Literature Review
Prosocial Behavior and Altruism in Economic
Exchanges
Behavioral Economics
Submitted to Sir Nadeem Sarwar
Group Members:
Asba Imran (21868)
Ayesha Muntaha (22606)
Ayman Ansari (22570)
Maida Rafiq (22539)
Rida Faraz (22590)
Introduction
The examination of prosocial behavior and altruism in economic exchanges provides an
intriguing insight into how human behaviors go beyond self-interest, influencing economic and
social connections. Prosocial conduct, as defined in literature, refers to voluntary activities
undertaken to assist others, even if it entails personal expenses, so deviating from what is
prescribed by economic logic. Prosocial conduct comprises a wide range of behaviors, including
immediate assistance in situations, planned acts of assistance, voluntary work, and collaboration
within and across organizations (Caserta et al., 2023). The theory of rational economic man, and
particularly the assumption of self-interest in economics, is said to be at odds with altruistic and
cooperative actions. Donations to charitable causes, voluntary contributions to public goods, and
inclinations for justice seem to contradict economic concepts such as greed and the pursuit of
self-interest. Prosocial and economic activity, nonetheless, may coexist.
Historical development of Prosocial behavior
The conventional economic concepts and theories have been challenged in the context of
prosocial behavior. It has happened on the basis of self-interest. The reasons why individuals are
engaged in activities that benefit others even at their personal loss are beyond self-interest. They
include outcome- based prosocial preferences, self-identity, and reciprocity. These theories
account for the underlying human behavior in economic exchanges which is beyond self-interest
(Boston, 2006).
The notion of kin altruism is built on the idea of inclusive fit via action. Getting genes passed
down from one generation to another is the main emphasis. The evolutionary advantage of
inclusive fitness accruing to individuals that consistently assist their relatives is a result of this
behavior (Costantini et al., 2019). The evolutionary benefit of assisting others is attempted to be
explained by the idea of reciprocal altruism, which takes a more individualistic perspective.
Helping others and expecting reciprocation has evolutionary benefits for humans. Additionally,
because some standards of reciprocity are present in every culture, reciprocal altruism might be
seen as a manifestation of genetic development. Direct and indirect reciprocity are two ways of
looking at this idea. The former depicts cooperation that develops from frequent interactions
between the same two people, whereas the latter describes a process where we assist one person,
who then chooses to assist another third person, or where we are assisted by another person, and
then decide to assist still another third person (Costantini et al., 2019).
Seminal Studies in Prosocial Behavior
The work of Rosenbaum et al. (2012) on the Ultimatum and Revelation Game is one of the key
seminal studies. Understanding prosocial behavior, especially in economic circumstances, relies
heavily on this work. Fairness and reciprocity play an important part in economic choices, as
shown by the fact that players in the Ultimatum Game generally reject unjust offers, even if it
means harming themselves. This has shaken up the field of economics by challenging the longheld belief in completely selfish actors and has far-reaching consequences for our understanding
of generosity and equity in trade.
Psychological Mechanisms Underlying Altruism
Altruism, a component of prosocial behavior, is conceptualized as benefiting others with no
expectations of benefits to oneself in Psychology (Lay & Hoppmann, 2015). A study ( Feigin,
Owens, & Goodyear-Smith, 2014) conducting through review of scientific theories and articles
to gather and summarize research on human altruism in social psychology from 1960 to 2014,
highlighted how altruism is defined in various lights over the years. Some argue that in defining
altruism, it is essential to separate it from its opposite, egoism. They posit that altruism and
egoism are distinct motivational states, differing in their direction of goal-directed motivation
because altruism aims to increase another's welfare, while egoism is self-directed. They also
underline that despite their potential distinction, egoism and altruism can coexist. On the
contrary, others argue that altruism is ultimately driven by selfish motives, seeking one's own
well-being.
In a different dimension, altruism can also be explained as Normative or autonomous. While
Normative altruism consists of everyday acts of kindness driven by the expectation of social
rewards or fear of punishments, in contrast, autonomous altruism is not influenced by these
factors and may even be considered heroic (Franco, Blau, & Zimbardo, 2011).
Altruism is commonly related to concepts such as altruistic punishment, reward, reciprocity, and
cooperation. Altruistic punishment acts as a powerful tool to maintain cooperation in society as
individuals who violate a social norm are often punished by a third party. A study (Fehr,
Fischbacher, & Gachter, 2002) provides significant evidence using a public goods game which
suggests that many individuals tend to cooperate willingly, especially when treated fairly, and
are inclined to punish those who do not cooperate or treat others unfairly. This behavioral
tendency, termed as "strong reciprocity", is shown through empirical evidence to foster universal
cooperation in situations where purely self-interested actions would otherwise lead to a
breakdown of cooperation.
