Gary Becker, the 1992 winner of the Nobel Prize in Economics, said: "I got interested [in economics] when I was an undergraduate in college. I came into college with a strong interest in mathematics, and at the same time with a strong commitment to do something to help society. I learned in the first economics course I took that economics could deal rigorously, à la mathematics, with social problems. That stimulated me because in economics I saw that I could combine both the mathematics and my desire to do something to help society."
Ten years later, in 2002, Vernon Smith won the Nobel Prize in Economics, for his work in experimentation. He said: "My father's influence started me in science and engineering at Cal Tech, but my mother, who was active in socialist politics, probably accounts for the great interest I found in economics."
On the one hand, we have these role models who stress the social science aspect of economics. If studying economics exposed us to social problems, and pushed us towards solving them equitably, we would see more cooperation in the world, given that more and more people become economics majors in college. However, most economic models are built on the assumption that people are self-interested: In these models students study, people maximize their own utility, sometimes at the expense of others'. Those majoring in economics are taught that contributions to public goods are irrational, given that free riding is a possibility. Transfers of income to others, especially in game theory, are often dubbed as "irrational" actions. In fact, when a subject transfers all of his income to another person in games, researchers often speculate that the person probably failed to understand the rules.
If education is as important as we think it is, and if it is able to shape our decisions, which become our characters over time, then being exposed to such "rational" stories for four years should move the students towards more self-interested choices in life. Whereas it is possible that people choose their professions based on their inherent personality traits, it is also possible that education changes the course of one's interests. Today I want to write about how studying economics might change students' perceptions of altruism, fairness and cooperation.
Cooperation is studied by economists across the board. A simple cooperation game with two people looks as follows: Say you are person A, and you are matched with person B. You have two options: Cooperate or Defect. Everything will be the same for person B, and you won't see B's decision before you make yours, and B won't see your decision before he makes his. If you both Cooperate, you'll both get $2. If you Defect while B Cooperates, you will get $3, and B will get nothing. Since the game is symmetric in payoffs, if you Cooperat while B Defects, you'd get nothing and B would walk away with $3. The last scenario, in which both of you Defect, each person would leave with $1.
What would you do? Mutual cooperation would leave each of you with $2. But you are not communicating with B before you make your decision. "Rationality" implies that you'll Defect, since defection will leave you with a higher payoff no matter what B does. If B Cooperates, defection will give you $3 instead of $2. If B Defects, defection will give you $1 instead of $0. Therefore the game theoretic rational prediction of the game (also called the Nash equilibrium after the famous economist John Nash) is that both players will choose Defect, and they'll end up in the socially inferior point, each earning $1.
Several versions of the game have been conducted in the laboratory. Economists work diligently to discover ways to increase cooperation. Experimental treatments (out of hundreds) include the following questions: What if we let people talk to each other? What if people play the game repeatedly? What if people commit to strategies that will mimic the other player? What if the identity of the person who failed to cooperate were publicly revealed? What if we develop monitoring and punishment mechanisms to steer people away from defecting? And so on.
With this much effort and resources spent towards correcting cooperation failures; an ironic study, conducted almost 30 years ago, finds that it is the very act of studying economics that makes people uncooperative in the first place. At that time, by the early 90s, we already knew through surveys that economics professors gave less to charities (compared to professors in other social sciences, mathematics, computer science or engineering); we knew that first year graduate students in economics were more likely to free-ride in experiments; and we also knew that economics students had a hard time describing what fairness even meant.
An economist looks at this data and immediately says: "Well, selection bias. It's probably the case that the more self-interested students become economists in the first place, so we can't conclude that it's studying economics that makes people selfish." (Of course this type of reasoning is a relief to economists only. The question, even if a selection bias existed, should be: Why do more self-interested people choose to study economics? But let's not speculate on this here).
Frank, Gilovich and Regan, in 1993, ran a more controlled experiment to understand the causal effects of studying economics on cooperative decisions. In order to eliminate the alternative "self-selection" hypothesis, they measured cooperativeness twice: Before and after a student is exposed to economics training. They looked at the behaviors of seniors versus freshmen.
On the one hand, cooperative tendencies increase over time, with age. This is true for everyone, economist or not. Children are much more selfish than adults, for instance. Among university students, upper classmen exhibit more pro-social behavior than lower classmen. Controlling for this, though, authors show that the pattern of falling defection rates, or increasing cooperation rates, "holds more strongly for noneconomics majors than for economics majors." This means, while students in other disciplines learn to be cooperative over college years, students majoring in economics learn the same fact much more slowly.
In fact, to see the negative influence of studying economics on cooperation, one does not have to wait for four years. In the same study, the authors decreased the time span of economics exposure. Instead of comparing freshman to seniors, they simply measured differences in attitudes in the beginning and at the end of a semester. They picked three classes at Cornell University. Two of these were introduction to microeconomics. The third was introduction to astronomy. In the first microeconomics class (class A), the professor was a game theorist with interests in mainstream economics, and he focused on prisoner's dilemma and how cooperation might hinder survival. In the second microeconomics class (class B), the professor's interests were in development economics and he was a specialist in Maoist China.
To the students in all these introductory classes, the authors posed simple ethical dilemmas, including questions such as "If you found an envelope with $100 with the owner's address written on it, would you return it?" The questions were asked twice, first in September, in the beginning of the fall semester and once again during the final week of classes in December, not even a full four months apart.
Comparing results against the astronomy control group, students in economics class A became much more cynical and gave less ethical responses at the end of the semester. Students in class B grew to be more unethical, yet not by so much compared to students in class A. The results clearly show that no matter what their initial ethical tendencies were, students who were exposed to a mere four-months of "rational" reasoning became less cooperative.
Unfortunately this doesn't sound in synch with the ideals of leading economists. Let me close by quoting yet another economist, Alice Rivlin, who was recently appointed by President Barack Obama to his National Commission on Fiscal Responsibility and Reform. Rivlin said: "My interest in economics grew out of concern for improving public policy, both domestic and international. I was a teenager in the tremendously idealistic period after World War II when it seemed terribly important to get nations working together to solve the world's problems peacefully."
The discrepancy between a standard economic theory and principles of cooperation as stated by leading economists is growing, and economics professors are not doing much to close the gap, as more and more mainstream introductory textbooks focus on the self-interested rational model.