Altruism and economics- Do relationships influence economic outcomes?


#1

Altruism has become quite a big topic in economics lately. Many psychological and economics studies have concluded that altruistic behaviours are innate (Tankersley, Stowe, and Huettel (2007) claim that there are isolated brain centers involved in altruism. But, to what extent is this true?

There have been some experiments in which depending on the price of the good that is “gifted” there is a difference in altruistic behaviours ( Andreoni and Vesterlund (2001)). So this brings up the following question, could it be that our interactions/ relationships affect our altruistic behaviours? At first this conclusion may seem too extreme, however I believe there is some evidence to support this.

It could be that we are biologically wired to be altruistic, hence we see in many repeated game experiments that individuals often times show altruistic behaviours. Yet under an experiment, individuals are aware that they are being observed so this must influence their behaviour in some way. Many people care about appearances so it would make sense for people to be more altruistic in experiments where they know they´re being observed. This could represent a degree of bias when presenting the results.

Yet there is another alternative, a study carried out in Stanford found that toddlers that interacted with the researchers previously to the experiment, were three times more likely to show altruistic behaviors. What does this mean? That toodlers were not necessarily aware they were being observed in the experiment but they did have an interaction with the researchers and this unlocked their altruistic behaviours.

These outcomes are replicated in economics. As economists we like to say that individuals arrive at an equilibrium because of the law of demand and supply. But could it be that economic behaviours are also driven by relationships and interactions? Often times individual motives are driven by their relationships, which means that altruism often times plays a role in the decision making process. So this would mean that individual interactions are the ones that are driving the equilibrium output. This considers not just everyday interactions, it goes further, it implies that feelings such as empathy play a fundamental role when it comes to decision making.

Could it be that individuals take into account not just prices and information but also their relationship with the person providing such information. This means we are not necessarily wired to be altruistic or wired to act rationally, it means that feelings and relationships impact how we react to such stimuli, thus impacting equilibrium results.

I´d like to know your thoughts on this since I know altruistic behaviours come hand in hand with feelings of justice and moral. I think its very interesting how these topics are starting to become embedded within new economic approaches.

References

CAREY, B. (2014). Stanford psychologists show that altruism is not simply innate. [online] Stanford University. Available at: https://news.stanford.edu/news/2014/december/altruism-triggers-innate-121814.html [Accessed 20 Feb. 2018].

Andreoni, J., T. Harbaugh, W. and Vesterlund, L. (2007). Altruism in Experiments. [online] Available at: http://econweb.ucsd.edu/~jandreon/Publications/PalgraveAltruism.pdf [Accessed 20 Feb. 2018].


#2

That’s a very interesting area of study Karla, such as altruism plays a very important rol in the area of economics. As you mentioned before, economics isn’t only about supply and demand, to truly understand it we have to look very carefully into many different aspects, such as altruism, and how it is applied when we know the other people or not.

There´s a script of Adam Smith (1759), which I like very much because I think is very realistic, and says the following:

Every man, as the Stoics used to say, is first and principally recommended to his own care; and every man is certainly, in every respect, fitter and abler to take care of himself than of any other person. Every man feels his own pleasures and his own pains more sensibly than those of other people. The former are the original sensations; the latter the reflected or sympathetic images of those sensations. The former may be said to be the substance; the latter the shadow.

After himself, the members of his own family, those who usually live in the same house with him, his parents, his children, his brothers and sisters, are naturally the objects of his warmest affections. They are naturally and usually the persons upon whose happiness or misery his conduct must have the greatest influence. He is more habituated to sympathize with them. He knows better how every thing is likely to affect them, and his sympathy with them is more precise and determinate, than it can be with the greater part of other people. It approaches nearer, in short, to what he feels for himself.

I think that, even if it sounds crude, it’s very logic that people may act these way. For example, if my cousin opens a bakery, even if it’s a little further than the one I used to go, or even if it’s a little more expensive, it’s very likely that I will consume there instead where I used to consume. And that example applies to almost every product and to almost every person. Also there´s a paper (Rachlin, 2008) that explains it with more detail, and that you should read if you’re interested in this topic, because it points out the differences between altruism with relatives and non-relatives in a very interesting way.

On the other hand, you mentioned that people acted more altruistic when they believed they were being observed, which is completely logic, such as people may feel guilty if they act in a selfish way; also there’s an article which explains this aspect with more detail (Price, 2017).

In conclusion, altruism plays a very important role in economics and in our everyday life, so it’s very important to know how it can be affected and how it will affect our models; two important variables were mentioned here (relationship, guiltness), but there are some others such as income, environment, etc. that may also be important if we wanted to model altruism, so we must fully understand them and then we will be able to apply them.

References

Smith, A. (1759). Part IV: Of the Character of Virtue Consisting of Three Sections. Available at: https://www.marxists.org/reference/archive/smith-adam/works/moral/part06/part6b.htm [Accessed Feb 21, 2018].

Rachlin, H. and Jones, B. (2008). Altruism Among Relatives and Non-Relatives. Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2561243/ [Accessed Feb 21, 2018]

Price, M. (2017). Why are we altruistic? Guilt may play a rol. Available at: http://www.sciencemag.org/news/2017/02/why-are-we-altruistic-guilt-may-play-role [Accessed Feb 21, 2018]


#3

I agree that markets are not driven entirely by economic institutions. It’s true that economic activity is also influenced by relationships and social interactions. This idea was stated by Dr. Karl Polanyi in his book “The Great Transformation”, in which he coined the term “embeddedness”, which refers to the degree of economic activity that is constrained by non-economic institutions, such as social interactions.
Years later, Mark Granovetter (Stanford) claimed that neoclassical economic approach is wrong because it “operates with an atomized, undersocialized conception of human action, continuing utilitarian tradition”.
He argues that market societies have always been and continues to be more substantial (“embedded”), and that neoclassical and formalist economic theory is not taking this into account.
Even though markets are influenced by social interactions and altruism decisions, I still think that this activitities are mainly based on selfishness. It is similar to Hume’s concept of limited benevolence meaning that you are good with people that surround you, maybe because you like/love them, but also because you are better off with them. But is clear that you are not good with everyone, not only because is imposible but also because of the low expected outcome of such social relation.
I think this leads to social networks. Social networks in markets are important because agents are better off if they are part of them. To be a member of a social network (like Tepito in Mexico City) you need to gain the trust of others. Trust here is related to a moral concept that neoclassical economics wouldn’t take as a relevant factor, but the motive for being trustworthy remains selfish.
I post a video of Mark Granovetter explaining the concept of ebeddednes, as well as his paper.


#4

Emilio, I think you took into discussion a very interesting point, which is the rol of trust in taking economic decisions. Maybe it affects in the same way that relationships do, but I think that they are a little bit different in the way of getting or losing them. For example, some relationships are obtained out of nowhere, because there’s a blood relationship, or because of family interests, but trust is gained everyday and can be lost in one minute, that’s the big difference between them. To be able to trust again in someone and then interact (economically speaking), when something happened to make you stop trusting in these person is almost impossible, that’s why it’s such an important element on Economics and it should be taken in consideration as some dependent variable. There’s a paper that mentions the importance of trust in actual business (Botazzi, 2011), and I think it’s relevant to this topic because trust and relationships go hand to hand, both are really important, but they aren’t the same.

References

Bottazzi, L., Da Rin, M. and Hellman, T. (2011). The Importance of Trust for Investment: Evidence from Venture Capital. Available at: http://www.nber.org/papers/w16923 [Accessed Feb 22, 2018]