Are Economists Selfish and Rational? And if so, Why?

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1 Universität Bielefeld Fakultät für Soziologie Didaktik der Sozialwissenschaften Working Paper Nr. 4 State of the Art: Are Economists Selfish and Rational? And if so, Why? Simon Niklas Juli 2012 Didaktik der Sozialwissenschaften Working Papers Herausgegeben von Reinhold Hedtke

2 Simon Niklas State of the Art: And if so, Why? Some fear that it might undermine social cohesion and the level of cooperativeness in our societies, if school or tertiary education increasingly confronts young people with the homo oeconomicus actor-concept as a basic analytical tool in economics and modern social science in general. This paper discusses survey and experimental evidence that has been collected to examine whether people trained in economics are different with respect to their preferences and behaviour and whether this could be a result of their education. This evidence, as I will argue, is unfortunately inconclusive. Future research could benefit from replacing dichotomic constructions used to describe and interpret empirical findings with more recent actor concepts as suggested in psychology, economics, and sociology. JEL Classification: A13, A20 1

3 Contents 1. Introduction: 'Economic Imperialism' and Social Sciences Education Why are Economists 'Conservative'? Are Economists Selfish? Conclusion: What we know and don t know References Introduction: 'Economic Imperialism' and Social Sciences Education Should we stop teaching economics because it educates bad citizens (Frank et al., 1996) and rests on normative assumptions that are destructive to human society and habitat (Miller, 1993)? And should we resist the increasing use of the homo oeconomicus concept and the related model-building in other social sciences because it will undermine the public spirit (Kelman, 1987)? A number of authors from inside and outside of the economics profession warn us that teaching economics potentially creates the type of selfish individual assumed in the theories (Ostrom, 1998), and the necessity, use, and meaning of ethics training in business schools is intensely discussed (Gautschi and Jones, 1998; Carlson and Frances, 1998; Etzioni, 2002). While the fears are manifest, it is far from proven that economists are indeed somehow 'different' and that something could be done about this by changing teaching practices. This article presents a summary of what we know about the effects studying economics has on the formation of attitudes towards specific institutions and on the preferences that are the background of social behaviour. Generally, fewer economists than in the past would state that the homo oeconomicus (even its reduced form, assuming bounded rationality) explains all human decisions. Economic modelling has become more flexible over the last two or three decades, in particular by incorporation of more faceted understandings of human preferences and decision making (Colander/Holt/Rossner, 2004). However, even if the profession is replacing the paradigm of non-reflected profit maximisation and atomistic competition by enlightened self-interest and purposeful behaviour, this is subject to more advanced courses and usually not dealt with in undergraduate teaching (Colander, 2007). Moreover, the new 'enlightened economic actor' is still not defined precisely enough to challenge the dominance of the homo oeconomicus as a fundamental concept at least in those fields of social science which have only recently become concerned with it. As the demand for generalisable assumptions about human behaviour is rising in other social sciences, the more these are permeated by systematic theory- and modelbuilding, elements of neoclassical thinking are drawn into these disciplines, while they are under challenge in their field of origin. 'Economic imperialism' is a term used to describe the spread and rise to dominance of the neoclassical practices of explanatory model-building and its premises about human decision making (including the epistemo- 2

4 logical concept of the homo oeconomicus) in the social sciences. It meanwhile ranges far beyond its field of origin in micro-economics into the disciplines of political science and macro-sociology and is growing in importance even in cultural sciences and microsociology (Lazear, 2000). The boom of public choice-theory in political science is only one vivid example. The original version of the homo oeconomicus assumption describes human decision making 'as a rule' or in 95 per cent of cases to be free of genuine altruism, not bound to any fairness-norms and focused on short-term or lifetime income maximisation. Decisions are made with full or bounded rationality, as in a one-shot game. Cooperation is possible under conditions of complete contracting only, though some allow the evolution of institutions and trust-relations in repeated games. In general, however, free riding and other forms of opportunism are endemic. There is, on the other hand, little reason to question that institutions of cooperation and altruism play a beneficial if not critical role for sustainable economic development or even the vitality of market exchange itself. Hence, when evaluating teaching practices and curricula in economics and the other social sciences, we should take into account the risks Amitai Etzioni (and others before and after him) warned us about that economic action in the form propagated by mainstream economic theory has the potential to undermine the cultural and institutional preconditions economic exchange and viable market competition depend upon. [C]ompetition, he wrote, is not self-sustaining; its very existence, as well as the scope of transactions organized by it, is dependent to a significant extent upon contextual factors within which it takes place (Etzioni, 1988, 199). This position resorts to the concept of performativity which has received significant attention in recent scholarship (Callon, 1998; MacKenzie et al., 2007). Its basic idea is that economic theory is not to describe economic reality, but rather to inform economic actors about how they should act to maximise their benefit and behave morally correct. Hence, the more the templates provided by economic theory are made use of, the more subsequent economic processes will conform to economic theory. Such processes have already been analysed on commodities markets (Garcia-Parpet, 2007) and financial markets (MacKenzie and Millo, 2003). But the fact that moral sentiments, fairness and reciprocity considerations might play an important role to the specific form, outcome and sustainability of market exchange and the effective conduct of cooperative economic behaviour (Gintis et al., 2005) is not always adequately recognized in the normative statements that can be drawn from basic neoclassical economics. They also conflict with recently raised concerns about potential negative effects socioeconomic inequality might have on overall social welfare and the stability and functionality of the very process of resource allocation itself besides its potential negative implications for the social acceptance of market exchange and private property. In the end, however, resorting to what Albert Hirschman (1986, 109) has called the self-destruction thesis, capitalism itself would make the coordination of economic processes impossible, as it failed to reproduce the moral values and social institutions on which it is founded. So, does current teaching in economics create a type of human actor who will potentially undermine our economic system? Since the early 1970s a number of researchers have devoted attention to the question whether and how training in economics affects 3

