Scan barcode
branch_c's review against another edition
4.0
An interesting book that uses a survey of numerous studies with game theory experiments to explore how incentives interact with people’s ethical motivations.
The main argument here is that it’s not necessarily wrong to use incentives that appeal to people’s self interest, but that relying _only_ on incentives (and not “ethical and other regarding motives”) is unlikely to achieve the desired results. I don’t know if this would really have shocked Hume, Bentham, Adam Smith or John Stuart Mill, but honestly it doesn’t seem that surprising to me. The most significant point is that incentives can “crowd out” ethical motives or social preferences. In other words, experiments show that for people who tend to be guided by ethics, providing incentives caused them to behave _less_ ethically than they would have without the incentives.
One minor point that nevertheless irritated me was the introduction of “Aristotle’s Legislator” (p. 12) without an explanation of the concept, and then continued references to it throughout the book. I guess the reader is expected to have read Politics and be familiar with the way Aristotle uses the term? Still seems reasonable to include a sentence or two here on this rhetorical figure.
Also, we are told that the experiments were carefully designed to be able to determine (to the best degree possible) what people’s underlying ethical motivations would have been in the absence of the incentives. But presumably not all people have the same level of ethical motivation. The question I found myself asking around the halfway point was: is there a proposal for a workable society where people with good motivations are free to demonstrate them without incentives, while those unlucky enough to be less ethically motivated are also able to be happy, successful participants who don’t harm themselves or others? It turns out that there is, and eventually Bowles gets there.
He starts by bringing to light a fascinating finding (although he warns us “Do not read too much into this”): the study of parking violations among international diplomats in New York City (p. 114) as a rough indication of whether members of more capitalist societies tend to behave more or less ethically than others.
This leads to an exploration of the mystery of why capitalist societies have not devolved into the self-interested dystopias envisioned by Marx (chapter V). The reason appears to be the other (non-market) aspects of liberal societies, including democracy, rule of law, social equality, and risk-reduction, which are compatible with, and interact positively with, the incentives inherent to capitalism.
Anyway, the real question is how to use this information to make the world a better place. Remove all incentives? What about when there are “natural” incentives to bad behavior, such as being unethical in politics? Wouldn’t it be best to introduce some “counter-incentives” to encourage good behavior? The author gives examples of cases in which incentives backfire, but of course it doesn’t follow that incentives should never be used. For example, incentives _not_ to do certain things, such as taxes on cigarettes or gasoline, still seem logical and reasonable, regardless of whether people feel any ethical reason to avoid using these things.
The bottom line is that ethical motivations also play a role, so the conclusion is that the most effective approach is “to encourage civil action by appealing to both material interests and moral sentiments, framed so that the two work synergistically rather than at cross purposes” (p. 220)
Bowles has made a valiant effort to write in an engaging way, and to some extent this is successful, but the nature of much of the content (summarizing fairly complex studies and analyzing their results using technical terminology from economics) makes it hard to avoid coming across a bit dry at times. There were also a couple of places where the explanation was just not clear enough for me to grasp - I’ll take partial blame for this as someone with limited knowledge of economics, but other laypeople can take that as a minor warning.
Overall, however, the book is informative and largely entertaining. I wavered between three and four stars, so I’m happy to round up if it helps give this book a wider audience.
The main argument here is that it’s not necessarily wrong to use incentives that appeal to people’s self interest, but that relying _only_ on incentives (and not “ethical and other regarding motives”) is unlikely to achieve the desired results. I don’t know if this would really have shocked Hume, Bentham, Adam Smith or John Stuart Mill, but honestly it doesn’t seem that surprising to me. The most significant point is that incentives can “crowd out” ethical motives or social preferences. In other words, experiments show that for people who tend to be guided by ethics, providing incentives caused them to behave _less_ ethically than they would have without the incentives.
One minor point that nevertheless irritated me was the introduction of “Aristotle’s Legislator” (p. 12) without an explanation of the concept, and then continued references to it throughout the book. I guess the reader is expected to have read Politics and be familiar with the way Aristotle uses the term? Still seems reasonable to include a sentence or two here on this rhetorical figure.
Also, we are told that the experiments were carefully designed to be able to determine (to the best degree possible) what people’s underlying ethical motivations would have been in the absence of the incentives. But presumably not all people have the same level of ethical motivation. The question I found myself asking around the halfway point was: is there a proposal for a workable society where people with good motivations are free to demonstrate them without incentives, while those unlucky enough to be less ethically motivated are also able to be happy, successful participants who don’t harm themselves or others? It turns out that there is, and eventually Bowles gets there.