Differences in opinions exist between social psychologists who consider empathy as key
motivator behind altruistic behavior and economists who assume that fairness principles drive
altruism. In Economic settings, Studies using behavioral paradigms have shown that individuals
often act more generously than what rational choice theory would suggest (Filkowski, Cochran,
& Haas, 2016). Much of this research used straightforward experiments, with the Dictator Game,
Ultimatum game and Trust games. The findings from these studies support the widely embraced
notion that altruism is influenced significantly by social norms linked to fairness, which involves
seeking equal material benefits for both oneself and others (Klimecki, Mayer, Jusyte, Scheeff, &
Schonenberg, 2016).
Empathy which includes experiencing compassion and a willingness to alleviate someone else's
pain, is also considered a driver of Altruistic behavior ( Feigin, Owens, & Goodyear-Smith,
2014). (Batson C. D., 1992) suggests a psychological explanation for altruistic behavior,
centered around empathic concern. According to his empathy-altruism hypothesis, when
someone encounters another in need, the potential helper experiences personal distress. This
distress can drive the person to seek relief either by aiding the sufferer or by avoiding the
situation, both stemming from an egoistic motivation. Contrastingly, Batson also proposes that
the potential helper may empathize with the sufferer and choose to help, even when escape is an
easier option. In such cases, Batson argues that the helper is altruistically motivated by a genuine
desire to alleviate the other person's suffering, rather than being driven by their own distress.
Experimental Studies on Prosocial Behavior
The study ‘Self-Signaling and Prosocial Behavior: A Cause Marketing Experiment’ examined
how people behave when they are offered a charitable donation with a product purchase, testing
if ego-related feelings affect their choices more than the charitable act itself. They conducted two
experiments where consumers could buy a movie ticket with either a discount, a charitable
donation, or both. Surprisingly, when large donations were offered, discounts led to fewer
purchases. People reported feeling less altruistic when given bigger discounts with significant
donations. This suggests that personal feelings about being altruistic influenced choices more
than the act of giving itself. Moreover, the experiment contradicts the idea that larger donations
always attract more purchases and highlights the potential downside of combining discounts with
charitable donations in marketing campaigns. In the first experiment, different SMS messages
were sent to about 10,500 smartphone users, offering discounts, donations, or a combination of
both for movie tickets. They observed that out of the 10,500 subscribers who received these
messages, 273 ended up purchasing movie tickets. The second experiment, conducted, involved
around 30,300 smartphones out of which 694 people bought movie tickets. Additionally, a
survey was conducted the day after the SMS offers expired, reaching out to both purchasers and
non-purchasers to gather feedback on their experiences. They found that when discounts and
charitable donations are combined in promotions, it sometimes leads to fewer people buying the
product. Furthermore, when discounts are too big, they overshadow the desire to support charity,
affecting people's decisions to purchase. People seem to feel better about themselves when they
support a cause rather than the actual act of giving. Discounts and donations don't always work
well together, sometimes, discounts can cancel out the positive effect of a donation. However,
the study has limitations as it didn't look at long-term effects on sales, and it's uncertain if these
findings apply to different types of products. They also didn't explore if feeling good about
supporting a cause now leads to more helpful behavior in the future or if people prefer not to be
put in situations where they have to show support (Dubé et al., 2017).
The study “Prosocial behaviors and economic performance: Evidence from an online mental
healthcare platform” investigated the impact of health professionals offering free services on
online mental healthcare platforms on their future economic performance. It aimed to explore
whether such behaviors affect earnings directly and whether relationship and reputation capital
mediate this effect. Data was taken from a Chinese online mental healthcare platform called
yidianling.com, where verified counselors offer services to users seeking psychological advice.
These counselors provide paid consultations and, sometimes, free advice on relationship
problems or work stress. Data from 659 active counselors over 16 weeks was analyzed,
observing their behavior in providing free suggestions, the number of paid consultations, thanks
received, and new followers gained weekly. The results indicate that these free services result in
a 5% increase in counselors' paid consultations. Additionally, the positive impact is partly
influenced by the relationships counselors build with users but is not significantly affected by
reputation. This means that providing free services directly helps counselors earn more and
builds better relationships with users, benefiting their economic performance. In essence, the
study reveals that counselors' pro-social behavior directly contributes to their financial success
on the online mental healthcare platform, partially due to the relationships they establish with
users. Yet, study has limitations. It doesn't consider the quality of free services or generalize its
findings beyond active counselors (Yan et al., 2022).