5 preferences and behaviour. This paper discusses survey and experimental evidence that has been collected with regard to these questions. The organisation of the paper recognises that the discussion actually follows two major threads. One examines whether people trained in economics are different with respect to their preferences for institutions (such as the market versus other modes of distribution), the second examines their behaviour and motives and whether such differences are indeed a result of their education. In pursuit of this agenda I will begin (in section two) with a review of a discussion initiated by Nobel laureate George Stigler. He argued that training in economics would make students more conservative in terms of enforcing their positive assessment of private ownership, market competition, support for efficiency and progress, and a preference for decentralised market allocation (1959, 522). I will, of course, not argue that endorsement of the price-system, for instance, is a reliable indicator for a tendency towards opportunism and corruption of all moral standards. One might have various reasons to endorse institutions associated with conservatism, but usually they are presented as complementing the homo oeconomicus. This association between markets and self-interested behaviour is understood even by non-economists. There is sufficient evidence that demonstrates that, if a given situation is framed as a market, most people tend to behave more selfishly (Liberman et al. 2004). In market-like contexts, there is broad acceptance of self-interest, and it may even constitute the social norm to follow (Bicchieri, 2006). Thus, I argue that a preference for markets might be indicative for a preference for selfish behaviour, not necessarily but with some probability. At it is indicative of a conviction that the homo oeconomicus-actor model is a realistic conceptualisation of human behaviour. A positive assessment of private rather than public ownership might be indicative of a persuasion that the principle of liability (associated with private enterprise), market-competition as a check on private power, and the freedom to maximise individual utility are indeed a necessary, or at least most effective, instrument to minimise moral hazard problems and to motivate humans to engage in coordinated activity. It is furthermore indicative of the individual's willingness to occasionally depart from common socially construed fairness-norms. The distribution of scarce or vital goods by the price system, i.e. in accordance with the willingness and ability to pay as an exclusive criterion, does not always go well with common understandings of fairness. But economists, at least in principle, deem inter-individual utility comparisons unfeasible and inadequate as a measure to control the distribution of goods. Distributional fairness can only be achieved in the pareto-optimum between the self-interest of the supplier and the buyer s 'willingness to pay', while a socially constructed norm of distributional fairness is necessarily arbitrary. Such thinking does not deliver much justification for redistributive politics (which is in the American context often associated with the idea of 'progressivism'). The pieces of research I review and discuss in the third section are narrowed down to the question whether economists are different in character, and why. In part, they mirror a growing dissatisfaction among economists with their professions' prevalent mode of communication. Some scholars criticise its limited ability to represent other than narrowly material considerations as well as the absence of moral norms which form the traditional models of decision making. Since the 1980s a growing number of econo- 4

6 mists seem to have transformed their stance towards their profession s traditional mode of reasoning from praising its prosaic and unemotional objectivity to lamenting its lack of moral categories. In the 1990s, this amounted to what was called a moral trial (Lanteri, 2008), as researchers have conducted series of laboratory games, opinion surveys, and real world field studies to understand whether and why economists are distinguished from other social groups by a lesser willingness to cooperate, weaker altruistic inclinations, or even outright opportunism. And they searched for the sources of that difference. Many economists argue that economists are born, not made (Carter and Irons 1991). According to that so-called self-selection hypothesis, economics students choose their major because of some character traits and values they already have prior to their studies, while the educational track has no strong effect (Frey and Meier, 2004). The last section draws a conclusion and points at some bleak points, hopefully useful as suggestions for further efforts in this line of inquiry. 2. Why are Economists 'Conservative'? In the 1970s, Stigler s hypotheses initiated a discussion about the effects that training in economics might have in early adolescence, in school and tertiary education. This early research yielded a number of empirical studies, conducted largely with undergraduate students as subjects, which generally supported Stigler s position. But while he probably had expected that no less than many years of study would be necessary to generate an effect, the results of these empirical analyses suggest that formal training in economics for a period as short as a single semester or even less might bring young college students' attitudes more in line with the profession s conservative mainstream (Luker, 1972; Luker and Proctor, 1981; Mann and Fusfeld, 1970; Riddle, 1978; Scott and Rothman, 1975; Sosin and McDonnell, 1979; Weidenaar and Dodson, 1972). However, the employment of mostly small local samples in these studies and measurement characteristics of the applied attitude measurement instruments raised questions about the validity of these findings (Walstad and Soper, 1981). By 1980 more elaborated measurement instruments had been developed (Soper and Walstad, 1983). Jackstadt, Brennan and Thomson (1985) affirmed that introductory economics survey courses made students more 'conservative' in the way characterised by Stigler. However, no such effects were detected in more specific introductory macroand microeconomics courses. This is consistent with Lucker s (1972) and Thomson s (1973) earlier findings that different types of introductory courses have different effects. These studies did not reliably clarify the causes of attitude change. But as changes did not appear in all tested classes and not to the same extent, they seem to result from more complex processes. Jackstadt, Brennan and Thomson (1985, 49) singled out the attitude of instructors as a weaker and some attitudinal bias of the textbooks in use as a stronger possible source of attitude change. In the 1980s, then recent cognitive-developmental research was taken up that underscored the importance of adolescence as a period in which fragmentary economic knowledge and attitudes gain consistency and integration (Webley, 2005). McWilliams 5

