Mar 23, 2007

The Civilizing Effect of Market Economics

Wall Street Journal
January 24, 2002

The Civilizing Effect of Market Economics
David Wessel

The marketplace allocates resources efficiently and unsentimentally, pausing to contemplate neither fairness nor feelings. So one might expect people in societies that embrace money and the market to be richer, but less generous and altruistic, than small bands who hunt and farm communally in isolated parts of the Amazon or Africa.

But is that reality? American generosity after Sept. 11 doesn't suggest hard-heartedness. What if we randomly picked pairs of people from the same community and did an experiment? Tell neither the other's identity. Offer Player One $100, and test his generosity by telling him to split the money any way he chooses with Player Two, who knows how big the stakes are. Add one catch to restrain Player One from being selfish: If Player Two refuses the offer, neither gets anything.

A coldly rational person -- think bond traders -- would offer as little as possible, maybe $10. And if Player Two were coldly rational, he would accept; after all, $10 is better than no dollars. But such people exist only in economists' minds.

In repeated experiments of this sort, people cast as Player One were more generous than the calculating bond trader. And people cast as Player Two were more likely to reject small offers, even though that left them with nothing. This left economists scratching their heads and wondering why we don't act as their theories say we should.

Along the way, they wondered what sorts of people act more generously: Nomadic Hazda hunter-gatherers who forage in Tanzania? Or farmers in Hamilton, Mo., in the heart of our market-oriented society?

Americans, it turns out. Hazda cast as Player One offered the equivalent of $33 on average. Hamiltonians in the same role offered $48. Anthropologists didn't use the same sums in both places, of course. The stakes were roughly a day's pay in each.

The pattern across societies where experiments were conducted is counterintuitive, but consistent. The more involved people are in market activities -- such as working for wages or buying and selling goods to others -- the more generous they are. "The most altruistic and trusting societies are those that are the most market-oriented," says Jean Ensminger, an anthropologist at the California Institute of Technology, Pasadena.

Experiments aren't precise substitutes for real life. But by doing enough experiments, using substantial stakes and sifting results statistically, researchers are uncovering ways in which people tend to behave differently depending on where they grow up.

At first, the researchers experimented with college students in Indonesia, Japan, Slovenia and the U.S. They found few differences. That simply proved that college students tend to be alike no matter where they're from.

Then a young anthropologist named Joseph Henrich, who was doing unrelated fieldwork in the Peruvian Amazon, found that these games could be played with unsophisticated people. His work offered early evidence that people in primitive societies might be less generous with one another than we are.

Intrigued foundations dispatched a dozen anthropologists to play this and other games with 15 communities from the Orma in East Africa, who often trade cattle and work for wages, to the Quichua in Ecuador, who don't. The games also were played in rural Hamilton and urban St. Louis.

Experiments don't reveal why market-oriented people like the Orma make more-generous offers ($44 on average) than subsistence, slash-and-burn farmers like the Quichua ($25). Nor do they explain why Americans and others in market-oriented settings come much closer to offering partners a 50-50 split than other people do. But the games do suggest something profound about the way markets shape human behavior and relationships.

"Many people thought markets would make people selfish and amoral. That view is at least too simple, if not just plain wrong," says Samuel Bowles, an economist at the University of Massachusetts and the Santa Fe Institute.

Maybe, suggests Ms. Ensminger, altruism is a luxury that only developed societies can afford. Or maybe market societies grow accustomed to conventions, like splitting windfalls 50-50. Or maybe, as she and other researchers suspect, markets do change the way people behave, but not in the way we often think.

"Markets teach us to behave decently to strangers," Mr. Bowles speculates. "Markets are an arena in which you encounter somebody you've never seen before and engage in mutually beneficial activity." In a society without markets, people deal mainly with familiar faces. They have little practice in one-time transactions with anonymous strangers.

People overlook "assumptions about trust that are built into the market economy," adds Mr. Henrich, who will join Emory University's faculty this year. "When you take a taxi, you could walk out without paying the fare," he says. "But people generally don't." The same goes for tipping in restaurants.

Sure, some Americans stiff cab drivers and waiters. But not very many. And that offers a heartening counterpoint at a moment when Enron exposes the excesses and greed of a market society.

* Write to David Wessel at capital@wsj.com3

For more detail on the anthropologists' experiments, see:

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