The study “Market Interaction and Pro-Social Behavior: An Experimental Study “investigated
how market interactions affect people's choices when dividing money between themselves and
another person, considering situations where negative consequences affect others. In their
experiments, participants have the chance to either buy or sell the right to make decisions about
dividing money between themselves and a passive recipient. They aimed to see what happens
when this decision-making right is traded in a market-like setting compared to when it's given
without market interaction. 11 sessions involving 24 participants each at Florida State University
were conducted. They divided participants into buyers, sellers, and recipients. In the Market
treatment, participants engaged in a market where sellers could sell the right to decide how to
split money, and buyers could buy this right. Then, they played a game where they allocated
money between themselves and a passive recipient. In the Random Market treatment,
transactions had a 50% chance of being canceled after the market stage. The Control treatment
didn't involve market interaction and replicated outcomes from previous Market sessions for
comparison. During the experiment, sellers could sell their right to decide how to split the
money, and buyers could buy this right. In the second stage, buyers who bought this right and
sellers who didn't sell it had to split $16 between themselves and the recipient. The outcomes
from the Market sessions were used to guide decisions in the Control sessions. When this
decision-making role was traded in a market setting, the overall amount given to others
decreased significantly compared to situations where the assignment was direct. There were two
possibilities for this decrease: Firstly, participating in a market might have changed individuals'
behavior, making them less inclined to be generous. Secondly, the market might have allotted
decision-making to individuals less concerned about others' well-being. Reduction in pro-social
behavior in the market setting couldn't be solely explained by the selection process. Even when
some transactions were canceled, the negative impact on pro-social behavior persisted.
Surprisingly, buyers who appeared more generous tended to buy from sellers who were also
inclined to be more generous, yet overall, both buyers and sellers were less generous in the
market setting compared to other scenarios. This suggests that markets, both directly and through
their selection processes, might diminish people's willingness to consider others' well-being
when making decisions about sharing resources. The adverse impact of market interactions on
altruistic behavior persisted even when participants were conscious of the consequences of their
actions. This implies that there could be better outcomes if people are more aware of their
behavior in the markets (Collins et al., 2017).
In one of the cases, when health professionals exhibited pro social behavior like offering free
services online, it benefitted the economy. In another case, mixing discounts with charitable
donations in marketing or engaging in market-like situations didn’t always bring the expected
positive outcomes. For example, in marketing scenarios, both buyers and sellers exhibited less
generosity. This hints at a possible decrease in overall kindness compared to the direct
interactions. This suggests that while prosocial behavior can be beneficial in certain economic
settings, its impact might vary and might not always result in predictable outcomes across
different situations within economic transactions.
Applications in Business and Organizations
Prosocial behavior comprises actions that are performed by an individual, or a group, with the
main goal to benefit others. All types of prosocial behavior have positive outcomes and the
categories they focus on can be political, social, environmental, and so on. Any specific person
does not necessarily perform prosocial behavior, it can also be done by those perceived to be evil
by society, e.g. thieves, and not just altruistic individuals, or those who are selfless. Altruistic
behavior consists of “self-sacrifice” which is the personal cost you incur for the benefit of others,
whereas prosocial behavior simply means doing good, as it is expected by society. Research
states that a pro-social personality sets the tone for the culture, social norms, and values and the
inherent characteristics include being optimistic, extending help, and embodying the essence of
empathy, which results in feeling good and maximizing satisfaction as people see the rewards of
their good actions. (Hazzi)
Prosocial benefits are enjoyed by everyone in society. The entrepreneur, e.g., will inculcate
business practices such that his prosocial personality is reflected in the customers as well. This is
because prosocial values will transfer throughout society, and eventually, they will be reflected
in society, building a community where everyone helps each other. A prosocial entrepreneur may
provide services that connect people, build relationships, and contribute to a better society. E.g.,
a business model working towards reducing litter and pollution in the city. (Hindokova)
Ng and Van Dyne, (NG, 2005) conducted a study that prosocial behavior results in better
performance and overall betterment of the company. However, there is a dark side to this attitude
too. Continuously putting oneself before others results in exhaustion, which might impact
performance again. Bolino, (Grant, 2016). The bright side of being prosocial at work, and the
dark side, too: a review and agenda for research on other-oriented motives, behavior, and impact
in organizations.
(Luthans & Youssef, 2007) research conducted which suggests that particularly focusing on
positivity often results in an imbalance of attitude impacting one’s mental health, positive aspects
of prosocial behavior and benefits are often exaggerated. Therefore, prosocial behavior needs to
be carried out in balanced measures, considering both the positive and negative impacts.