7 and Pinney (1978) and Jackstadt (1981) examined the effects of economics training at the high school level and presented evidence that high school students became more favourable towards the American economic system as a result of this training. Even a single one-semester introductory course in economics seemed to yield significant effects (Jackstadt, 1981; see also Jackstadt et al., 1985). Ingels and O Brien (1988, 283) used the nationally normed Economic Values Inventory to test 1,457 public school students in Colorado and Iowa, who were exposed to one term of economic instruction, using the text Our Economy, How it Works (Clawson, 1984). The subjects were required to answer 44 measurement-item questions which were combined with eight scales indicating attitudes. Their findings made Ingels and O Brien conclude that even one single term of economics instruction made ninth grade students more supportive of the American economic system. Common-sense fairness norms seem to have lost relevancy for them, as they became less critical of alienation, workers treatment, and the status quo of income distribution. It remained open, however, whether these effects were of long-term durability. The authors, however, came to believe that students were rational and open enough to be affectively influenced by economics learning (Ingels and O Brien 1988, 285). The results Ingels and O Brien present seem to be unambiguous, but it is difficult to infer any general conclusions or policy implications from them. The authors used a specific text and measured its short-term influences. This setting is very different from the multifaceted experiences a student is exposed to in years-long secondary or tertiary education. Therefore, this experiment tells us very little about what a real-life instruction practice in school actually does in terms of forming attitudes. In this respect, the study-design applied by Nijhawan and Ellis is more promising. They used the same measurement instrument as Ingels and O Brien, but come to very different results. Nijhawan and Ellis measured economic attitudes and values of 350 high school seniors who were members of a youth organisation that supports students in preparation for a business career. These students are usually enrolled in business courses that encompass a range of micro- and macroeconomic concepts as identified in the National Economic Standards and include a number of competencies that require an understanding of the market economy and the role of business in it. This group was compared to a random sample of 363 high school seniors evenly drawn from all of the North Carolina education districts and a national US-sample of 850 randomly selected high school seniors. The results were surprising, as Nijhawan and Ellis found no indication that training in economics had a significant influence on the students in terms of fostering 'conservatism'. Indeed, though their respondents are beneficiaries of experiences that are designed to promote a better understanding of and appreciation for the private enterprise system, Nijhawan and Ellis detected little more affirmative attitudes towards these institutions than among the control groups and less than one would expect based on their training (Nijhawan and Ellis, 2003). The early research was primarily interested in the pedagogical aspects of teaching economics and in evaluating teaching outcomes. It involved largely American scholars, did not reach a wider public in the scientific community, and the empirical evidence it produced is often fragmentary and of a highly local nature. Since the mid-1980s, however, a larger part of the academic community became involved in the discussion. It 6

8 also became more focused, as it concentrated on the acceptance of the price system versus fairness norms. Stigler had placed specific emphasis on the argued that trust in the price-system as a factor causingis the cardinal point in most economists conservatism, as the economistconservative economic worldview, as they would be drilled to view the pricesystem as a potential instrument for solving all the problems an economic system might have (Stigler, 1959, 528). Indeed, by questioning American economists about their belief in the superiority of the market system versus other modes of resource-allocation, Kearl et al. (1979) found strong support for the price-system, a result which later studies more or less replicated for Austria, France, Germany and Switzerland (see: Frey, Pommerehne, Gygi, 1993). Frey found that economists working in the government had less trust in the market system than those pursuing a career in academia. He interpreted this as evidence for a significant difference in the assessment of the marketsystem distinguishing academic economics from the general public (Frey, 1986). The relevancy of these findings comes from the aforementioned conflict between many economists' rejection of interpersonal utility-comparisons and the emphasis placed on the 'willingness to pay' as an instrument to direct distribution. The implications these preferences have for economists' policy advices are the reason why these are often at odds with common-sense fairness norms. While traditional economists do not need to be opportunistic, few of them would consider 'fairness'-norms as something not exogenous to the basic tenets of their teachings and potentially threatening the general welfare. Kahnemann, Knetsch and Thaler (1986) developed an experiment to test the appreciation of the price-system versus social norms of fairness among the general public. They constructed a situation wherein, due to weather conditions, a specific good (snow shovels) is in excess demand and questioned randomly selected samples of inhabitants in the Toronto and Vancouver-areas about their opinion regarding the relative fairness of the use of different systems of distribution. The large majority of respondents considered the auctioning of the good in such a situation as unfair or even very unfair and preferred the first-come, first-serve practice. Frey and Pommerehne (1993) questioned 645 inhabitants of Zurich and West Berlin about their preferences in the described and another, similar situation. Frey, Pommerehne and Gygi (1993) added an opinion survey conducted at the universities of Zurich and of the Saarland among 356 economics freshmen at the first day of their studies and among 155 second-year economists to compare their responses to the opinion held by the general public. They found that while around two thirds of the students rejected allocation by the marketsystem in these situations, five sixths of the general public did. Hence, a significantly larger group of the students preferred the 'willingness to pay'-criterion. In both groups, majorities preferred the traditional system of first-come, first-serve, followed by the distribution via a public body. A further important result of this study is that the duration of the exposure to economic instruction did not appear as an important factor. But interestingly, while among the beginners politically more left-wing oriented students had a less favourable perception of the market than right-wing oriented students, such correlations disappeared in the more advanced group. While, according to Frey and Meier (2004), the 'indoctrination-hypotheses' has convinced most of the academic commu- 7

9 nity, there are only slight differences between beginning and more advanced economics students, an observation that raises questions about the relevancy of the 'indoctrination'-effect. The arguments of Frey et al. (1993) have been criticised by Haucap and Just (2004, 2010) for a failure to control for any other socio-economic variables, such as current or expected future income, age, gender, or educational level. It is clear that these factors can have an independent effect on the formation of attitudes (Parker, 2012). Higher income individuals, for instance, tend to prefer auctioning systems, as they have better chances in a market. Haucap and Just present a study wherein the Frey, Pommerehne and Gygi experiment was replicated with their own students at the University of the German Federal Armed Forces in Hamburg. Of the 505 students included in the sample, 166 were enrolled in first-year, 145 in advanced economics classes, and 194 in other social sciences and engineering. All of them had previously not received much training in economics. Because of its relatively homogenous student-population, no preparations had to be made to control for expected future income levels, education, gender, nationality or age. Only male students were included in the survey, who will (in case they succeed) stay in the army for at least 12 years. The general public was represented by the students enrolled in engineering and other social sciences. In some aspects the results of Haucap and Just differ significantly from those of Frey, Pommerehne and Gygi. Haucap and Just found evidence to again verify that there is a self-selection effect, as their economics students hold views different from those of the other groups already when beginning their studies. But there is also a strong indoctrination effect. Forty percent of the first-year economists considered the auctioning of the scarce good to be a fair practice, but among the entire group of advanced economists 60 percent do so. Haucap and Just also divide the advanced students in a group specialized in economics and those in business economics. This reveals interesting differences, as only 46 percent of the business students, those preparing for a business career, seem to prefer the price system (Haucap and Just, 2004). It is obvious that the subjects questioned by Haucap and Just are less representative for all economics students than those surveyed in Zurich and Saarbrücken. Thus, even though Haucap and Just seem to reveal a strong indoctrination effect, whether these results can reasonably be transferred to the general (German) student population is unclear. To have a homogenous group as in Hamburg avoids the difficulties associated with controlling for age-, gender-, and many other effects one is potentially not even aware of. But, as we will see further below, some scholars found evidence that males and females respond differently to 'indoctrination', and above mentioned evidence suggests that it is unlikely that humans form preferences and attitudes towards economic issues in passive reception of what their teachers tell them, but rather in complex social processes of interaction with their teachers and peer students. We cannot exclude the possibility that social homogeneity enforces biases that are absent in different or more heterogeneous groups. A positive reception and trust in market-institutions might be a characteristic of middle-class males who usually fill the higher ranks of a European army, but it says little about what happens in the student population as a whole. 8

