Tuesday, February 7, 2012

Economics of altruism

Although innately altruistic, we aren’t being prosocial enough. Perhaps a great deal of that is reasonable given our society’s driver is an economic model based on self-interest. So why can’t we think about a model based on our fundamental instinct instead of trying so hard on an assumed instinct?

Our prosocial behaviours can be traced back to early humans who evolved in small groups to form tribes. It must have seemed like a pretty good idea to make friends with fellow tribesmen, for when in the time of danger or a famine, there was always someone to rely on. The need for cooperating, sharing, helping and donating has always been vital for our survival ever since. So we’re naturally altruistic; and in some form or the other, have an unselfish concern for the welfare of others.

Even Adam Smith originally proposed an economic model for our society that celebrated man’s altruism. He wrote about it in The Theory of Moral Sentiments in 1759. However, it was rejected at the time because the task of quantifying moral sentiments wasn’t easy.

Economics is unique in that, it’s one field in which people could get awarded for saying the exact opposite. 17 years later in The Wealth of Nations, Adam Smith came back and did just that. He proposed an economic model based on man’s self-interest; quite the contrary to his theory on man’s altruism. The idea of a selfish, endless pursuit meant a need for materialism. Since quantifying wealth is a much easier task, it took shape and continued to define how our society ran.

The trouble with traditional economics is it relies too much on outdated behaviour theories. It assumes man as a rational being that’s capable of making self-interested decisions, including costs versus benefit analysis to secure the best deal. It assumes the need for material boost as a standard, even at times when a completely different need may be preferable – for instance relationship.

That’s perhaps why a more hybrid discipline of economics may offer better solutions to marketers and businesses. Called behavioural economics, it simply adds psychological insights to economics that are based on how real people make decisions. Unlike traditional economics, it becomes a scientific discipline because it takes man in its true sense – an irrational being.

If we consider man as an irrational being, then self-interest isn’t always the best motivation for many of its everyday decisions, including those involving finance. For instance, our ability to value freedom, civil rights, equality and representative governance are some cases where selfless instincts have triumphed over selfish instincts. Herbert Gintis, in his Moral Sentiments and Moral Interests, proposes a theory on strong reciprocity among humans. He found altruistic motivations - like trust and cooperation - within a community could often be better motivations than material rewards. In fact, we have a predisposition to cooperate even when it’s costly.

If we could benefit from being generous to others, businesses and governments could profit too. Much like in the animal kingdom, businesses at times could think about using cooperation instead of competition to reach the top. In The Penguin and the Leviathan, Yochai Benkler even proposes altruism as alternative way to run a society beyond free market and state control. While the likes of both free market and state control operate merely on the assumption that we’re selfish and self-interested, altruism could work better given that it operates on our fundamental instinct. For instance, the likes of social networks, information sharing, Wikipedia, peer production, free and open software and citizen journalism have all been successful for their altruistic nature.

At a time when state control is falling and free markets are showing signs of ineffectiveness, could altruism offer a better model for economics in creating a society based on human cooperation? Even if it may take time for economic models to evolve, businesses shouldn’t wait and instead, become champions of change in harnessing collaboration and cooperation into their own models. By instituting prosocial practices, they can create, and eventually become cultures that believe in the virtue of being cooperative. The maxim of the ‘Golden Rule’ could serve as a start: treat people as avarice, avarice they will be; but treat people as altruistic, altruistic they will be.