Markets

Do Markets Make Us Fair, Trusting, and Cooperative, or Bring out the Worst in Us?

Scientists traveled the world to understand how markets shape human behavior

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By Joseph Henrich

Do markets make us fair, trusting, and cooperative or bring out our greed, selfishness, and envy? This is an old question, and great minds have long offered their opinions. On one side, David Hume, Adam Smith, and Montesquieu linked commerce and markets to good manners and virtue, while Marx, Rousseau, and a substantial swath of the modern humanities reached the opposite conclusion.

Research now offers the beginnings of a scientific answer: both camps are partly right in a way that reveals insights into human nature and how the modern world works (or fails to work). To examine the influence of markets on people’s fairness toward strangers, my colleagues and I conducted economic experiments among diverse populations from around the globe.

We first used the Ultimatum Game, in which a pair of participants is given some money, say $100. One partner (the proposer) must offer part of this sum to the other. The responder can either accept the offer, getting that amount while the proposer gets the remainder, or reject it, in which case nobody gets anything. The players never know each other’s identities, and they do not play again.

What would a selfish money maximizer do in this game? If the proposer offers $10 of his $100, the responder faces of choice between $10 and zero. If money is all that matters, then the responder will accept any offer. A selfish proposer, realizing this, would offer $1 and keep $99 for himself. Thus, a species of Homo economicus would make very unequal offers and never reject.

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We found no societies that behaved this way, among hunter-gathers, herders, slash-and-burn horticulturalists, subsistence farmers, and wage workers in Africa, Oceania, Siberia, New Guinea, and South America (plus Americans). In each place, we put one day’s wage on the line.

Nevertheless, people’s behavior varied a lot. Our populations ranged from remote foragers with no market integration to urban groups that depend completely on markets. People from the least market-integrated communities offered, on average, only about one-quarter of the stake, while those from the most integrated communities, such as rural Missouri, offered roughly half. This result supports the idea that market participation fosters a different kind of sociality.

When we first presented our findings, other researchers raised important concerns. So we went back to work, to see if we could replicate and extend our findings, improving our methods and adding to other games to our experimental toolbox. The first game, the Dictator Game, is like the Ultimatum Game, except the responder cannot do anything. Selfish proposers face no threat of rejection, so they should give zero.

Our second game, the Third Party Punishment Game, involves three players. Player A makes an offer to Player B, who cannot do anything. Player C, who gets half the amount that Player A is dividing with B, can pay to take money away from A. If the players are Homo economicus, Player A will give zero to B, and C will not pay to punish A. Together, these games gave us five measures of prosociality.

This second set of results tells the same story. Individuals from communities with greater market dependence make more equitable offers in all three games. The effect holds even after statistically removing differences in income, wealth, education, household size, sex, age, religion, and community size. The only factor besides markets that mattered consistently was religion. (People adhering to Christianity or Islam offered more than those associated with local or traditional religions.)

This correlation could simply suggest that prosocial people are attracted to markets, but recent work shows that markets do influence sociality. Among the Oromo herding communities of Ethiopia, Devesh Rustagi measured people’s willingness to cooperate with strangers in an economic game. Since these groups are tied to their land by customary rights, Rustagi examined the relationship between people’s cooperativeness and their distance from the market, which ranged from a few hours travel time to a full day.

People who lived closer to markets were more cooperative, even after statistically controlling for wealth, literacy, sex, land, and many other variables. Here market contact seems to have caused people to be more cooperative in anonymous situations. Perhaps most importantly, groups with more cooperators were better able to make, monitor, and enforce local agreements that resulted in measurable improvements in forest conservation. That is, the experience of markets changes our sociality to make it easier to construct and enforce certain kinds of institutions. Maarten Voors and his team have similar findings from Burundi.

