Economics and Ethics

Oxytocin—A Primer

Jonathan B. Wight

Paul Zak, whose book The Moral Molecule will appear May 10, wrote a synopsis of it here in yesterday's Wall Street Journal:

To trigger this "moral molecule," all you have to do is give someone a sign of trust. When one person extends himself to another in a trusting way—by, say, giving money—the person being trusted experiences a surge in oxytocin that makes her less likely to hold back and less likely to cheat. Which is another way of saying that the feeling of being trusted makes a person more…trustworthy. Which, over time, makes other people more inclined to trust, which in turn…

If you detect the makings of an endless loop that can feed back onto itself, creating what might be called a virtuous circle—and ultimately a more virtuous society—you are getting the idea….

The experiments I have conducted show that many group activities—singing, dancing, praying—cause the release of oxytocin and promote connection and caring. As social creatures, we have created activities that prompt the expression of oxytocin in order to foster connection to others. In fact, those who release the most oxytocin when they are trusted are happier and healthier because they have richer social lives.

Zak notes that oxytocin is not a panacea for all of today's ills, since humans also have other hormones that relate to fear and fight. But sharing moral space with others can, over time, create possibilities for a virtue cycle developing. Unless you are living in Israel/Palestine, in which case exposure to differences often leads to a vicious cycle. It's complicated. It is wonderful that neuroeconomics has become part of our toolkit for understanding cooperation and competition.

[UPDATE: Pretty soon (5-10 years?) we'll be able to use oxytocin inhalers when we want to force people to cooperate. Car dealerships will pipe oxytocin into their ventilation systems so people will trust them to buy their car! It's a Brave New World out there.]

New book: Neuroeconomics: Hype or Hope?

Mark D. White

The special issue of Journal of Economic Methodology on neuroeconomics (highlighted here previously) is now available in book form: Neuroeconomics: Hype or Hope?, edited by Caterina Marchionni and Jack Vromen. The chapters are as follows:

1. Introduction Caterina Marchionni and Jack Vromen

2. When economics meet neuroscience: Hype and hope Uskali Mäki

3. The disunity of neuroeconomics: a methodological approach Roberto Fumagalli

4. Inductive modeling using causal studies in neuroeconomics: brains on drugs Moana Vercoe and Paul J. Zak

5. The philosopher in the scanner (or: How can neuroscience contribute to social ontology?) Francesco Guala and Tim Hodgson

6. Why neuroeconomics is relevant for economics, despite different questions, abstractions and all that Emarh Aydinonat

7. Where economics and neuroscience might meet Jack Vromen

8. The methodologies of neuroeconomics Glenn Harrison and Don Ross

9. Neuroeconomics: a radical replacement of economics? Michiru Nagatsu

10. Do neurobiological data help us to understand economic decisions better? Alessandro Antonietti

11. Explanatory relevance across disciplinary boundaries – the case of neuroeconomics Jaakko Kuorikoski and Petri Ylikoski

Nature or Nurture?

Jonathan  B. Wight

My previous post on bin Laden highlighted Jonathan Haidt’s argument that contradictory human instincts (for self, for others, against others) can help explain the outpouring of sentiment at the death of bin Laden. 

Jason Antrosio of Hartwick College disagrees:  “Haidt's commentary is a diversion from the real issues and real reasons for the celebrations” about Osama bin Laden’s death. 

Antrosio points us to a fuller account of his critique at his Living Anthropologically blog. 

In this post, Antrosio argues that the study of natural instinct is something anthropologists have to fight against:  “What is disturbing is all the people who call themselves social scientists trotting out to claim such celebrations express ‘natural urges,’ whether as bedrock human instincts or as shaped by human evolution.” 

Antrosio says that anthropology needs to “deny any instincts exist outside the current of history.” 

This is an intriguing but difficult claim—particularly as advances in human brain imaging, experimental economics, and other techniques bring out a more nuanced understanding of human behavior across cultural boundaries. 

One can commiserate with anthropologists who are feeling the sting of budget cuts and the intrusion of other disciplines into their domain.  Yet that doesn't let them off the hook.  By failing to engage with new science, will anthropologists be left behind over the next few decades?

Below, the first two points (I hope) celebrate Antrosio’s key point:  that human behavior is greatly shaped by human institutions, including culture. 