10 Does training in economics make people conservative? The available evidence tells us that economists probably have a stronger preference for market-institutions and the price mechanism than the general public or other social scientists. It is, however, less clear where these attitudes come from. The older research seems to unanimously confirm the hypothesis that basic economic education makes both high school and college students more conservative. But more recent findings confront us with a more ambiguous picture. According to Frey, Pommerehne and Gygi (1993), the duration of academic training does not make a difference and economists have a natural affinity to the price-system. Thus, they assume that self-selection is the reason for the observed preferences. Nijhawan and Ellis (2003), however, did not observe high school students preparing for a business career to be significantly more 'conservative' than their peer students who do not have this specific interest in business. But Nijhawan and Ellis did not control for any socioeconomic variables or the duration and intensity of specific coursework and focused on those on the business-track and did not compare them to prospective economics students. Haucap and Just (2004) detected a significant indoctrination effect among main-stage economics students, but a much weaker one among their peers on the business-track. But as discussed above, at least from the perspective of the author of this article, the homogeneity of the groups in the Haucap-Just sample raises doubts about the external validity of their results. The principal idea behind the self-selection argument is that selfish persons choose to study economics (Frey and Meier, 2003, 448). This thesis entails the implicit premise that theories taught in economics classes are attractive to 'selfish' people. This thesis entails the implicit premise that theories taught in economics classes are attractive to 'selfish' people. As most economic theory denies the feasibility of inter-individual utility comparisons, it seems to contradict the legitimacy of common-sense fairness-norms. Hence, neoclassical thinking might indeed represent an attractive and comfortable intellectual environment for 'selfish' characters. An approximate test of this theory could be made if we add another assumption: the idea of allocation by the price-system is even more attractive to those who are 'selfish' and in command of greater financial resources or expect an above average future income. Business students are in such a situation, economists to a lesser degree. According to Haucap and Just, however, economics students are more in favour of the markets than business students. A second core axiom of economic theory is that effective market solutions maximise the general welfare and minimise opportunities for rent-seeking behaviour. If economists prefer market solutions which seems to be the case this raises questions about their selfishness, because it is intuitively not conclusive to argue that selfish humans feel specifically affiliated to an institutional setup which, from the outset, minimises their opportunities to extract rents. A more plausible assumption would probably be that economists are more afraid of rent seeking by others than non-economists. Perhaps economists are not that 'bad', but they are afraid of other people s 'badness'. This might be a result of their education. The two arguments presented here are probably not powerful enough to dismiss the self-selection assumption. They both presume rational decisions and one should be careful not to over-interpret empirical findings that rest on often quite narrow databases and that are simply not specific enough to support conclusions ranging that far. How- 9

11 ever, one undisputable point is that a preference for markets (or 'conservatism' in general) does not as self-evidently come along with 'selfishness' than it might appear at first sight. 3. Are Economists Selfish? Alfano, Marwell and Ames (Alfano and Marwell, 1981; Marwell and Ames 1979, 1980, 1981) tested the free rider hypothesis in eleven different public goods experiments, involving between sixteen and 128 subjects. Their studies marked the beginning of a series of increasingly elaborate game- and laboratory experiments and opinion surveys specifically intended to recognise and measure the effects the exposure to homo oeconomicus-based economic theory has on behaviour and value formation among students in economics and related fields. While Alfano, Marwell and Ames repeatedly found the strong version of the free rider-hypothesis which implies that no investments were made into a public good falsified, they recognised that a sample of economics graduate students were significantly less willing to cooperate than high school students who were not particularly involved in economics studies. While in their various experiment settings samples of high school students put roughly between 40 and 60 percent of tokens they were endowed with into the collective investment, graduate students of economics only invested 24 percent. Thus, the public good investment behaviour of non-economics students in the sample is almost as different from being collectively optimal as from the predictions of economic theory, which would be to maximise individual utility by free riding. The graduate students of economics are somewhere half way between the pattern of the high school students and what is predicted by the theory. They were also far less willing or able than the non-economists to explicate in straight simple terms what they considered a 'fair' contribution to the public interests. According to their statements, they were also less concerned with fairness. Marwell and Ames concluded that fairness-considerations seemed to have been somehow alien to this group (1981, 309). When assuming causes for this behaviour they suggested two hypotheses. The first is that economists were (self-) selected by virtue of a preoccupation with economically rational allocation of resources, which would mean to free-ride. The second hypothesis is that economists simply behaved in accordance to the general tenets of the theories they study. However, Marwell and Ames did not make a clear decision as to which of the two hypotheses they prefer. Carter and Irons (1991) put 10 U.S. Dollars at stake in an ultimatum bargaining game, which was conducted among 92 students from four populations: freshmen and senior undergraduate students with a major in economics and peer students enrolled in other not further specified fields. The game consisted of dividing the sum among two players: a proposer who suggests the division and a responder who is to accept or reject the offer. If the responder accepts, the division takes place as proposed. In case she or he rejects, both players do not earn anything. While economic theory would suggest that the proposer keeps as much as possible and the responder prefers a minimal share over nothing, Carter and Irons found that non-economists on average proposed to keep no more than 5.44 U.S. Dollars and accepted at least 2.70 U.S. Dollars. On the other hand, economics students proposed on average to keep 6.15 U.S. Dollars and ac- 10

