Balancing Incentives and Morals in Economic Interactions

How can tempting kids with an extra allowance for extra chores cause them to lose interest in helping out at all? How do incentives work and fail on each level from knave to king? What can be learned from examining the intersection of economics, preferences, and morality?

Samuel Bowles is an economist, professor, and the author of several books on economics and related topics. His latest work is called The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens.

Samuel and Greg discuss how our modern service and information economies pose unique challenges to traditional market principles. Sam shares studies that illuminate the intricate relationship between intrinsic motivation and external rewards. They also debunk misplaced beliefs in equilibrium and Sam emphasizes the need to align economic education with the challenges of climate change. 

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

A mistake economists make when it comes to the functions of law

28:59: Here's a mistake that economists sometimes make: When we think of people acting, we think that we're acting to get stuff. When we make a decision about saving, investment, getting a job, working hard, whatever, shopping, we're getting stuff. Now, we know, you and I, that when we act, we're acting to get stuff, and we're also acting to be something. So, it's not just getting we're talking about; it's becoming. Now, we know, you and I, that when we act, we're acting to get stuff, and we're also acting to be something. So, it's not just getting we're talking about; it's becoming. Now, yes, we want to be someone. We want to be a particular kind of person. Now, if you add becoming to getting, then you have a better view of what humans are like. Now, what is this becoming? Are we just being generous so as to impress other people? Yes, probably; that's part of it. But, speaking for myself, but also on the basis of a lot of psychological research, we're also signaling to ourselves,  we're reaffirming to ourselves that we're that kind of person.

Do we treat people as selfish when it comes to policy-making?

05:12: If you design policies that treat people as if they're self-interested, you're more likely to get people to act in self-interested ways. So, it's not only that these policies are going to be misguided; they may even be counterproductive and backfire. And they may produce a citizenry which requires increasing regulation and increasing coercion. Because if you generate an increasingly self-interested population by treating people as if they're selfish, well, then you're going to end up with a very, very authoritarian society or chaos.

Exploring the relationship between markets, generosity, and rule of law in European history

51:52: One of the ways you transact goods when you don't have markets is gift, but another way is theft. Now, I think that the really key idea and my explanation of why Europeans tend to be more generous than people who have less contact with markets, historically talking about Western and Northwestern Europeans most. I think the reason for that is that we've had markets under the rule of law for a long period of time. In a rule-of-law society, you can actually take a chance on trusting somebody. And the reason is the worst possible outcome isn't so bad. They're not going to take your kids. They're not going to burn down your house. Maybe you're going to get cheated once or twice.

Embracing incentives, constraints, and community to create change

10:46: We'll never solve the problems facing us, whether it's economic injustice, how to handle new innovations, or how to handle climate change. We have to have a combination of incentives and constraints of the traditional kind and appeal to people's desire to be members of the community and to actually do something that they'll be proud of because they're good human beings.

Show Links:

Recommended Resources:

• Adam Smith
• Ceteris paribus
• David Hume
• John Stuart Mill
• Alexander Hamilton
• Friedrich Hayek
• Arrow–Debreu model
• Thomas Schelling
• Wendy Carlin
• Voltaire
• Jeremy Bentham
• Albert O. Hirschman
• CORE Econ

Guest Profile:

• Faculty Profile at Santa Fe Institute
• Faculty Profile at UMass Amherst
• Profile at The Institute for New Economic Thinking
• Profile on CEPR
• Wikipedia Profile

His Work:

• Amazon Author Page
• The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens
• After the Waste Land: Democratic Economics for the Year 2000
• Notes and Problems in Microeconomic Theory
• A Cooperative Species: Human Reciprocity and Its Evolution
• The New Economics of Inequality and Redistribution
• Microeconomics: Behavior, Institutions, and Evolution
• Understanding Capitalism: Competition, Command, and Change
• Google Scholar Page
• Moral economics
• Machiavelli’s Mistake: Why Good Laws Are No Substitute For Good Citizens