1. Institutions

 Since Douglass North won the Nobel Prize in 1993 there is scarcely any economist who is unaware of the importance of human constructs: 

Institutions are the humanly devised constraints that structure political, economic and social interaction.... [they] create order and reduce uncertainty in exchange (1991, 97).

North, Douglass C. 1991. ―Institutions,‖ Journal of Economic Literature 5(1):97-112.

2. Experiences

Human experiences -- rather than innate biological differences – are the distinguishing factor determining many outcomes and behaviors, at least according to Adam Smith, who notes:

The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education…. (Wealth of Nations, 1776, Chapter I.ii).

Hence, the world of an isolated tribesmen studied by anthropologists is different from the world of London, but the differences observed are largely due to experiences and human constructs, not to differences in human nature or capabilities.

3. Instincts

Having thus identified institutions and experiences as key factors shaping human behaviors, is there anything left for instincts?  Antrosio seems to argue no.  In this, is he passing up the opportunity to flesh out the key interactions between human instincts and institutions?

Paul Zak, for example, a neuroeconomist, is doing fascinating work identifying how the experience of market interaction releases the same kind of hormone (oxytocin) as does breast feeding.  In both cases oxytocin serves as a bonding agent to create long run trust needed for group success.

The release of hormones in certain circumstances is an autonomous reaction—not under one’s direct control.  This is not to say that cultural practices cannot create circumstances that reliably trigger certain instinctual responses.  Anthropologists could be uniting with researchers like Zak to ask: what kind of rites or ceremonies reliable produce certain hormonal responses, and what is the origin or evolutionary purpose of these? 

Further, scientists may have identified a "mirror-neuron" system in the brain that instinctively (again that dreaded word!) allows humans to imagine experiencing what others feel--which is a strong endorsement of Adam Smith's theory of moral sentiments. 

There can be deep criticism of the experimental methods used--which in psychology and economics often relies on 20-year old college students in Western countries--making inter-cultural (or inter-generational) comparisons suspect.  Much work will have to be redone to overcome these biases. 

But understanding the interplay between nature and nurture seems exactly the direction that social scientists should go.  Why would anthropologists wish to avoid being part of this exploration? 

(Thanks again to Jason Antrosio for his comment.)

The Social Animal

Jonathan B. Wight

As noted in Mark's post, for several years New York Times columnist David Brooks has been exploring Adam Smith’s moral sentiments model and the experiments and neuroscience discoveries that relate to it.  He has compiled this into a book: The Social Animal: The Hidden Sources of Love, Character, and Achievement (Random House 2011).

On NPR yesterday Brooks gave a synopsis: 

Over the centuries, zillions of books have been written about how to succeed. But these tales are usually told on the surface level of life. They describe the colleges people get into, the professional skills they acquire, the conscious decisions they make, and the tips and techniques they adopt to build connections and get ahead. These books often focus on an outer definition of success, having to do with IQ, wealth, prestige, and worldly accomplishments.

This story is told one level down. This success story emphasizes the role of the inner mind — the unconscious realm of emotions, intuitions, biases, longings, genetic predispositions, character traits, and social norms. This is the realm where character is formed and street smarts grow.

In short, success is more than technical skills; in some arenas it is mainly the result of emotional cognitive intelligence that can be developed.  It deals with nuance and intuition and character.  It is the sort of intelligence that “Watson” the IMB computer will have a difficult time mastering.

Mirror neurons, Adam Smith, and sympathy (at Knowledge Problem)

Mark D. White

Over at Knowledge Problem, Lynne Kiesling talks about mirror neurons, Adam Smith, and her new paper on both, titled "Mirroring and the Sympathetic Process: Some Implications of Mirror Neuron Research for Sympathy and Institutions in Adam Smith":

In The Theory of Moral Sentiments, Adam Smith asserts that humans have an innate interest in the fortunes of other people and desire for sympathy with others. Recent neuroscience research on mirror neurons has now provided evidence consistent with Smith’s assertion, suggesting that humans have an innate capability to understand the mental states of others at a neural level. This capability provides an important foundation for the Smithian sympathetic process, which has three components: sympathy as a synthesis of empathy with reason-based judgment, an external spectatorial perspective on the actions of others (and one’s own actions), and an innate imaginative capacity that enables an observer to imagine herself in the situation of the agent. This sympathetic process, and the neural framework that the mirror system appears to provide for it, predisposes individuals toward coordination of the expression of their emotions and of their actions. In Smith’s model this decentralized coordination leads to the emergence of social order, bolstered and reinforced by the emergence and evolution of informal and formal institutions grounded in the sympathetic process. This paper presents an argument that a sense of interconnectedness and the shared meaning of actions are essential foundations for the Smithian sympathetic process and the resulting decentralized coordination and emergent social order. The mirror neuron system appears to provide a neural framework for those capabilities.

