Friday, December 23, 2011

Economists: givers or Grinches?

THE stereotypes about economists are well known: that we're selfish Grinches; that we don't read human interest stories because they don't interest us; that the only reason we don't sell our children is that we think they'll be worth more later.

But are the stereotypes true? And if so is the cause nature or nurture? In other words, are selfish people disproportionately likely to become economists? Or is there something about being an economist (or being on the receiving end of an economics education) that makes people selfish?

Academic research suggests there's a good deal of truth to the stereotype. Many studies have looked at how economists behave in what are called public goods situations. A key feature of these situations is that you can benefit from public goods even if you don't contribute to them. You can watch PBS without making a donation; you can enjoy clean air even if you drive a car that pollutes. But such goods give rise to the so-called free-rider problem: acting selfishly makes sense for each individual (why sacrifice if you don't have to?) but as more and more people choose to act selfishly, the good disappears and everyone loses.

Public goods run counter to Adam Smith's 'invisible hand' theory in that self-interested behaviour by individuals does not, as the theory would have it, lead to good outcomes for society as a whole. These situations flummox just about everybody - look at all the trouble that nations and individuals are having in dealing with climate change - but economists and economics students appear to be especially likely to free-ride and act in ways that are 'anti-social' rather than 'pro-social'.

My recent research with the economist Elaina Rose, published in August in the Journal of Economic Behavior and Organization, has looked at a real-life public goods situation faced by students at the University of Washington. During our study period (1999 to 2002), when students went online to register for classes each quarter, they were asked if they wanted to donate US$3 to support WashPIRG, a left- leaning activist group. Students were also asked if they wanted to donate US$3 to Affordable Tuition Now (ATN), a group that lobbied for 'sensible tuition rates, quality financial aid and adequate funding'.

You may question whether these groups really serve the common good, but that's mostly beside the point. Regardless of the groups' actual social value, a purely self-interested individual would choose to free-ride rather than contribute; after all, a single US$3 donation is not going to make a noticeable difference in tuition rates.

Our data showed that each group received donations from about 10 per cent of the students each quarter. Although students remained anonymous, we could look at all of the 8,743 members of our data set and determine what their majors were, when they took economics classes (if at all) and whether or not they donated to ATN or WashPIRG during each quarter of our study period.

In line with previous research, what we found supported the Grinch stereotype. About 5 per cent of economics majors donated to WashPIRG in a given quarter, compared with 8 per cent for other arts and sciences majors. A similar divide - 10 per cent versus almost 15 per cent - occurred with respect to donations to ATN.

We also found evidence that the giving behaviour of students who became economics majors was driven by nature, not nurture: taking economics classes did not have a significant negative effect on later giving by economics majors.

But taking economics classes did have a significant negative effect on later giving by students who did not become economics majors. One interpretation of these results is that students who were not economics majors suffered a 'loss of innocence' after taking an economics class, presumably because of exposure to certain ideas (like the invisible hand) or certain people (like economics teachers).

In contrast, students who became economics majors did not suffer a loss of innocence. This may be because they lost their innocence in high school - other research suggests that pre-university exposure to economics reduces giving - or perhaps even because economics majors were 'born guilty'.

Our research suggests that economics education could do a better job of providing balance. Learning about the shortcomings as well as the successes of free markets is at the heart of any good economics education, and students - especially those who are not destined to major in the field - deserve to hear both sides of the story.

The writer, a co-author of The Cartoon Introduction To Economics, is an environmental economist at the University of Washington.