Are Economist 'mean'? and Do We Really Know If People Behave Rationally?

Are Economist 'mean'? ; And do we really know if People Behave Rationally?

The area of economics covered by these two questions is a new experimental part of economics which combines not only economic theory but also theory from other social sciences such as psychology and sociology. I will look at experimental data acquired from combining these social sciences and see if I can come to any conclusions about whether studying economics really does cause people to become 'mean' and irrational or if the people that typically chose to study are already those types of people. If we break these questions down the first thing we have to look at is whether studying economics inhibits co-operation and causes people to behave in more a more self-interested manner.

There are several studies in which conclusion have been drawn that suggest people trained in economics do in fact behave in a different manner to those studying other subjects. The first study I have chosen to look at was produced by Gerald Marwell and Ruth Ames (1981), and is a free-rider experiment designed to look at whether first-year economic graduates are more likely to free-ride than other graduates. The design was simple; groups of subject were given a sum of money which was to be split by candidates into two accounts a 'public' and a 'private'. The private account was paid back at a one-for-one ratio whereas money paid into the public account was pooled and paid back at a rate greater than one. This means the social optimum is to pay all money into the 'public' account whereas the private optimum is to pay it all into the 'private' account. Marwell and Ames found that although non-economic students paid on average 49% into the 'public' account economic students only paid an average of just 20% into this account. Two follow-up questions were then asked of the two groups; firstly, what is a fair investment in the 'public' group; secondly are you concerned about 'fairness' in making your decision? With regard to the first question 75% of the non-economists answered that over a 50% investment was 'fair' and nearly all answered yes to the second question. However when it came to the economics students nearly a third refused to answer the first question and the others gave complicated definitions as to what was meant by 'fair', when it came to the second question the economics students were half as likely to be concerned with 'fairness' when making their decision.

The second study was designed by John Carter and Michael Irons (1991) and is a simple bargaining game. It has an 'allocator' and a 'receiver'. The allocator is given $10 which they then must divide between the two 'players', the receiver then has two choices either accept the proposal or refuse in which case both player gets nothing. A self-interest model would assume that the allocator will propose $9.99 for himself and $0.01 for the receiver and the receiver would accept as $0.01 is better than nothing. Carter and Irons found that economics majors were must more likely to follow the self-interest model than non-economic students.

Robert Frank, Thomas Gilovich and Dennis Regan also ran a survey of charitable giving by economist in comparison to others. They surveyed 576 college professors from 23 disciplines. They survey found that although 9.3% of economics professors reported giving no money to charity compared to only 1.1% from other disciplines they did partake in marginally more hours of 'volunteer activities'.

They also ran a study using the prisoners' dilemma as a basis. In this experiment cooperation provides a higher pay-off that defection so gives a good opportunity to examine self-interest behaviour. They ran two versions of the experiment in one subjects were allowed to make promises to not defect and in the other subjects were not allowed to make promises relating to their strategies. The defection rate for economists was 60.4% compared to only 38.8% for non-economists meaning at the 95% confidence level they could accept the hypothesis that economics majors are more likely to behave self-interestedly.

Honesty studies allow us to look at a different aspect of whether economists really are 'mean'. The first honesty study asked students from two different courses how likely they thought the owner of a small business who was shipped ten computers and only charged for nine was to inform to shipping firm of the mistake. They were then asked whether they would report the mistake if they were the owner. The second honesty dilemma concerns whether a lost envelope containing $100 and bearing the owners name and address is likely to be returned by the person who finds it. The students were asked the questions at the beginning of semester one and then again at the end to see what effect economics training had upon responses. The economics students responses became 'less honest' more so than those of the control group of introductory astronomy students. Showing that even if the students who chose economics were more 'cynical' to start with they became more so over the length of the semester.

This 'lost-letter' experiment was replicated by Yezer, Goldfarb and Poppen whoe designed a similar experiment where envelopes containing $10, a note explaining it was for the repayment of an informal loan and with a name and address on the front. The results of this experiment counter those of the previous one as 56% of letters left in economics classes were returned compared to anly 31% of those left in non-economics classes. This could be in self-interest terms however just because economics students realise that there is only a low possibility of an envelope left lying around containing anything of value so the opportunity cost of investigating the envelope is not worth it.

Each of these studies can be criticised in some way. The first study for example which related to the free-rider question was criticised because the control group that was used consisted if high-school students and undergraduates which differ from the graduate economics students most obviously in age. Also economics tends to populated predominately by