12 cepted a minimum of 1.70 U.S. Dollars. Hence, while economics students did not behave as self-interested as traditional economic theory predicts, they acted significantly more self-interested than non-economists. Comparable observations were made by Kahneman, Knetsch, and Thaler (1986) who found business majors in both the roles of allocator and receiver to be more likely to either make or accept uneven allocations than a control group of psychology students. But as 61 percent of them offered equal splits, they seemed to be more inclined to share 'fair' than the economists in the Carter- Irons experiment splits are the most common proposal in ultimatum bargaining games and the most strongly one-sided proposals are commonly rejected for the sake of 'fairness'. As only 40 percent of economics students in the Carter-Irons experiment offered even splits, in both the roles of the allocator as well as the 'respondent', they seem to act more in line with the premises of the homo oeconomicus-model than 'other' students. To capture learning effects and to reveal effects of self-selection, Carter and Irons (1991) extended their regression model by dummy variables to measure differences between freshman economists and freshman non-economists as well as between senior economists and freshman economists. The outcome of their regression analysis suggests that differences in the behaviour of economists are a result of self-selection. Carter and Irons also asked the respondents to explain their choice of strategy and found that 31 percent of the economists referred only to features of the game itself rather than to fairness-considerations, compared to only 17 percent of the noneconomists. Among the more important contributions is that of Frank, Gilovich and Regan (1993), who also presented evidence for a large difference in the extent to which economists and non-economists behave in accordance to the predictions of the homo oeconomicus concept. The authors provide three different categories of evidence to support their position. The first is the result of a mailed questionnaire surveying charitable activities among college professors information for 576 individuals was evaluated. It showed that economists, despite a higher average income, spend 10 percent less on financial donations, but did not show greater differences in other dimensions of socially beneficial activities. The second category was collected in three types of ultimatum bargaining games. Their sample included 414 games or 207 subjects. In the first round, the subjects were allowed to interact extensively prior to the game and to make promises about their behaviour. The second round excluded the prior announcement of individual strategies and the third even limited the time reserved for communication. Taking the sample of games as a whole, economics students showed higher defection rates, namely 60.4 percent compared to 38.8 percent for noneconomists. However, the defection rate is smaller in the intermediate category (where subjects have more time to interact than in the limited category) and even significantly more so in the unlimited category (where subjects are permitted to make promises to cooperate). When they are allowed to make a promise to cooperate, the defection rate falls to 28.6 percent (non-majors: 26.9%), although the promises were considered irrelevant in traditional economic theory. Frank et al. are cautious in making assumptions about the contribution that instruction in economics had on these outcomes. They observe that a progressed state in the course of studies correlates with a lesser tendency 11

13 to defect among the non-economists, while this effect is absent among the economists. However, a relation between social interaction and cooperation is obvious and it is striking that changes were much stronger among the economists. Comparable observations were made by Hu and Liu (2003) whose prisoners' dilemma game was specifically designed to measure the role of calculated self-interest behind cooperative or apparently altruistic behaviour. Prior to the conduction of a first round of their game, the authors introduced a phase of extensive communication between their 225 volunteer subjects in order to provide an opportunity to exchange promises about individual behaviour and to develop trust relations. If both players of a game were allowed to make promises, the cooperation rate was the highest and differences between male and female subjects were minimal or disappeared. In a second round, held without such preparations, the level of cooperation was lower. Hu and Liu replicated the observation that economics majors showed a stronger inclination to cooperate than students from other fields if the potential gains from the cooperation were higher. This, they conclude, indicates the economists stronger ability to understand the incentive structure of the game. Secondly, it indicates the importance of self-interest as a motivation behind their cooperative behaviour and that altruistic acts actually have large components of reciprocity (Hu and Liu, 2003, ). The third type of evidence Frank et al. brought forward was collected in a questionnaire, presenting ethical dilemmas to students enrolled in introductory microeconomics courses. The questionnaire was filled out at the beginning and at the end of the course and was intended to measure the degree to which the students became less honest over the course of the semester. As it turned out, training in microeconomics seemed to have a significant effect in terms of moving the students towards more cynical patterns of behaviour. The authors speculate that the reason for a stronger tendency towards non-cooperation among economics students is not that they are simply more self-interested (1993, 159), but rather that economics training encourages the view that people are motivated primarily by self-interest [which] leads people to expect others to defect in social dilemmas (1996, 192). Frank et al., however, did not explain why a control group involved in an astronomy course also showed a movement towards less honesty. While the effect was weaker than in the economics-classes, its sources should be explained to allow for conclusions on the effect of economics instruction in the way the authors suggest. Rubinstein (2006) takes specific issue with the strong emphasis placed on the mathematical articulation of arguments in economics. Empirically, his argument builds on a survey question in which 130 economics students, 172 students in MBA-courses and in three other fields (law, mathematics, philosophy, altogether 386 individuals), all from Tel Aviv University, have to choose in a dilemma-situation between maximising a fictitious company's profits and the economic well-being of its workers. Optional choices were presented to the subjects in a table. Reducing the staff by half would maximise profits, but confront those laid off with a high risk of long-term unemployment. Followup studies were conducted among several thousand readers of an Israeli business daily as well as among 94 Harvard economics graduate students. Rubinstein's results revealed a sharp difference between economics students and the other groups, including management students, as almost half of the economists decided for the maximisa- 12