He starts by bringing to light a fascinating finding (although he warns us “Do not read too much into this”): the study of parking violations among international diplomats in New York City (p. 114) as a rough indication of whether members of more capitalist societies tend to behave more or less ethically than others.
This leads to an exploration of the mystery of why capitalist societies have not devolved into the self-interested dystopias envisioned by Marx (chapter V). The reason appears to be the other (non-market) aspects of liberal societies, including democracy, rule of law, social equality, and risk-reduction, which are compatible with, and interact positively with, the incentives inherent to capitalism.
Anyway, the real question is how to use this information to make the world a better place. Remove all incentives? What about when there are “natural” incentives to bad behavior, such as being unethical in politics? Wouldn’t it be best to introduce some “counter-incentives” to encourage good behavior? The author gives examples of cases in which incentives backfire, but of course it doesn’t follow that incentives should never be used. For example, incentives _not_ to do certain things, such as taxes on cigarettes or gasoline, still seem logical and reasonable, regardless of whether people feel any ethical reason to avoid using these things.
The bottom line is that ethical motivations also play a role, so the conclusion is that the most effective approach is “to encourage civil action by appealing to both material interests and moral sentiments, framed so that the two work synergistically rather than at cross purposes” (p. 220)
Bowles has made a valiant effort to write in an engaging way, and to some extent this is successful, but the nature of much of the content (summarizing fairly complex studies and analyzing their results using technical terminology from economics) makes it hard to avoid coming across a bit dry at times. There were also a couple of places where the explanation was just not clear enough for me to grasp - I’ll take partial blame for this as someone with limited knowledge of economics, but other laypeople can take that as a minor warning.
Overall, however, the book is informative and largely entertaining. I wavered between three and four stars, so I’m happy to round up if it helps give this book a wider audience.
jasonfurman's review
4.0
The overarching argument of The Moral Economy is that people are motivated by more than just greed, specifically by a sense of what is fair and just. Moreover, encouraging a greater focus on greed can actually lead them to behave in a less fair and just manner. If markets and information were perfect that would not be a problem and greed would be sufficient for efficient outcomes. But in Samuel Bowles’ telling they are not so that by “crowding out” moral motives over-reliance on market mechanisms can lead to worse outcomes. Bowles is completely convincing that all of this is true but disappointingly unconvincing that it is important or that he knows what to do about it. As such, this is a worthwhile perspective to understand, an idea that should be pursued further, but I’m not sure how much it informs just about any public policy issue I really care about.
A lot of Bowles’ argument is compelling and is less a critique of the “textbook economics” that he sometimes rails against than it is a summary and extension of it. Strikingly for someone who started out as a Marxist economist in the early 1970s, the featured example in this book is the same as the one in Freakonomics: the Haifa day care centers which tried out a fine to deter parental lateness but found that it resulted in even more lateness as parents went from feeling guilty about being late to pick up their children to rationally calculating that it was actually quite cheap daycare.
The analysis itself draws much from standard research on behavioral economics, incomplete contracts (which make it impossible to specify every contingency and thus require something else, like trust, to avoid an inferior outcome), and mechanism design (which often finds that it is impossible to design incentives so that rational people will collectively lead to efficient outcomes)—all of which have won Nobel prizes in economics in recent years, hardly a buried set of heterodox notions. (Bowles often has an interesting set of perspectives and interpretations of this research. For example, he argues that most of the major results are “negative,” ways in which it does not work, and posits a trilemma that it is impossible to have Pareto efficiency, voluntary participation and preference neutrality.)
Bowles is particularly detailed in describing much of his own work on experiments running various games to understand when cooperation emerges. For example, in the prisoner’s dilemma it is rational for each player not to cooperate so as to get a better outcome for themselves, but Bowles points out about half of the time people playing the game in lab conditions actually do cooperate. He tries to understand what makes this cooperation more or less likely.
I see three overarching problems in Bowles’ analysis:
First, as a general matter it may not be the case that markets crowd out trust and moral behavior but can in fact crowd it in. Bowles himself cites research showing that CEOs show more trusting behavior in experiments, diplomats from highly capitalist economies are less likely to run up parking tickets than those from less capitalist ones, and East Germans play experimental exhibit less cooperative behavior than West Germans. It turns out that the security of property rights really does seem to motivate people to behave in a better manner than if they are afraid that their goods can be confiscated at any moments.
Second, Bowles has lots of tiny examples of where his approach matters but no big ones. The Haifa daycare center should have used moral suasion instead of fines. To discourage overuse of plastic bags you should reward people for bringing their own bag rather than just punishing them for not bringing one. These seem fine, but they are mostly very local examples and pale in comparison to the importance of the triumphs of “textbook” economics—for example the idea of a carbon tax, cigarette taxes, or the need to regulate fisheries to prevent overfishing. Bowles does not have a compelling argument against any of these (even though, in his theory, a carbon tax could be counterproductive because it gives permission to pollute rather than counting on people’s caring for the greater good to restrain their behavior).
