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Economic Markets and Human Fairness

How Trading With Others Makes Us Treat Them Better
Joseph Henrich

Do markets make us fair, trusting, and cooperative or bring out our greed, selfishness, and envy? This is an old question, and great minds have long offered their opinions. On one side, David Hume, Adam Smith, and Montesquieu linked commerce and markets to good manners and virtue, while Marx, Rousseau, and a substantial swath of the modern humanities reached the opposite conclusion.

Research now offers the beginnings of a scientific answer: both camps are partly right in a way that reveals insights into human nature and how the modern world works (or fails to work). To examine the influence of markets on people’s fairness toward strangers, my colleagues and I conducted economic experiments among diverse populations from around the globe.

We first used the Ultimatum Game, in which a pair of participants is given some money, say $100. One partner (the proposer) must offer part of this sum to the other. The responder can either accept the offer, getting that amount while the proposer gets the remainder, or reject it, in which case nobody gets anything. The players never know each other’s identities, and they do not play again.

What would a selfish money maximizer do in this game? If the proposer offers $10 of his $100, the responder faces of choice between $10 and zero. If money is all that matters, then the responder will accept any offer. A selfish proposer, realizing this, would offer $1 and keep $99 for himself. Thus, a species of Homo economicus would make very unequal offers and never reject.

We found no societies that behaved this way, among hunter-gathers, herders, slash-and-burn horticulturalists, subsistence farmers, and wage workers in Africa, Oceania, Siberia, New Guinea, and South America (plus Americans). In each place, we put one day’s wage on the line.  

Nevertheless, people’s behavior varied a lot. Our populations ranged from remote foragers with no market integration to urban groups that depend completely on markets. People from the least market-integrated communities offered, on average, only about one-quarter of the stake, while those from the most integrated communities, such as rural Missouri, offered roughly half. This result supports the idea that market participation fosters a different kind of sociality.

When we first presented our findings, other researchers raised important concerns. So we went back to work, to see if we could replicate and extend our findings, improving our methods and adding to other games to our experimental toolbox. The first game, the Dictator Game, is like the Ultimatum Game, except the responder cannot do anything. Selfish proposers face no threat of rejection, so they should give zero.  

Our second game, the Third Party Punishment Game, involves three players. Player A makes an offer to Player B, who cannot do anything. Player C, who gets half the amount that Player A is dividing with B, can pay to take money away from A. If the players are Homo economicus, Player A will give zero to B, and C will not pay to punish A. Together, these games gave us five measures of prosociality.

This second set of results tells the same story. Individuals from communities with greater market dependence make more equitable offers in all three games. The effect holds even after statistically removing differences in income, wealth, education, household size, sex, age, religion, and community size. The only factor besides markets that mattered consistently was religion. (People adhering to Christianity or Islam offered more than those associated with local or traditional religions.)

This correlation could simply suggest that prosocial people are attracted to markets, but recent work shows that markets do influence sociality. Among the Oromo herding communities of Ethiopia, Devesh Rustagi measured people’s willingness to cooperate with strangers in an economic game. Since these groups are tied to their land by customary rights, Rustagi examined the relationship between people’s cooperativeness and their distance from the market, which ranged from a few hours travel time to a full day.

People who lived closer to markets were more cooperative, even after statistically controlling for wealth, literacy, sex, land, and many other variables. Here market contact seems to have caused people to be more cooperative in anonymous situations. Perhaps most importantly, groups with more cooperators were better able to make, monitor, and enforce local agreements that resulted in measurable improvements in forest conservation. That is, the experience of markets changes our sociality to make it easier to construct and enforce certain kinds of institutions. Maarten Voors and his team have similar findings from Burundi.

Much psychological research indicates that people are specialized for thinking about particular social relationships, like those involving kin, reciprocal partners, and hierarchy. We clearly key into reputation, and in many of the small-scale societies we studied, individuals can improve or sustain their reputations by treating their kin, reciprocal partners, and social betters according to custom.

Market interactions, though, are different from “real” human relationships. Efficient markets require trust, fairness, and cooperation among people who don’t know each other and may not see each other again. Without trust, markets break down. Reputations in markets are based on principles of fairness that apply to everyone (or some designated subgroup) and some level of impersonal trust. Individuals are expected to pass up opportunities to help their kin or friends if it involves stealing from or duping a stranger. Consistent with this—and contrary to the intuitions of many—Al-Ubaydli and his team showed that if you unconsciously remind Americans of markets, they trust others more and invest more money with strangers.

Thus, markets are products of cultural evolution. They require reputational judgments governed by different norms than those that have regulated most human relationships over our species’ history. This is possible because we, unlike other species, rely heavily on culturally learned social norms and internalized motivations acquired from others in our communities. From a young age and well into adulthood, people tune in to the actions of others—particularly those who are more successful, skilled, and prestigious—to acquire motivations, behavior, and principles, which can include fairness and trust toward anonymous others. Behaviors in experimental games are transmitted via social learning in the laboratory, and equitable offers and rejection of unfair offers emerge only gradually during development, reaching adult levels in the mid-twenties.

The dependence of markets on an unnatural set of social norms is what makes them so susceptible to collapse due to nepotism, cronyism, and corruption—that is, invasion by our more ancient social instincts. Social life in small-scale societies is rooted in relationships based on kinship, reciprocity, and status. Our behavioral experiments, however, tap motivations related to ephemeral interactions involving cash—“market norms”—not generosity to family or loyalty to friends. By making low offers and not rejecting free money, people in small-scale societies favor their family and local network over unknown others or abstract principles.

Incidentally, after scouring the globe in search of Homo economicus, we did eventually locate a group that approximates him. Chimpanzees do not reject in the Ultimatum Game or punish in the Third Party Punishment Game; they also reveal no measurable concern that others receive equitable payoffs, even when the costs to themselves are low.

 

Joseph Henrich holds the Canada Research Chair in Culture, Cognition and Coevolution, and is Co-director of the Centre for Human Evolution, Cognition and Culture at the University of British Columbia.

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Tad Kilgore
2 years ago

My immediate response to the Ultimatum game was to recommend a equal lot of the reward.  Now I have to dive into the why of that reaction.

I would love to see this research conducted along class lines in an industrialized society.    Do wealth accumulators have a notably different set of values and system of socialization than others in the same system?

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