14 tion of profits versus a third of the MBA-students and even less among the other groups. In a second round of the experiment, Rubinstein replaced the table with a profit formula the respondents had to use to calculate which personnel-policy would maximise profits. Although the formula generated outcomes identical to the values represented in the table, three quarters of the economists became profit-maximisers. An even more surprising result was that the differences between the groups vanished. Rubinstein draws two conclusions from these observations. Firstly, it appears to him that the MBA-programme is more successful in equipping students with a more comprehensive understanding of real life decision making and the necessity to balance conflicting interests, rather than to focus on a single maxim. Secondly, he found his intuitive reservations against the representation of problems in mathematical terms supported, as it is characteristic for academic economics, because it conceals the real-life complexity of the situation (Rubinstein, 2006, C9). A number of authors tried to defend the 'moral integrity' of economists and of their teachings. In the ultimatum game conducted by Stanley and Tran (1998), the subjects were randomly and anonymously paired and had no opportunity to make any arrangements about their behaviour. The experiment consisted of dividing the sum among a proposer who suggests the division and a responder who is to accept or reject the offer economics majors. It was conducted at a small liberal arts college where instruction in orthodox economics is supplemented by education in religion, philosophy, ethics, and social sciences. More than half (56 percent) of the allocations in their experiment were 50/50 splits, while economists displayed a weaker tendency to allocate to their own advantage than non-economists. They were indeed more cooperative than students from other fields. Stanley and Tran interpret this outcome as entirely according to fairness norms and questioning the predictive power of neoclassical theory as well as assumptions about the influence economics training might have on human behaviour. While the unambiguity of these results is impressive, the validity of the experiment suffers from the small size of the sample (sixteen students). Moreover, to be convinced by the authors' hypothesis that education in other social sciences contributes to this behaviour, we would like to know more about the curriculum the participants have gone through and the degree to which it can be distinguished from those in other schools. One of the more important contributions in this line of thought was presented by Yezer, Goldfarb and Poppen (1996). Generally, they question that teaching in microeconomics will necessarily have the effect Frank, Gilovich and Regan and many others assume it does, as, in addition to the idea of the homo oeconomicus, economic instruction conveys the idea of mutual benefit from exchange. For many students, they argue, learning of the possibility for mutual benefit may be a more far-reaching change in their understanding than a reiteration of the already well-known maxim that people are often selfish (Yezer, Goldfarb, and Poppen, 1996, 178). They raised specific objections against the experimental design and technical details of the evaluation of data conducted by Frank, Gilovich and Regan. More generally, methodological critique was posed against the use of artificially designed games and surveys, as these would not adequately reflect the subjects' behaviour in real world situations. It would rather induce them to consider their individual beliefs about their behaviour and other conditions and considerations that have no relevancy to them in real situations. Yezer et al. col- 13

15 lected counter-evidence in a lost letter experiment in 64 undergraduate classes in economics and other fields and found that economics students were significantly more likely (56 percent) than students in other fields (31 percent) to return an envelope containing 10 U.S. Dollars cash which was secretly dropped in the classroom before teaching commenced. This happened although the finder was in no danger of being identified. Yezer et al. also repeated the honesty survey conducted by Frank, Gilovich and Regan, but analysed its results in slightly different ways and claimed to have found little reliable evidence for an effect of economics instruction on the likelihood to behave cooperatively. The arguments presented by Yezer et al. are worth consideration, but as Frank et al. put it (1996), they are not compelling. Against the validity of their lost-letter experiment one might point to the numerous imponderables that might influence its outcome and instead argue for lab experiments that allow the experimenter to calibrate many parameters. One cannot exclude the possibility that the results by Yezer et al. are biased by differences of the gender- or age-structures between the economists- and noneconomist subgroups, as it is unknown who picked up the envelopes. A number of studies provide evidence that gender is a significant behavioural determinant. Women appear to be more altruistic and perhaps less affected by training in economics. Frank et al. (1991) and Hu and Liu (2003) find female students to be more cooperative than males, irrespective of variables such as age or their field of study. According to Frank and Schulze (2000), they are also less corruptible. However, it is difficult to come to meaningful conclusions regarding males. Male economists turn out to be the most corrupt ones, but male non-economists are the least corrupt. Frank and Schulze suggest the hypothesis that self-selection of male and female students might follow different patterns and/or gender groups might respond differently to educational influences but they provide no further evidence supporting either of these ideas. Selten and Ockenfels (1998) also observed gender-differences in their solidarity game. 120 individuals were divided into three-person groups, wherein each group-member had a 2/3 chance to win DM The players were asked how much they would be willing to share with the one or two losers in the group in the case of winning. The experiment was conducted under the condition of absolute anonymity between the members of the subject-sample and between subjects and experimenters. As a result, Selten and Ockenfels found that male economists were remarkably less willing to share than students from other fields (no distinctions were made as to the duration of studies and specialisations in economics versus business economics), and female economists were prepared to share nearly the same amount as female non-economists. James, Soroka and Benjafeld (2001) conducted two ultimatum game experiments with groups of 28 and 33 undergraduate students. They observed that female economists were just as willing to share as female students in 'other' fields. But, in contrast to Selten and Ockenfels, they did not find males to be significantly affected by instruction in economics. They rather observed that male psychology undergraduates seem to be affected by their studies, but females are not. Male psychologists were indeed the only group that distinguished itself through its behaviour from other male groups, as the group s members were significantly more cooperative than other male groups. 14

