Economics – the source of our financial woes?
Growing inequality, disappearing middle class, poverty. Financial crises and ever-increasing debts. Corruption, money laundering, corporate tax avoidance, corporate misconduct in general. Future energy and food insecurity. These are just a few results of a broad-brush google search for modern economic problems. Put together, the list sounds like a doomsday scenario. Surely we’re doing something to prevent it, and improve our earthly situation? Not necessarily – our economic and financial elites might simply not feel compassionate enough. Why is that?
The economics of greed
We all have mental models – also called schemas – of the elements of the world around us. Schemas help to conceptualise the world, learn better, and adapt to situations. For instance, we all have a mental model of what you do in a restaurant, which can be crudely applied to any restaurant in the world.
Schemas about economics and money are tightly linked to rationality, efficiency, and self-interest. Those structures are automatically activated in response to the concepts of economics, money, business and so on. Once they are activated, they are prioritised, and change the way we behave – for the worse.
A number of studies in psychology over the years show that exposure to economic and money schemas lead us to behave selfishly, and with less compassion. For example, people automatically behave more competitively and greedily when exposed to economics in general, or to social dilemmas involving economic decisions. Merely activating the concept of money leads to a significant reduction in prosocial behaviour, and to dampened empathy. Even boardroom-related objects, such as briefcases, make study participants less cooperative in interactions, and more selfish in an Ultimatum Game.
Now what if that’s your job? Arguably, if economic schemas and related structures are activated often, they can become stable. In a game of prisoner’s dilemma, where two participants can either testify to receive a lenient sentence, or betray the other and walk free or risk a severe one, economists tend to act with self-interest (and betray) more than non-economists. In the same study, economic professors were also less likely to donate to charity than professors from other disciplines.
Lopsided brains, icy hearts and shrunken souls
This could be making the world of finance, economics and business geared less towards compassion and cooperation, and more towards self-interest and competitiveness – and instinctively we all know that. While it might be the driving force behind competition in free markets, it could also be detrimental to the welfare of 99% of the world. After all, the decisions that directly affect our bank balances, rents, consumption, you name it, are all made by money-primed men and women in grand offices, or – in the words of Harold Leavitt (1989) – “critters with lopsided brains, icy hearts, and shrunken souls”.
But let’s not lose all hope. The slight shift towards more communal living, social networks, and sharing economy we are witnessing today (especially among the millennials) could pick up pace. In time, it might strengthen the schemas of sharing enough to compete with the negative outcomes of economic schemas – and reverse the trend back towards cooperation and community.
For the interested:
Frank, R. H., Gilovich, T., & Regan, D. T. (1993). Does studying economics inhibit cooperation? The Journal of Economic Perspectives, 7, 159-171.
Molinsky, A. L., Grant, A. M., & Margolis, J. D. (2012). The bedside manner of homo economicus: How and why priming an economic schema reduces compassion. Organizational Behavior and Human Decision Processes, 119, 27-37.
Vohs, K. D., Mead, N. L., & Goode, M. R. (2008). Merely activating the concept of money changes personal and interpersonal behavior. Current Directions in Psychological Science, 17(3), 208-212.
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