Journal watch: Cambridge Journal of Economics, 35(2), March 2011

Mark D. White

There are some very interesting articles in the latest issue of the Cambridge Journal of Economics (35/2, March 2011), especially regarding the intersections of economics with psychology and neuroscience:

Sheila C. Dow, "Cognition, market sentiment and financial instability"

The purpose of this paper is to explore the role for psychology within an open-system structural theory of financial instability, and to consider the implications for policy. While behavioural finance has drawn on ideas from psychology in order to explain evidence of behaviour that deviates from the rationality axioms, it is argued that the way in which psychology is framed by this approach is unduly limiting. Minsky's structural theory of financial instability, with its Keynesian (and ultimately Humean) roots, incorporates psychology into the theoretical foundations. In particular, cognition and sentiment are shown to be interconnected rather than separable. It is concluded that the policy implications for addressing the current crisis, while apparently similar between these different approaches, are in fact very different. The underlying theory involves different methodology, and indeed different framing, from behavioural finance. The way in which the crisis is understood is therefore important for policy.

Nuno Martins, "Can neuroscience inform economics? Rationality, emotions and preference formation"

The interaction between neuroscience and economics has gained much prominence recently, leading to the emergence of the new and expanding field of neuroeconomics. I will argue that, although there is much insight to be gained from the interaction between neuroscience and economics, the implications of recent developments in neuroscience and neuroeconomics for the deductivist methodology of mainstream economics, and its emphasis on prediction of events, have not been sufficiently addressed. In fact, much research on neuroeconomics has contributed to the formulation of deductivist models aimed at the prediction of events, when the more fruitful use of neuroscience in economics consists rather in the utilisation of its insights for the development of an explanation of social behaviour that moves beyond the mainstream deductivist methodology. The somatic marker hypothesis, developed by Damasio and others working closely with him, will be suggested as an alternative framework for conceptualising the emergence of social behaviour from a neurobiological substrate.

Patrick Spread, "Situation as determinant of selection and valuation"



This article investigates the proposition that situation is the determinant of selection and valuation. It investigates the ways in which various types of situation dictate selections and valuations and contrasts this process with the marginal model of economic theory. Rational and behavioural approaches to theory are compared. It is suggested that situation-related selection provides a more realistic account of consumer selection than neoclassical theory. The ‘situations’ that govern choice are seen as established through a process of ‘support-bargaining’, whereby individuals adjust their behaviour and opinions to gain the support of those around them. This process forms also the abstract ‘situations’ embodied in theories about the nature of the world and society. The individualism of neoclassical theory is displaced in the process of support-bargaining. The idea of support-bargaining focuses attention on the dependence of neoclassical theory on support to offset its fundamental faults. It is suggested that it be replaced with the theory of support-bargaining and associated situation-related selection.

Beauty and Human Evolution

Jonathan B. Wight

Adam Smith wrote extensively about the role of the instincts in human survival and success.  A focus on instincts, I believe, is needed to comprehend Smith’s conception of the invisible hand (Wight 2007). 

Although Smith did not understand evolution, he did lay out a model of how humans seek order as an instinctual act; a love of order becomes the foundation for what we think is beautiful. Beauty is portrayed in the arts, and serves as a foundation for moral learning (Wight 2006).

I just discovered that the philosopher Denis Dutton has come to very nearly the same conclusions in The Art Instinct: Beauty, Pleasure, and Human Evolution (2010).  Human evolution created an innate desire for beauty that transcends cultural norms.  A lovely TED talk is available here. 

References (sorry, don’t have hard links):

Wight, Jonathan. B. 2006. “Adam Smith’s Ethics and the ‘Noble’ Arts,” Review of Social Economy, Vol. 64(2): 155-180. 

Wight, Jonathan. B. 2007. “The Treatment of Smith’s Invisible Hand,” The Journal of Economic Education 39(3): 341-358.