16 Laboratory experiments and surveys are the most frequently used empirical instruments in the discussion reviewed here. However, some scholars are sceptical about survey results because they might be biased towards what subjects may perceive as socially accepted or norm-conforming. Responses might be distorted as the subjects feel as being under observation and a wrong answer may result in disadvantages that are not compensated by a chance of material gain. There seems to be evidence that different groups like economists and non-economists have diverging understandings about which behaviour is socially accepted and that this is a result of their training. As the association between markets and the legitimacy of self-interested behaviour is understood even by non-economists, an economist's potential willingness to behave altruistically or cooperatively in adequate situations does not have to be negatively affected by economic theory, as training in economics might enforce an aptitude to recognise a situation as a market and to behave in accordance to what one might call a 'culture of the market'. Thus, while the 'indoctrinated' might answer survey questions in accordance to what they perceive as a norm, it is not certain that they personally conform to those norms and are not ready to violate or overaccomplish them in real life situations. A skillfully designed experimental situation is able to control for many factors we cannot measure in other settings, and there is evidence that people take the experiments very seriously (Dawes, 1980). Because of these characteristics of games, some consider them as a superior way to understand and empirically access human behaviour (Frank and Schulze, 2000). But they admit that appropriately trained subjects (such as economists) might perceive games as a test of economic rationality and behavioural intelligence (Frank, 1988, 226). Hence, rather than moral convictions or social instincts, performance on 'the test' can become the most important criterion according to which their decisions are made. A point advanced by Kirchgässner is that most lab experiments create low cost-situations that tell us less about the preferences of the subjects than their actual behaviour in everyday situations, where budget constraints are more severe (Kirchgässner, 2004, 9). Moreover, lab situations are specifically designed to incorporate only a limited number of variables that can be easily controlled for. Even if we assume that economists understand such situations by application of the theories they are trained in or decide on the grounds of a natural tendency to be self-regarding, this does not mean that in far more complex real world situations they process information or assess behaviour-options in ways different from those of 'other people'. Hence, the much more important question is whether there are differences in the behaviour of economists compared to other people in real world situations. Frey and Meier (2003, 2005) conducted a field study at the University of Zürich that circumvents many problems associated with laboratory settings. Every semester, all students at the University of Zürich have to decide on contributing to two official social funds in addition to the compulsory tuition fee. One fund offers cheap loans for needy students (Loan Fund) while the other supports foreign students (Foreign Fund). A contribution of 7 or 5 Swiss Franc respectively is a relatively weak incentive, i.e. solidarity is not costly and self-regarding behaviour yields only minor advantages. But the students do not spend imagined or given money, but rather their own, so that they have a good reason to take decisions seriously. Moreover, decisions are made in a natural everyday-setting where no observation is expected. Frey and Meier compared the de- 15

17 cisions of the subjects distinguished by faculty, age, sex, nationality, number of semesters enrolled, and the stage of their academic schooling (elementary-, main-, and Ph.D.-stage) over a period of five semesters 1. The result was that elementary level students in economics sciences do not give significantly less than the average of all other students, and main stage students specialised in economics contribute even a little more, while during their Ph.D. studies they contribute a little bit less than the average of the 'others'. Business economists, however, contribute significantly less than the other students. Apparently, those economics students who are more inclined to spend are less likely to do a Ph.D. To eliminate a possible sample selection bias, which might be due to failed exams or other selection processes, Frey and Meier tested the indoctrination effect in a conditional logit model which used the panel structure of their dataset with fixed personal effects. The results show that the contributions of both business students and economists decline over time. The longer they stay at the university, the less money they contribute. As Frey and Meier observe this to be the case for all students, not only for economists, they do not ascribe this behaviour to any effect of economic education. Rather, they conclude that the lower contribution of business economists, compared to other students, is due to self-selection rather than indoctrination (Frey and Meier, 2003, 461). This finding conflicts with the results Franks, Falk and Hinton (1973) drew from a crosssectional study of 67 business majors at the University of Denver which appears to prove a significant negative relationship between the amount of undergraduate coursework and the importance attributed to social welfare values. However, Frey and Meier have chosen a significantly broader empirical basis and sophisticated analytical methods to support their argument. It included 28,586 subjects and 96,783 observations. One might consider a problem that the students are in a low-cost situation (Kirchgässner, 2004). Another is that the authors cannot directly control for their subjects' income situation. Frey and Meier used an anonymous online survey conducted among the same students population as the data set of giving behaviour. It yielded 2,321 usable responses including information about personal factors such as income situation, attitudes towards the social funds, political orientation, and giving behaviour. The sample is not fully representative, but its results are largely consistent with those drawn from the larger data set. If more personnel factors are controlled for, economists do not differ significantly in their giving behaviour from other students, while business economists give significantly less. Moreover, according to Frey and Meier the indoctrination hypotheses is again falsified and the self-selection view supported, as the attitudes and orientations they measured differ between the student-groups and do not seem to change throughout the studies of their sample subjects (Frey and Meier, 2003, ). While Frey and Meier provided one of the best field studies available at the moment, a closer look at the 'other' groups in their sample yields some problematic observations, such as that elementary stage lawyers and veterinarians are not significantly 'less selfish' than economists, and that main stage veterinarians are even more selfish than 1 The non-economists are associated with the following faculties: Theology, Law, Medicine, Veterinarian Medicine, Arts, Natural Science, Computer Science. 16

18 business economists. In the Ph.D-stage, lawyers, veterinarians, prospective medical doctors, computer scientists, and even theology-students contribute significantly less than business economists. These observations point, first, at methodological problems associated with comparing economists with students from selected 'other fields' without controlling for the fact that these also might have their own specific behavioural patterns. If economists are different from some other people, they are not necessarily different from everybody else and the selection of comparison-groups or individuals might bias the outcome of the comparison. The empirical strategy chosen by Frey and Meier avoids this methodological flaw but their version of the self-selection argument does not fully exploit this advantage. If law and economics and even veterinary medicine really attract equally selfish freshmen, the self selection-effect cannot occur in economics sciences because of the theories taught in this field. However, this seems to be a key assumption in the moral trial literature. There must be other factors of relevancy here, perhaps some associated with the professional career they prepare for. Another real world-data study was conducted by Laband and Beil (1999), who examined the incidence of cheating with respect to income-based professional association dues among members of the American Economic Association, the American Sociological Association, and the American Political Science Association. A questionnaire was mailed to 500 non-foreign, non-student members of each of the three organisations and 301 economists, 297 political scientists, and 294 professional sociologists voluntarily identified their income by a predefined dues category. Laband and Beil compared their results, the presumably 'real' distribution of income among the associations members, to information about dues revenues provided by the organisations themselves. The comparison discovered that economists were more honest than political scientists and significantly more so than sociologists. To their surprise, this happened despite the fact that professional sociologists are undoubtedly better schooled than economists (in particular) and political scientists are regarding the putative benefits of cooperative behaviour (1999, 98). This result, however, in their view, is not an indication of significant differences between professional economists, sociologists, political scientists (or members of other occupations) with respect to honesty or cooperative behaviour. They consider it a result of differentially greater incentives to cheat (or higher costs of honesty ) experienced by the different profession groups. While economists could save up to $20 per year by cheating a 29 percent saving from the annual dues that they would pay when correctly presenting their annual income a political scientist with an income of the highest category could save $60 per year thus 48 percent less than the dues associated with the highest income category. A professional sociologist could save as much as $146 per year (an 81 percent saving) by misrepresenting his/her annual income to the association. Laband and Beil rejected the validity of the indoctrination -hypotheses and argued that given identical dues structures and incomes, we suspect that we would find no differences in the actual pattern of dues payment across the three disciplines we examined. This conclusion sounds reasonable. If Laband and Beil were right and economics teachers are no less honest than instructors in political science and sociology, this could also be understood as evidence against the indoctrination-hypotheses, because honest teachers are unlikely to educate dishonest students. Unfortunately, however, Laband and Beil provide no 17