One type of prosocial behavior is social responsibility. The actions taken to bring about positive
impacts come under prosocial behavior, whereas the motivation behind these actions is called
altruism. The act of organizations being moral towards environmental, economic, and cultural
aspects is known as social responsibility. Each stakeholder performs per the expectations set by
society, within the capacity of their profession. Due to social responsibility, organizations have a
lasting positive impact, hence, it helps governments, companies, and individuals as well. By
nature, socially responsible actions are sustainable and have no external costs. (Aziz & Abid,
2018), suggest that an individual needs to be emotionally influenced to conduct themselves.
Public Policy and Altruism
Altruism has been defined in many ways, but the most consistent definition is improving the
welfare of others without having the desire to get anything in return.
According to the standard economics model, all rational agents try to maximize their gains and
thus exhibit self-interest maximization behavior, eventually leading to an efficient allocation of
resources. However, many studies have found that different factors play a dominant role in
acting for the public good (Batson D. , 1994) and one of them is altruism. (Gates & Steane,
2009) argue that this notion of self-interest has led to financial crisis, wealth inequality, and
extreme capitalization. The authors propose altruism as an alternative approach to policymaking
as it would maximize the interests of the society rather than a selected few people. They also lay
down a few examples of policies that can be formed using an altruistic approach –
Environmental, social welfare, and fair labor policies. Similarly, a study (Zubair, Khan, &
Mukaram, 2021) examines the effects of altruism along with other factors on organizational
performance. The results obtained from Covariance structural equation modeling show that
altruism indirectly leads to higher levels of organizational performance among public sector
officials as their motivation to serve the public is fueled by altruism.
Prosocial behaviors are those which benefit others or society as a whole. (Costa-Font &
Machado, 2021) answers the question of whether prosocial behaviors such as – organ donation,
blood donation, health care volunteering, etc. are motivated by altruism or not. We find that
altruism indeed motivates pro-social behaviors and thus governments can use them as tools
during policy interventions. Simplifying tax forms and creating a community of blood donors are
provided as examples to illustrate how policies can be designed to encourage prosocial behavior
for societal benefit (Aknin & Whillans, 2021). There is also a stress on the need to balance
ethical considerations based on altruistic principles.
In the context of leveraging prosocial behavior, especially altruism, for societal benefit, the study
(Chell & Mortimer, 2014) investigates the strategies employed by NGOs to encourage blood
donation. There is a shift towards a customer-centered approach, and it is found that altruistic
values play a crucial role in motivating individuals to donate blood. Besides this other factors
such as status and emotional fulfillment are also at play. Recent studies examine whether policies
imposed during the COVID-19 pandemic leveraged pro-social behaviors. (Campos-Mercade,
Meier, Schneider, & Wengström, 2021) come up with an important finding that the impact of
policies depends upon the level of pro-sociality in a population. Different surveys involving an
incentivized game (where participants could expose others to risk for their benefit) were
conducted which showed that most people are unwilling to harm others for their benefit and thus
policies can be designed per the degree of pro-sociality in the population.
However, many ethical dilemmas arise when implementing policies based on altruistic
principles. Studies have been conducted to address these challenges and ethical considerations.
According to (Long, 2021), the empirical estimation of an adjustment to VSL poses a challenge.
The results show that VSL measures are underestimated and thus the economic value assigned to
prevent a statistical fatality is considerably lower than it would have been if altruistic elements
were considered. Therefore, in the case of public health, policymakers must consider altruistic
sentiments. Placing a monetary value on human life is regarded as distasteful and this adds
complexity to policies based on altruistic principles. Policymakers must weigh economic
considerations against ethical principles especially when making decisions for the public’s wellbeing.
Conclusion
In sum, our knowledge of how people behave in economic settings has been enhanced by
research into altruism and prosocial conduct in trades. To reconcile economic rationality with the
innate human propensity for altruism, seminal studies have shown that equity and reciprocity are
fundamental to economic decision-making. This area has shed light on the intricacies of human
motives. Therefore, challenging the conventional knowledge of economically motivated
individuals and introducing theories of kinship and reciprocal altruism as well as outcome-based
prosocial preferences. This new knowledge challenges long-held assumptions about economics
by highlighting the compatibility of altruism with profit.
Additionally, there has been substantial focus on healthcare sectors in the past literature
exploring altruism. Even though altruism in the workplace has been explored to some extent,
there is a need to tap into other sectors to explore the varying levels of altruism and design
policies accordingly.
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