Wight, Jonathan B. 2009. “Adam Smith on Instincts, Ethics, and Informal Learning: Proximate Mechanisms in Multilevel Selection,” Review of Social Economy 67(1): 95-113.  Reprinted in Mark D. White and Irene van Staveren, eds., Ethics and Economics: New Perspectives (Routledge): pp. 166-184.

A Moral Sentiments Perspective on Health Care

Jonathan B. Wight

Mark raised an important question, “Does health care have special moral status?”  Mark answers in the negative, using strong intellectual arguments.  These arguments are not wrong but I suggest here they are incomplete because they fail to consider important aspects of human nature.

There is a moral sentiments argument for health care that is plainly made by Adam Smith in The Theory of Moral Sentiments (III-3.4):

Smith starts with the famous line: “Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake…” 

Smith says that a person of great humanity in Europe would care very little about this calamity if he were far removed from the suffering.  Hence:  “If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw [those suffering], he will snore with the most profound security over the ruin of a hundred millions of his brethren….” 

But Smith goes on to show that if offered the choice of sacrificing a finger to save those hundred million Chinese, the moral imagination swings actively into gear.  “Human nature startles with horror at the thought,” that if we could easily prevent suffering, that we would sit by and do nothing. 

Hence: “When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble?” (emphasis added).

The bottom line is: The obvious lack of health care in some citizens, when it is widely viewed as resulting in pain that could be easily prevented or ameliorated, produces emotional shock that leads to active engagement to address the problem.  The same is not true for most other products. 

Example:  Let’s consider the case of last summer’s Copiapó mining accident in Chile. A purely intellectual analysis might conclude that Chileans (and others from all over the world) should not have devoted all those massive resources to saving the lives of the 33 trapped miners nearly a half-mile underground.  The miners understood the risks of taking the job, and were presumably paid a premium for that risk. 

Using cost-benefit analysis, one could show fairly easily that the money used to save these miners could save far more life-years used elsewhere.  Yet the reason the miners were saved is because the moral imagination was aroused.  This can be inefficient (it certainly is) and unjust (it likely is)—but it is an integral part of human nature. 

Hence, the pure libertarian view fails to consider the “externality” effect that pain causes on other citizens.  A pure libertarian might say, “Let them suffer—they made their own choices.”  But that runs counter to human biology (our mirror neuron system) as well as to religious injunctions (see the parable of the prodigal son).  Health care really is different because of the moral sentiments it arouses.

Telling It Like It Isn’t: The Cognitive Neuroscience of Confabulation

Mark D. White

Bear with me, this is very relevant, especially to the previous post on behavioral law and economics. Even if it's not, it's very interesting.

The new issue of the Journal of the International Neuropsychological Society (16/6, 2010) (open access until February 28, 2011) features a symposium on the cognitive neurosceicne of confabulation. From the introduction by Asaf Gilboa and Mieke Verfaellie:

Patients who confabulate provide information or act based on information that is obviously false or that is clearly inappropriate for the context of retrieval. The patients are unaware of these falsehoods, which has led Moscovitch (1989) to coin the term “honest lying” to describe this intriguing symptom. Patients with confabulation will sometimes cling to their false beliefs even when confronted with the truth or despite being aware of contradictory evidence. Most neuropsychologists could probably agree with the above description; however, despite over a century of research, much else remains controversial. This symposium provides an overview of current ideas about confabulation and presents novel empirical research on the phenomenon. Several aspects of the controversies that characterize the field are represented in this collection of studies. These include even the most basic question of how confabulation should be defined and how many types of confabulation there are. The studies also address questions regarding the neural basis of confabulation and regarding the neurocognitive mechanisms that may underlie its occurrence. We briefly discuss each of these three issues below.

This is an obvious cognitive dysfunction which behavioral economics (as well as neuroeconomics) is well positioned to look into, especially as regards the provision of health care.

Neuroeconomics: Hype or Hope (Journal of Economic Methodology)

Mark D. White

Today I received the latest issue of the Journal of Economic Methodology (17/2, June 2010), a special issue by guest editors Caterina Marchionni and Jack Vromen entitled "Neuroeconomics: Hype or Hope?" It features articles by Uskali Maki, Paul J. Zak, Jack Vromen, Don Ross, and more, and looks to be a fantastic and balanced look at this relatively new field that promises such new insights into human behavior. Being a skeptic of this approach to economics (largely stemming from my distaste for the reductionism of neuroscience), I'm very eager to delve into the essays in this issue.