19 evidence for their assumption except the tentative correlation between the frequency of cheating and the potential maximal opportunity costs of not cheating. Drawing conclusions from real world behaviour is challenging to the analyst. As it is almost always open to conflicting interpretations, one cannot exclude influences other than those tested for. It remains an open question why in some lab experiments economists behave more selfishly than students from other fields while they seem to be even more cooperative than others in some real world situations. Gandal et al. (2005) interpreted these apparent inconsistencies by pointing to their finding that a sample of economics students they questioned about their value priorities distinguished themselves with regard to the importance attributed to power, achievement and hedonism values, when compared to a group from other social sciences. While the control group showed a stronger concern for the welfare of society as a whole for humanity and for the natural environment economists did not place as much emphasis on these issues. But they did not attribute less importance than 'others' to benevolence values. Benevolence values and universalism both place emphasis on care for the welfare of others but the focus of their concern is different. Benevolence values emphasise concern for those the actor is in frequent contact with, such as family, friends, neighbours, and so on. Thus, economists may make good friends or neighbours, but are relatively less concerned with the welfare of people who are not part of their ingroup. This is accompanied by a special concern about being honest, helpful and loyal. Regarding mixed-motive games, Gandal et al. believe that economists behaved less cooperatively than others because these games represent a highly competitive setting that enables them to express self-enhancement values by competing with others. Accordingly, they tend to behave more competitively than others in such settings. In real world situations, they do not behave different from others, because field experiments that examine altruistic behaviour usually do not involve obvious competitive situations. In such settings, the economists' choice of action may reflect the importance attributed to benevolence values and no differences are found between economists and others (Gandal et al., 2005, ). According to Gandal et al., these peculiarities of the economists value priorities are not a result of training in economics, but of self-selection processes. They assume that people who endorse self-enhancement values are particularly attracted to studying economics. An analysis of two questionnaires conducted with freshmen, one week after they commenced their studies and after finishing their first year, neither showed signs of an increased importance of selfenhancement nor of decreased importance of universalism values (Gandal et al., 2005, 1236). But it is probably questionable whether these results can be easily generalised. Racko, who tested 85 students of a highly selective business school in Latvia in a twoyear longitudinal study for changes in their personal values, observed a significant enhancement of status-oriented values that cannot be conceived as a consequence of self-selection processes (Racko, 2011). However, at least from the perspective of the reviewer, Racko does not make a convincing case for his argument that the pattern of value formation he observed can be, first of all, traced back to the influences of the mode of rationality underpinning neoclassical economics as taught in the school. He does not seem to address that a highly selective school, intended to educate a prospective business elite, creates a social environment that is likely to have feedback 18

20 effects on the values of the students. In view of this, the choice of control groups (n= 123) from regular Latvian universities does not appear as a convincing strategy. The formation of values in a social group is probably a process too complex to trace back to a single source such as the type of social theory or actor model transmitted to that group. If we assume that economists are really self-regarding, are they then Nozickians or opportunists? Some neoclassical economists argue that actors should be conceptualised as strict opportunists, while the economic benefit or the necessity of intelligently designed institutions other than those of arms-length contracting can also be verbalised in terms of neoclassical economics (e.g.: Oliver E. Williamson). At least the importance of property rights is never questioned in the usual thought schools of economic thinking, while they still by a large majority endorse more or less the idea of the individual rational choice as maximising both the individual as well as the general welfare. An essential, simplifying, but unambiguously defined morality to be drawn from these ideas could be to require the human actor to accept the rights of others as uncorruptible side constraints to be placed upon the individuals action. Within these limits, however, the individual is left entirely free to decide and maximise his individual benefit. According to Zsolnai (2003), such a morality, which is a simplified version of libertarian philosophy as presented by Robert Nozick in his Anarchy, State, and Utopia (1974), could be appealing to economics students. It would make them endorse a rigid market-order while also requiring them to strictly respect property rights and cause them, for instance, to return lost money letters in the experiment of Yezer, Goldfarb, and Poppen (1996). Perhaps it also prevents advanced scholars from free-riding or cheating when professional association dues are to be paid. On the other hand, however, a Nozickian economist would be less cooperative and less attentive with respect to the interests of others than non-economists. Zsolnai s argument sounds reasonable but it does not explain why economists have a distinctively strong tendency to fail in agent-situations. This was shown by Frank and Schulze (2000) in a survey that was conducted among 190 randomly chosen students of the University of Hohenheim in Germany. The study asked about the students' willingness to accept bribes to the disadvantage of their principal, in this case a student's club. Overall, economists (no distinction was made between economists and business students) seem to be significantly more corrupt than non-economists. Corruptibility in the situation designed by Frank and Schulze is not a gradual divergence from ideal-typical behaviour but is a clear violation of the property rights principal. The same can be said about academic cheating behaviour which is more frequent among graduate business students than among non-business students (McCabe et al., 2006). This is a case of outright opportunistic behaviour and violating moral standards, even if measured against Nozickian philosophy. Undoubtedly, however, we need more empirical research to come to more robust conclusions. 19

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