasons for altruism in animals
“inclusive fitness”
generous act benefits other who share the same genes allowing for the propogation of owns own genes
“reciprocal altruism”
generous act is eventually reciprocated
The Compassionate Instinct: A Darwinian Tale of Survival of the Kindest
-Dacher Keltner
Efficiency of altruism
Rational choice theory
• Choices made by individuals reflect their desire to minimize costs and maximize benefits
• Utility function
Does $ make us happy?
Mixed results-Correlation between GDP/capita and self-reported happiness-loss of income affects happiness (Mankiw)
-surveys asking “How happy are you with your life right now?” find most important determinants of happiness are:-romantic bonds-health of family-time with friends-connection to communities
When jen ratios are high, so are we
• Law of diminishing marginal utility: the utility that any consumer derives from successive units of a product diminishes as the total consumption of the product increases, ceteris paribus.
law of spoiled kids!!!
Economic Approaches to Population Issues2. MICROECONOMIC HOUSEHOLD THEORY OF
FERTILITY A. based on theory of consumer behaviorB. assumptions
1. children are a consumer good and/or investment good2. women are rational in their decision making process of
having children
3. number of surviving children Cd Cd = f(Y,Pc, Px (P other goods), tx( taste for other goods)) x = 1.......n
A. graph
0/
0/
0/
0/
sd
xd
cd
d
tC
PC
PC
YC
Economic Approaches to Population Issues
D. caveats1. Are children a normal good?
2. non-pecuniary benefits hard to measure
3. Does the law of diminishing marginal utility hold for children?
Extensions of model: new ideas
Nancy Folbre: feminist economist The Invisible Heart, 2001
Economic models undervalue contributions of women providing care
Care: work that involves connecting to other people, trying to help people meet their needs, things like the work of caring for children, caring for the elderly, caring for sick people or teaching is a form of caring labor.
can be paid or unpaid
Nancy Folbre
• Children are not pets! • Children as public goods
Public goods
Non-rival
consumption of the good by one individual does not reduce availability of the good for consumption by others
Non-excludable
no one can be effectively excluded from using the good
Empirical evidence
• Poor countries have higher fertility rates
• But new evidence shows that rich countries with high female labor participation have MORE babies
-why? Better support for working mothers
(flexible hours, childcare)
BEHAVIORAL ECONOMICS: EXPERIMENTS IN ALTRUISM
INEQUALITY
• Constructive inequality: differential rewards to skill and effort lead to economic growth
• Destructive inequality: dysfunctional workings of an economy that slows its own growth by blocking the accumulation and income-generating opportunities of the poor
Game TheoryGame Theory
Game theoryGame theory: study of interacting decision makers whose : study of interacting decision makers whose payoffs depend on the actions of both
CollusionCollusion: Economic agents formally agree to coordinate : Economic agents formally agree to coordinate their activities to increase their joint profit / benefittheir activities to increase their joint profit / benefit
dominant strategydominant strategy:: a strategy that is best for a player in a a strategy that is best for a player in a game regardless of the strategies chosen by the other game regardless of the strategies chosen by the other playersplayers
Nash equilibriumNash equilibrium: a situation in which economic actors : a situation in which economic actors interacting with one another each choose their best interacting with one another each choose their best strategy given the strategies that all others have chosenstrategy given the strategies that all others have chosen
Ultimatum game
Player 1 gets $ and makes an offer to player 2
Player 2 can accept offer or reject, resulting in neither player keeping the $
Offers some evidence against the presence of rational, self-interest
RESULTS
Economic theory predicts that ECONS should offer $0.01 and their rational partners should accept
However, 71% of HUMANS offer between 40% and 50% of their money
Class ultimatum experiment:Would it matter if touch were involved?
Winning Touch: NBA Teams that Touch the Most Win the Most, Study Says
Dictator
Not technically a game since only one person has decision making power
Dictator decides how much money to give second player
Offers some evidence against the presence of rational, self-interest
Dictator variant
• Anonymity– Half class goes outside– Dictators do not reveal identity
Trust game
Player 2 decides how much $ to give to dictator
$ is tripled by Professor (matching amount will vary)
Dictator decides how much $ to give Player 2
The gruesome case of the Chinese toddler left for dead
Oct. 2011
Empathy fatigue
Emotional detachment brought about by prolonged emotional exposure
MOTIVATIONS FOR ALTRUISM
1. Ethics
2. Reciprocity
3. Business strategy
ALTRUISM MOTIVATED BY ETHICS
Is economics really about rational, self interested actors?
Living a life of altruism
Quotes of Mother Teresa
We cannot all do great things, but we can do small things with great love.
It is a kingly act to assist the fallen.
If you can't feed a hundred people, then feed just one.
Golden Ladder of Giving-Moses Maimonides, Jewish scholar, 1135-1202 AD1. Giving unwillingly.
2. Giving willingly but inadequately.
3. Giving adequately after being asked.
4. Giving before being asked.
5. Giving to an unknown recipient.
6. Giving anonymously to a known recipient.
7. Giving anonymously to an unknown recipient.
8. Giving to prevent poverty by teaching a trade, setting a man up in business, or in some other way preventing the need of charity
BLOOD BANK EXPERIMENTKansas City and DenverCornell University 1973
TREATMENT
Sent letter
offering to pay
them $10
to give blood
CONTROL
Sent letter asking
them to volunteer
to give blood
WHICH GROUP GAVE MORE?
PAID DONORS
65% gave blood
VOLUNTEERS
93% gave blood
WHAT’S GOING ON?!
“Crowding out”
People perform certain tasks for the common good but their motivation is crowded out if they are offered a financial reward.
-theory by Richard Titmuss, British social researcher
ALTRUISM AS A FORM OF RECIPROCITY
ALTRUISM AS A BUSINESS STRATEGY
• Strategy to become part of community
• Positive public image
• Signal of high product quality
• Develop social skills to enhance client relationships
• Inspired employees
EVERY DAY COMPASSION AT GOOGLE
Chade-Meng Tan
