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 rationality
Sen: 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
Altruism in animals
2008 2 feral dogs in Santiago, Chile
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 Issues
2. MICROECONOMIC HOUSEHOLD THEORY OF
FERTILITY
A. based on theory of consumer behavior
B. assumptions
1. children are a consumer good and/or investment good
2. 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
C d / Y  0
C d / Pc  0
C d / Px  0
C d / t s  0
A. graph
Economic Approaches to Population Issues
D. caveats
1. Are children a normal good?
2. non-pecuniary benefits hard to measure
3. Does the law of diminishing marginal utility hold for
children?
See Becker, G. A Treatise on
the Family, 1981
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 Theory
Game theory: study of interacting decision makers whose
payoffs depend on the actions of both
Collusion: Economic agents formally agree to coordinate
their activities to increase their joint profit / benefit
dominant strategy: a strategy that is best for a player in a
game regardless of the strategies chosen by the other
players
Nash equilibrium: a situation in which economic actors
interacting with one another each choose their best
strategy 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 AD
1. 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 EXPERIMENT
Kansas City and Denver
Cornell 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