Third, Bowles gives no compelling way in which the government can inculcate the trust and morality he wants. It is clear how small communities, like daycare centers, can do this. But do we want the state to impose morality on all of us? Which morality would it pick? How do we decide? The one case he does show that this morality works is that by protecting property rights and cementing a certain notion of fairness (which might involve some redistribution and less inequality), it leads people to be more trusting and reduces the inefficiencies that might otherwise result from incomplete contracts and the limitations of mechanism design.
It is notable that behavioral economics, which is really what this book is, has had many of the same problems, including how to translate the many anomalies it has documented into general propositions about behavior and recommendations for large-scale public policy. These are still fruitful avenues for pursuit. The empirical mindset of testing incentives and different ways to frame them is clearly right and completely standard in economics today. Behavioral considerations are clearly important in the details of program design. But I will be more sympathetic to the arguments against the textbooks when this approach can show that it can go beyond lab experiments and boutique examples to some bigger, implementable ideas.
A lot of Bowles’ argument is compelling and is less a critique of the “textbook economics” that he sometimes rails against than it is a summary and extension of it. Strikingly for someone who started out as a Marxist economist in the early 1970s, the featured example in this book is the same as the one in Freakonomics: the Haifa day care centers which tried out a fine to deter parental lateness but found that it resulted in even more lateness as parents went from feeling guilty about being late to pick up their children to rationally calculating that it was actually quite cheap daycare.
The analysis itself draws much from standard research on behavioral economics, incomplete contracts (which make it impossible to specify every contingency and thus require something else, like trust, to avoid an inferior outcome), and mechanism design (which often finds that it is impossible to design incentives so that rational people will collectively lead to efficient outcomes)—all of which have won Nobel prizes in economics in recent years, hardly a buried set of heterodox notions. (Bowles often has an interesting set of perspectives and interpretations of this research. For example, he argues that most of the major results are “negative,” ways in which it does not work, and posits a trilemma that it is impossible to have Pareto efficiency, voluntary participation and preference neutrality.)
Bowles is particularly detailed in describing much of his own work on experiments running various games to understand when cooperation emerges. For example, in the prisoner’s dilemma it is rational for each player not to cooperate so as to get a better outcome for themselves, but Bowles points out about half of the time people playing the game in lab conditions actually do cooperate. He tries to understand what makes this cooperation more or less likely.
I see three overarching problems in Bowles’ analysis:
First, as a general matter it may not be the case that markets crowd out trust and moral behavior but can in fact crowd it in. Bowles himself cites research showing that CEOs show more trusting behavior in experiments, diplomats from highly capitalist economies are less likely to run up parking tickets than those from less capitalist ones, and East Germans play experimental exhibit less cooperative behavior than West Germans. It turns out that the security of property rights really does seem to motivate people to behave in a better manner than if they are afraid that their goods can be confiscated at any moments.
Second, Bowles has lots of tiny examples of where his approach matters but no big ones. The Haifa daycare center should have used moral suasion instead of fines. To discourage overuse of plastic bags you should reward people for bringing their own bag rather than just punishing them for not bringing one. These seem fine, but they are mostly very local examples and pale in comparison to the importance of the triumphs of “textbook” economics—for example the idea of a carbon tax, cigarette taxes, or the need to regulate fisheries to prevent overfishing. Bowles does not have a compelling argument against any of these (even though, in his theory, a carbon tax could be counterproductive because it gives permission to pollute rather than counting on people’s caring for the greater good to restrain their behavior).
Third, Bowles gives no compelling way in which the government can inculcate the trust and morality he wants. It is clear how small communities, like daycare centers, can do this. But do we want the state to impose morality on all of us? Which morality would it pick? How do we decide? The one case he does show that this morality works is that by protecting property rights and cementing a certain notion of fairness (which might involve some redistribution and less inequality), it leads people to be more trusting and reduces the inefficiencies that might otherwise result from incomplete contracts and the limitations of mechanism design.
It is notable that behavioral economics, which is really what this book is, has had many of the same problems, including how to translate the many anomalies it has documented into general propositions about behavior and recommendations for large-scale public policy. These are still fruitful avenues for pursuit. The empirical mindset of testing incentives and different ways to frame them is clearly right and completely standard in economics today. Behavioral considerations are clearly important in the details of program design. But I will be more sympathetic to the arguments against the textbooks when this approach can show that it can go beyond lab experiments and boutique examples to some bigger, implementable ideas.
More...