Tuesday, March 3, 2009

Self Interest

Economics often assumes that all individuals act in their own self interest. The movie A Beautiful Mind showed how much of a breakthrough it was to even question such a belief, in fact. The subject of the film won a Nobel Prize for Economics for showing that people will often act in their own interest with regard to a group. Yet most economics classes teach the idea that markets move because individuals will always act to help themselves.

Thankfully, we, as individuals and as a group, are not required to act as automatons of economic function. We have a great moderator to our self-interest: morals. Many people will not take advantage of someone less fortunate because their own ethics will not let them. A study in the book I'm reading even demonstrated that 40-60% of people will refuse a "free ride" when offered it. They will insist on paying some fair value for the good or service.

Todd, my co-writer, once told me that his friend in the vending business found the highest profit margins in what he called "honor baskets". He would put out some candy or other item with a sign that said asked for the payment to be dropped in the box. Some theft occurred, but the fact that he made money showed that people did pay when it would be easy to steal. Newspapers are sold on the honor system in many places - put in the requisite money and only take one paper. All these evidence a goodness in most people - a basic moral code - that prevents them from acting only as hedonists, driven by their wants above all else.

To me, that is a beautiful thing to learn from research. Certainly it throws a monkey wrench into certain theories that requires a great deal of reformulation, but what a great problem to have. Accounting for morality - what a discipline.

-- Robert

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