Much psychological research indicates that people are specialized for thinking about particular social relationships, like those involving kin, reciprocal partners, and hierarchy. We clearly key into reputation, and in many of the small-scale societies we studied, individuals can improve or sustain their reputations by treating their kin, reciprocal partners, and social betters according to custom.

Market interactions, though, are different from “real” human relationships. Efficient markets require trust, fairness, and cooperation among people who don’t know each other and may not see each other again. Without trust, markets break down. Reputations in markets are based on principles of fairness that apply to everyone (or some designated subgroup) and some level of impersonal trust. Individuals are expected to pass up opportunities to help their kin or friends if it involves stealing from or duping a stranger. Consistent with this—and contrary to the intuitions of many—Al-Ubaydli and his team showed that if you unconsciously remind Americans of markets, they trust others more and invest more money with strangers.

Thus, markets are products of cultural evolution. They require reputational judgments governed by different norms than those that have regulated most human relationships over our species’ history. This is possible because we, unlike other species, rely heavily on culturally learned social norms and internalized motivations acquired from others in our communities. From a young age and well into adulthood, people tune in to the actions of others—particularly those who are more successful, skilled, and prestigious—to acquire motivations, behavior, and principles, which can include fairness and trust toward anonymous others. Behaviors in experimental games are transmitted via social learning in the laboratory, and equitable offers and rejection of unfair offers emerge only gradually during development, reaching adult levels in the mid-twenties.

The dependence of markets on an unnatural set of social norms is what makes them so susceptible to collapse due to nepotism, cronyism, and corruption—that is, invasion by our more ancient social instincts. Social life in small-scale societies is rooted in relationships based on kinship, reciprocity, and status. Our behavioral experiments, however, tap motivations related to ephemeral interactions involving cash—“market norms”—not generosity to family or loyalty to friends. By making low offers and not rejecting free money, people in small-scale societies favor their family and local network over unknown others or abstract principles.

Incidentally, after scouring the globe in search of Homo economicus, we did eventually locate a group that approximates him. Chimpanzees do not reject in the Ultimatum Game or punish in the Third Party Punishment Game; they also reveal no measurable concern that others receive equitable payoffs, even when the costs to themselves are low.

Originally published here.

2016 August 6


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  • R J Schundler

    The results were more or less as one would expect …. Since in addition to money there is one’s opinion of oneself (which has value), so the extent that one shares or not shares are based on one’s values …. And that is what is hard to test. Economic theory states that “people will offer something of lessor value (to them) for something of greater value (to them) and hense making a profit on the transaction (basic economics). What is differcult is knowing what the values being exchange by each person taking part in the transaction.

    • John M Legge

      I am amazed that R J Schundler can get to the end of an article explaining that economic theory is deeply flawed, at least, to the extent that it pretends to describe or predict human behaviour; and then try to interpret the results in terms of economic theory.

      I find it more interesting that this article complements Sloan Wilson’s “My Nation First!” is No Better than “Me First!”. (http://evonomics.com/nation-first-no-better-first/)
      Commerce seems to make us more likely to trust strangers and expect reciprocal behaviour, weakening the importance of kin and clan loyalty. It’s an upside to a market economy that I hadn’t previously recognised. Of course, “malefactors of great wealth” rely on the increase to in trust to exploit and betray their victims. We need to remind ourselves that markets are a social construct: no reasonable person wishes to live in a market society.

  • Kind of interesting.
    Yes – exposure to trusting strangers through markets is an improvement over trusting only know family and tribe.
    Yes that is a step in a positive direction.

    And it need not be the final step.

    It is possible to develop trust networks that do not involve markets, and are far more powerful than markets.

    Markets were, without doubt, an important phase of our evolution.
    They are our current reality.

    And we must go beyond them – far beyond them, if we are to have a substantial probability of living a very long time – the logic and math of that is inescapable.

  • How did we move from hunter-gatherer societies in which everyone knew each other and were closely related to vast societies in which we know only a tiny fraction of our fellow citizens? This article is one step towards recognizing how unguided cultural evolution brought us this far. And how markets played and still play a central role in this process.

