Trust in the Market-More Ingrained Than You Might Think

Did you ever consider that a society’s level of “market integration” (more in a moment) might be strongly and positively correlated with the society’s overall level of fairness?

If you haven’t thought about that, time to catch up with the scientific literature. Among other things, it’s beginning to answer questions like why New Yorkers are (by and large-but I’m unreconstructedly one) happy to help tourists navigate the city when they know they’ll never see that person again, or why Americans tip fairly in restaurants they’ll probably never return to.

One of the time-tested tools behavioral economists like to use to measure the strength of norms of fairness is the familiar-to-the-point-of-hackneyed zero-sum sharing game where Subject A is given an arbitrary amount of money ($1.00, $10.00, $50.00, whatever) and told that the assignment is to share whatever portion of that amount A feels like with Subject B, who is sitting there in front of A and sees and hears everything that’s going on. A is also told that if A wants to keep it all and give B nothing, he can do that, but that B has the right to reject any deal A offers, in which case no one gets anything.

Now, you would think (homo economicus rationalis, at any rate) that anything A offers B which is nonzero is a windfall gain to B and he should accept it.

That’s not the way it turns out.

Roughly speaking, when this experiment is conducted multiple times across time and geography-but within the US-the B’s of our world generally refuse any offer by A that is less than about 25%, universally decline anything under 10%, and some decline anything under 40%.

What’s going on?

We’re enforcing our norms of fairness, in a nutshell.

But here’s an even more powerful experiment, as reported in The New York Times. Here, researchers changed the game and tried it in very different societies. Here are the societies they visited:

a) a village in the Amazon, foraging with the indigenous Tsimane people.

b) a Dolgan and Nganasan settlement on the Siberian tundra, where they herd reindeer and belong to the Russian Orthodox Church.

c) a Himalayan monastery where you are instructed to “gaze within” and “follow your bliss.”

d) a camp of nomadic Hadza hunter-gatherers sharing giraffe meat and honey on the Serengeti savanna.

e) a throng of Wal-Mart shoppers buying groceries on the Missouri prairie.

And they changed the game to make it far less transparent:

One player, the dictator, was given the authority to keep the entire prize or share part of it with the other, unseen player, whose identity remained secret. Along with this power came the assurance that the dictator’s identity would also remain secret, so that no one except the researcher would ever know how selfish the dictator had been.

The most lucrative option, of course, was to keep the whole prize and stiff the anonymous partner. But the Missourians on average shared more than 45 percent of the prize, and some other societies were nearly as generous, like the Ghanians living in the city of Accra and the Sanquianga fishermen on the coast of Colombia.

But most of the hunter-gatherers, foragers and subsistence farmers were less inclined to share. The Hadza nomads in the Serengeti and the Tsimane Indians in the Amazon gave away only a quarter of the prize. They also reacted differently when given a chance, in variations of the game, to punish another player for hogging the prize.

Selfishness offended the Missourians so much that they would punish the player even though it cost them money. But the members of traditional societies showed little inclination to punish others at their own expense. “There are lots of norms in these small-scale societies for how to treat one another and share food,” says Dr. Henrich. “But these rules don’t apply in unusual situations when you don’t know anything about the kinship or status of the other person. You don’t feel the same sense of responsibility, and you act more out of self-interest.”

What’s going on here?

Nothing that would have surprised Coase.

The more complex the society (think the US, or, even more so, the global agora), the more reliance people have to place on the trustworthiness of total strangers in a market economy. In fact, and amusingly, the researchers defined the very “market integration” quotient as the extent to which people in the various societies relied on the marketplace to acquire their food–as opposed to being direct hunter-fisher-gatherers.

In other words, it comes down to minimizing transaction costs.

Last weekend, my wife and I decided that, since we no longer own a turntable, keeping a cabinet full of LP records was probably poor space planning in a Manhattan apartment. About 20 blocks down Broadway from where we live is a quaint, chock-a-block, basement-first-floor-second-floor (books piled on the staircases, the floors, everywhere) used bookstore that also sells LPs. 

So we loaded up shopping bag upon shopping bag and marched down to the store, dog in tow (or, actually, most of the time, dog way out in front leading the way), to discover that the owner, who would tell us what our LPs were worth, had stepped out to lunch. We said we’d leave the bags and bags there and come back in an hour or so.

Stop there.

Why am I telling you this story? Because, of course, we had entrusted our records (not worth a lot, to be sure, but surely worth something) to a total stranger, sight unseen, at a store we had admired far more than we had patronized.

An hour later we returned, the owner was there, he evaluted our collection in a professional, done-this-before fashion, made us a cash offer, and we accepted. And have a small empty cabinet to show for it.

Next time you’re drafting a legal settlement or crafting deal terms, pause for at least one brief moment to reflect upon how powerfully rooted in our gestalt is not just the rule of law but trust in strangers in the marketplace. It makes everything we do possible.

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Thanks for the reminder and
research-based confirmations.  I’m
thinking this is again what Adam Smith saw and explained in Theory of Moral
Sentiments and Wealth of Nations. 

We innately struggle at the
internal tipping point which leads us out of selfishness and toward fairness in
regard to “others.”  The pivot
seems to turn on the warrant of our expectations and perceptions of (i) our
substantial equality with the “other(s)” with whom we must deal; and
(ii) the reasonable availability of just remedy(ies) when “fairness”
toward us seems to have been violated. 

 The actual and perceived degree
of availability of fair recourse to tolerably unbiased tribunals therefor goes
hand in hand (in a self-reinforcing cycle) with cultural growth toward or
decline away from an ethos of “fairness.”  But where does growth toward fairness
germinate?  The tipping point away from
fairness concerning the “other” seems to remain at least a lively
temptation for each of us, so our ethos of fairness is always up for
grabs.  Let go of it, and everything we
do begins to become impossible, at least until some courageous others take hold
of it again.

Very throughtful indeed.  And a useful reminder to those of you who think that Wealth of Nations was all Adam Smith wrote.  Theory of Moral Sentiments is actually equally profound.