Motives and Self-Interest
Robert H. Frank
A New Yorker cartoon once depicted a distinguished looking gentleman taking his grandson for a walk in a wood. ‘‘It’s good to know about trees,’’ he tells the boy, adding: ‘‘Just remember, nobody ever made big money knowing about trees.’’ This advice nicely captures the modern economist’s view of human nature. Unselfish motives may exist, the economist reluctantly concedes, but in our bitterly competitive world, people indulge them at their peril.
Cynical though it is, the self interest model has yielded important insights. It tells us, for example, why car pools form in the wake of rising fuel prices; why divorce rates are higher in countries that have liberal welfare benefits; why energy use is lower in apartments that have separately metered utilities; and so on.
Yet many other behaviors do not fit the me first caricature. When traveling, we leave tips in restaurants we never expect to visit again. We donate anonymously to private charities. We often incur costs to dispose of unwanted pesticides properly rather than simply pour them down the drain. Soldiers dive atop hand grenades to save the lives of their comrades. Seen through the lens of modern self interest theory, these behaviors might seem the human equivalent of planets traveling in square orbits.
Recent research, however, suggests how noble human behaviors might not only survive the ruthless pressures of the material world, but might actually be nurtured by them as well. This research builds on the observation that people often confront problems in which the conscious, direct pursuit of self interest is self defeating.
An example is the case of the owner of a profitable business who is currently weighing an opportunity to open a branch in a distant city. He knows that if he hires an honest manager the branch will return high profits, but that otherwise it will lose money. One of his employees wants the job and is fully qualified for it. The owner would be willing to double her cur rent salary if he could be sure that she would manage honestly. He knows, however, that if she manages dishonestly, she will be able to make three times her current salary.
In standard economic models, this option spells doom for the branch operation. Reasoning from the self interest model, the owner concludes that since the employee could earn more by managing dishonestly, she will do so. And since this means the branch will be a loser, the owner does not open it. The irony, of course, is that this choice leaves both the owner and his employee worse off than if the owner were to open the branch and the employee were to manage it honestly.
In this scenario we have what economists call a ‘‘commitment problem.’’ This problem could be solved if the employee could credibly commit herself to manage honestly. In situations like these the pursuit of material self interest proves self defeating.
Traditional economic models try to solve commitment problems by changing the material incentives people face. For example, the owner might try to hire an investigator to monitor the branch manager’s performance. But in many cases, the relevant behavior simply cannot be monitored. In such cases, traditional models suggest that solutions do not exist.
Yet commitment problems can often be solved even when behavior cannot be monitored. Solutions require that we relax the assumption that people are motivated only by narrow self interest. Suppose, for example, that the owner had some means of discovering that his employee was a trustworthy person, and would manage his branch operation honestly even though she could earn much more if she cheated. He could then open the branch with confidence, even though he could not monitor his manager directly. Both the owner and the manager would gain.
This solution relies on two premises: first, that there are people who behave honestly even when they could earn more by cheating; and second, that reliable means exist for identifying these people. The first premise is uncontroversial, but the second invites scrutiny. After all, all managerial candidates have strong incentives to portray themselves as trustworthy, so personal declarations of honesty cannot carry much weight. Investigating a candidate’s past record will be illuminating only in those cases where someone has actually been caught doing wrong. It will reveal little about the many cheaters who were shrewd enough to avoid detection. If these methods fail, how can trustworthy persons be identified?
The key is to recognize that honest behavior is motivated not by rational calculations but by emotions – by moral sentiments, to use Adam Smith’s term. The employee who walks away from a golden opportunity to cheat is motivated by her sympathy for the owner’s interests, and by her feelings of self esteem, which depend strongly on right conduct. The problem for the would be cheater is that the emotions that motivate honest behavior are difficult to fake. Once we get to know a person well, we are able to make reliable judgments about her character. The cheater’s goal is to appear trustworthy, but given our ability to detect the presence of the emotions that motivate trustworthiness, the easiest way to appear trustworthy is actually to be trustworthy.
The irony is that the homo economicus caricature that populates conventional economic models often does worse, even in purely material terms, than his genuinely trustworthy counter part. In his single minded quest to further his own material interests, he becomes unattractive as a partner in situations that require trust. By contrast, the trustworthy person values honest behavior for its own sake, and therefore is much in demand in these situations. The material rewards he reaps are no less valuable for having come unbidden.
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