  • mohinderkumar

    This conceptual difference may be noted: Market is modern terminology and reality expressed by production-exchange relations among humans signified as indirect, impersonal, (may be) on-line, exotic, far/distant, no direct contact, without meeting place/ no “spot market”, domineering, not social but mere economic/profit oriented, where private capital dominates and self interest is supreme and participants aim to maximize individual utility. In contrast, what author of this article is proposing is ancient-historical “market” that was/is called “bazaar” and “haat” (in India), “Agora” of Greeks and other such spots of exchange where participants meet, interact and have direct discourse that goes beyond mere “buying & selling” to include personal relations including matters of family, kith, kin, their sorrows, happiness, everything –that is “bazaar”. Market and bazaar/Agora notions may not be intermixed.

    Cooperation, sharing on credit (trust) basis, socialization would be optimum in Bazaar/Agora, not impersonal markets where abstract “demand” & “supply” forces rule. Bazaar is a place for economics, politics, exchange, sharing, credit, family, personal contact. Even today bazaars are thriving (if only antithetical forces allow it to thrive). Author’s “market” when tampered substantially with state/ govt./ societal regulations, legal Acts and guidelines, becomes tangible institution. A well regulated market is equivalent to bazaar where cooperation and welfare would be maximum for all participants.

    Therefore, authors need to extend their study further by being more clear on historical concepts and categories empirically in vogue and their variants/ diversity in history (known to us + still unexplored as failed long back and went out of practice), which is most important.

    Why participants favored kith, kin and family is because such ancient tribal forms of entities know that their first loyalty is towards family/kith-kin and blood relations –since primordial and ancient historical times. If, suppose, they breach this historical time-tested custom (artificially or under exotic pressure of say one family member of tribe being educated in modernity and a Director in some company) then where lies the proof of consistency in “loyalty”? Why should a tribal be more loyal/ trusting towards a stranger vis-a-vis his kith-kin/ member of tribe when loyalty/trust toward kith-kin persisted for thousand of years? It betrays minimum required logic.

    First, all exchanges have been confused with a single concept/term “market”, which appears authors’ appeal for cloning rather than loking for diversities/ diverse practices of exchange and sharing among communities/ populations of tribes and moderns. There was no single “market” 1000 years back among tribes or German Zens or other tribes all over the world. It was something else yet it was exchange. People will always make transactions and exchange, but under varied forms and arrangements. Everything under this sky is not “market”. Author differentiates only b/w people with “greater market dependence” and “lesser market dependence”. His conclusion being that former group exhibits greater cooperation. Naturally, capitalism (where even one’s labor power is bought & sold) having greater social division of labor shall exhibit greater cooperation in order to survive and succeed. But such “cooperation” among strangers is cooperation for production only, and not for distribution. Rather, in such epitome of market system called capitalism, every laborer competes ruthlessly with other in cut throat competition of labor market. They cooperate only at work-place as master/owner/capitalist dictates them to do so in the process of production. Their “cooperation” in market is under commandment of capitalist, and for narrow aim of private/ privatized production. In an enthusiasm to locate “cooperation” among participants, authors have lost sight of essential differences in historical paths (diverse, alternative, multitude) of how communities have evolved (changed) or stuck to their age-old systems by preserving them. Preservation of the “old” and continuing it thus far is also a form of evolution/ progress. For instance, subsistence farming groups. Had these groups participated in modern commercial/ capitalist farming practices (under lure or pressure) their food security and survival would have been endangered. So, naturally, such subsistence farming group (author’s least cooperation exhibiting group) would show least cooperation towards strangers/ modern state/ modern market/ modern institutions (including money + banks’s finance), etc. etc. Trust and cooperation for aliens/ strangers/ exotic beings cannot logically betray one’s trust for own community members/tribe, howsoever least “market dependent” these individuals may be.