This video was produced by the Institute of New Economic Thinking.
Good incentives are no substitute for good citizens.
Human beings, notes Sam Bowles, a Research Professor at the Santa Fe Institute, are complex, psychological beings given to all sorts of motivations well beyond naked self-interest. That might be news to the economics profession, which posits a one-dimensional image of ‘homo economicus’, a rational, utility-maximizing agent, largely driven by the so-called “invisible hand” of the marketplace. Incorporating the disciplines of a multiplicity of social sciences, Bowles produces compelling evidence that self-interested financial incentives can in fact produce behavior that is inefficient and violates a society’s morality.
In his work, Professor Bowles has conducted extensive field research, illustrating that humans can evolve as cooperative strategies when they participate in groups that share long-term similar norms and are willing to sanction those that do not follow group agreements. One example he cites regularly comes from behavioral experiments Bowles has conducted in which individuals have the opportunity to divide up substantial sums of money between themselves and others and also to pay for the opportunity to punish those who act selfishly. His research shows that people cooperate not only for selfish reasons but also because they are genuinely concerned about the well-being of others, as they try to uphold social norms, and value behaving ethically for its own sake. Moreover, people punish those who free-ride on the cooperative behavior of others for the same reasons.
This body of research has huge implications for the way we teach economics and, more broadly, construct policy. In our society, we rely on fines and rewards to harness people’s self-interest in the service of the common good, but do we get the balance right? To be sure, the threat of a ticket may well keep drivers in line, and the promise of a bonus likely inspires high performance. But that’s not the whole story: incentives can also backfire, the very behavior they’re meant to encourage.
So what are the implications for the teaching of economics? How do we construct policies to bring out the good nature that is fundamentally intrinsic to mankind, rather than using traditional incentives which appeal solely to rational self-interest? Watch the interview as we discuss these important issues.