The Economics of the Moral Compass

Why do some people consider it a profound moral wrong for government or individuals to legally recognize a gay or lesbian marriage while others feel, just as profoundly, that to deny the legal right and benefits of traditional marriage to a deeply-committed gay or lesbian couple is a violation of basic human rights, simple human decency, and a moral wrong? How is it that we can come to such diametrically opposed answers to so many of the same moral questions? When we describe something as being “morally wrong,” exactly who (or what) is being wronged? Is a path through the minefield of the deeply-held beliefs of our fellow human beings even possible? My intent is not to tell anyone what to think, but I do intend to present some ways of thinking about the problems and specific elements that must be part of whatever answers we may come to.

Two modern sciences are especially relevant in trying to answer the questions posed above, both of which have roots that arguably go back to the Ancient Greeks and, during the Enlightenment, were called moral philosophy and political economy. In hindsight, it is not a coincidence that the Scottish philosopher, Adam Smith, wrote the seminal works that essentially founded the disciplines that today we call moral psychology and economics, The Theory of Moral Sentiments in 1759 and An Inquiry into the Nature and Causes of the Wealth of Nations in 1776. Just how tightly intertwined moral issues are with economic issues in modern societies is easily seen in the annual battle over the federal budget in the U.S. where economic and budgetary priorities are often dictated by the moral/ethical priorities of differing constituencies or pressure groups. The issue of sex education in public schools is a good example; do we spend the money on "abstinence only" programs or do we spend it on programs that aim to prevent unwanted teen pregnancies and the spread of STDs. Where we, both individually and collectively, come down on that one is determined largely by our moral reasoning around human sexuality. I will get to such issues in time, but to make my point, I must first discuss a sub-field of both economics (a social science) and psychology (a behavioral science) that has only been around since the 1960s called behavioral economics.

Economists going back to Adam Smith assumed that economic actors–business owners, consumers, investors, etc.–were rational actors pursuing their individual aims in the objectively most efficient way possible. Subsequent generations of economists made this assumption explicit by defining "man" in a strictly economic context as an agent that seeks only to maximize his store of wealth by the most effective and rational means possible. As national economies grew and became ever more inter-connected throughout the 19th century, the amount of economic data available to economists grew by leaps and bounds. In parallel with this, advanced analytic mathematical techniques were developed that allowed the creation of mathematical models of economic systems where all actors–buyers, sellers, producers, suppliers, etc.–have the same information as the other parties and, in that context, act rationally in pursuit of their individual ends. The quality or robustness of any mathematical model of a system, whether of the gravitationally-bound Earth-Moon system, the climate, or an economy is judged by comparing the performance of the model against what has happened in the past, will happen in the future, in controlled experiments, or a combination of all of these. As economists in the first half of the 20th century applied ever more sophisticated models to the wealth of economic data available to them, the abstractions of human beings as rational actors grew increasingly untenable as their models often diverged from what it seems “economic actors” actually do in the real world.

Of the nations that fought on either side in World War II, not only was the United States the only one come out of it with their economy intact, but it flourished beyond anyone's most optimistic imaginings in the years and decades afterwards. In this economic boom, the number of roughly equivalent types of consumer goods, e.g. vacuums, toasters, televisions, radios, automobiles, etc., that people could choose from grew faster than consumers could keep up with. It was essential that manufacturers and retailers—and the advertising and marketing firms they retained—understood how consumers think and how best to pitch their products so consumers would choose theirs over the available alternatives. Over the last 50+ years, advertising and marketing firms have taken advantage of insights into human decision-making and cognition from the behavioral sciences.

One reason the rational actor model fails is that most of our decisions, even the big ones, like one’s college major or who to marry¹, are the result of a heuristic process, such as common sense, rules of thumb, and educated guesses in which our emotions, rather than any sort of rational analysis. Usually, heuristic processes are not rationally coherent, but they do have the advantage of a much lower cognitive load—and are often the most emotionally palatable in that moment. In other cases, as shown in a study published in the Journal of Consumer Research in 2000², the authors describe an experiment that sought to find out if customers’ choices of “free” beer samples in a college town brewpub were influenced by others in their party. In the first variation of the experiment (I’ll call it “A”), customers verbally indicated their choices within the hearing of others at the table. Then, after having a chance to taste their selection, they were presented with a card asking them what their selection was and what they thought of it. In the next variation (“B”), customers indicated their order on a card—essentially a secret ballot, then, just as in the first iteration, customers were asked to rate their enjoyment of their choice.

