economics of altruism. singer’s lake what type of person are you? emotional intelligence altruism...

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 rationalitySen: 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 animals2008 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 Issues2. MICROECONOMIC HOUSEHOLD THEORY OF

FERTILITY A. based on theory of consumer behaviorB. assumptions

1. children are a consumer good and/or investment good2. 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

A. graph

0/

0/

0/

0/

sd

xd

cd

d

tC

PC

PC

YC

Economic Approaches to Population Issues

D. caveats1. 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 TheoryGame Theory

Game theoryGame theory: study of interacting decision makers whose : study of interacting decision makers whose payoffs depend on the actions of both

CollusionCollusion: Economic agents formally agree to coordinate : Economic agents formally agree to coordinate their activities to increase their joint profit / benefittheir activities to increase their joint profit / benefit

dominant strategydominant strategy:: a strategy that is best for a player in a a strategy that is best for a player in a game regardless of the strategies chosen by the other game regardless of the strategies chosen by the other playersplayers

Nash equilibriumNash equilibrium: a situation in which economic actors : a situation in which economic actors interacting with one another each choose their best interacting with one another each choose their best strategy given the strategies that all others have chosenstrategy 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 AD1. 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 EXPERIMENTKansas City and DenverCornell 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