When the results of both variations of the experiment were tallied, researchers found that when everyone else at the table could hear their order, few, if any, chose the same beer as any of the others. However, in the “secret ballot” variation, there was a great deal more clustering of customers choices. When the scientists looked at customers’ post-tasting feedback, for round “A” they found that those whose orders were among the last to be taken were less enthusiastic with their “choice.” In round B, when each customer was unaware of what others ordered they had a much higher opinion of their choice. The researchers noted that these findings were exactly what one would expect to find when behaviors and choices are dominated by a need for uniquenessⁱ, and in this context is called “Consumers' Need for Uniqueness (CNFU)”—and yes, in the world of consumer research it really is a “thing.”ⁱⁱ Our culture places a high value on individual uniqueness and independence of mind and in social situations—especially when we are hoping to impress others with our independence of mind—this need can often outweigh our own preferences.

Some critics have made the accusation that much of the recent research in the cognitive and behavioral sciences—and by extension, the researchers—is aiding and abetting in the cynical—I’ll be blunt—manipulation of consumer-citizensⁱⁱⁱ (i.e. us), especially in the application of such research to the field of marketing.^iv While I personally do not subscribe to such conspiracy theories, researchers in social psychology and behavioral economics are often attached to universities’ schools of Management and/or Business, but I think Hanlon's razor³ more than adequately accounts for this. It is also worth mentioning that a substantial share of current research—and thus researchers—are focused on helping professionals of all kinds, as well as consumer-citizens, make better decisions by pointing out the blind spots, biases, and fallacies we are all prone to. Even though we are not the rational economic actors that economists since Adam Smith believed we are, all is not lost. Irrational we may be, but our irrationality is not random, it falls into discernible patterns that we as individuals can be aware of, and empowered by the revelations of behavioral economics—and with practice and self-discipline—we can learn to make better economic and financial decisions and choices.

Next time, as promised, we will segue to the field of moral psychology and see how our moral reasoning can go awry.

Works Cited

1. Ariely, D. ‘Ch. 1-The Truth about Relativity’ Predict. Irrational. p.10; (Harper: New York, NY, 2008).

2. Ariely, D. & Levav, J. ‘Sequential Choice in Group Settings: Taking the Road Less Traveled and Less Enjoyed’ J. Consum. Res. 27, p.279–290; (Dec. 2000). at <http://search.ebscohost.com/login.aspx?direct=true&db=keh&AN=3938690&site=ehost-live>23 Jun. 2017

3. ‘Hanlon’s Razor’ Wikipedia. (27 Apr. 2017). at <https://en.wikipedia.org/w/index.php?title=Hanlon%27s_razor&oldid=777543724>27 Jun. 2017

Endnotes

i Individuals’ “need for uniqueness” is a well-validated aspect of human psychology (see: https://www.google.com/webhp?hl=en&sa=X&ved=0ahUKEwjh_sazrd7UAhXJ4IMKHVSeA8QQPAgD#hl=en&q=need+for+uniqueness+theory&spf=1498578169874). The scenario of a woman being distressed at the thought of showing up to a party in the same dress as someone else may be more than a mere comedic cliché.


ii  http://www.sjdm.org/dmidi/Consumers%27_Need_for_Uniqueness.html


iii Apparently, the hyphenated word “consumer–citizens” raises the hackles of some folks, but the reason I decided to go with it is that so often, the same biases, fallacies, and blind spots that affect our behavior as consumers are the same ones that influence our politics. A question that has arisen in the last 35 or so years that illustrates this commonality of the two spheres of modern life is: “Why so many working-class, less well-off folks vote Republican, against their own economic self-interest?”


iv See: https://books.google.com/books?id=IeRWCgAAQBAJ&printsec=frontcover&dq=isbn:9781583671610&hl=en&sa=X&ved=0ahUKEwiKi-z4ttTUAhWs5YMKHY-GB8QQ6AEIJjAA#v=onepage&q=greatest%20concerted%20attempt&f=false, p.276-7

Initially started at https://en.wikipedia.org/wiki/Criticism_of_advertising#Influence, then look for Robert McChesney.