Do Markets Make People More Generous?

A recent study of 15 small-scale societies suggests yes.

Karl Marx crystallized a still-common distaste for markets in his Communist Manifesto when he thundered that the bourgeoisie and the markets they thrive in had "left remaining no other nexus between man and man than naked self-interest, than callous 'cash payment.'" Marx's idea–still held dear to the hearts of anti-market protesters outside World Trade Organization and World Economic Forum meetings–is that markets destroy all fellow-feeling, leaving humans cold, cruel calculators.

We denizens of market societies might feel in our bones that it just isn't so. And there's some new social science on our side. A recent study investigating how members of 15 different small-scale societies handle several economic games provides intriguing evidence that the more closely a society is integrated into markets, the more its members exhibit such laudable values as fairness and sharing. The societies investigated by economists and anthropologists organized as the MacArthur Foundation's Norms and Preferences Network ranged from hunter-gatherers to slash-and-burn horticulturalists on five continents.

To probe the attitudes held by members of these societies toward sharing and fairness, the researchers used several experimental economics games. One of these is called the Ultimatum Game. In it, researchers provisionally allot a divisible pie ($10, say) to one player. This player, the "proposer," offers a portion of the pie to the second subject, the "responder." The responder, who knows both the offer and the total amount of the pie, chooses to either accept or reject the offer. If the responder accepts, he or she gets the amount offered and the proposer gets the remainder. If the responder rejects the offer, neither player receives anything.

Rationally speaking, one might expect that the proposer would offer as little as possible ($1, say) and that the responder would never reject an offer because, after all, one dollar is better than nothing. However, experimental economists have shown in hundreds of experiments in nearly two dozen countries that subjects rarely act in that purely self-interested way. In fact, a very robust research finding is that in modern societies, 50 percent is the most frequent amount offered by proposers, and responders commonly reject offers under one-third. After examining a number of different explanations, most researchers are convinced that those choices are based on a sense of what the players regard as fair. Since these experiments are usually conducted using undergraduates, the Preference Network researchers wondered if the results would hold true across societies. Hence, this new study.

The experimenters offered participants the equivalent of a day or two's wages in their societies. The researchers found that the average offers from proposers ranged from a low of 26 percent to a high of 58 percent and that the most frequent (modal) offers ranged from 15 percent to 50 percent. Some groups, such as the Machiguenga and Quichua in South America and the Hadza in Africa, offered around 25 percent of the pie. The most frequent offer from Machiguenga proposers was 15 percent. Even more interestingly, only one Machiguenga responder rejected such low offers.

In a strict sense, uneducated Machiguenga Ultimatum Game players are more economically rational than most undergraduates in developed countries. On the other hand, researchers found that proposers in two societies in New Guinea, the Au and the Gnau, often made "hyper fair" offers of more than 50 percent. Strangely, such hyper fair offers were often rejected. The Preference Network researchers conclude that this unusual result occurs because, in both societies, accepting a gift strongly obligates the recipient to reciprocate at a later time and in a way chosen by the initial gift-giver.

The researchers used four aspects to rank each society: (1) payoffs to cooperation, (2) market integration, (3) anonymity, and (4) privacy. The payoffs-to-cooperation aspect looks at how important cooperation is in earning a living in each society. Market integration weighs the importance of trading in daily life. Anonymity is concerned with how frequently members of a society meet with strangers. And privacy describes the ability of members of a society to hide away goods and keep secrets. The researchers conclude, "differences between societies in market integration and the importance of cooperation explain a substantial portion of the behavioral variation between groups."

Societies like the Machiguenga and Hadza that deal with few outsiders and are not economically dependent on people other than close kin are the stingiest players. The Orma in Africa and the Achuar in South America, who are more integrated into markets, tend to play more like undergraduate students. They are more generous and more likely to punish stingy proposers. The Lamalera of Indonesia, who rely on extensive cooperation among non-kin to coordinate complicated whale hunts, are the least stingy players, offering an average of 58 percent. "The higher the degree of market integration and the higher the payoffs of cooperation, the greater the level of prosociality found in experimental games," according to the researchers.

What are the larger implications of this research? "I would say societies that use markets extensively develop a culture of cooperation, fairness, and respect for the individual," says Herbert Gintis, a self-described former Marxist economist at the University of Massachusetts. Gintis is co-director of the Preference Network team.

Gintis speculates that markets bring strangers into contact on a regular basis, encouraging people to develop more concern for others beyond their family and immediate neighbors. Instead of parochialism, being integrated into markets encourages a spirit of ecumenism. "Extensive market interactions may accustom individuals to the idea that interactions with strangers may be mutually beneficial," the researchers theorize. "By contrast, those who do not customarily deal with strangers in mutually advantageous ways may be more likely to treat anonymous interactions as hostile, threatening, or occasions for opportunistic pursuit of self-interest."

In other words, societies that don't have regular contact with strangers tend to behave more like classical kin-selection evolutionary theory predicts they will: Members are altruistic toward their own kin and relatively hostile to strangers.

Markets teach participants the habits of cooperation, trust, and fairness. These lessons are apparently carried over even into situations like the Ultimatum Game, in which the incentive structure encourages participants to be completely selfish. The lessons taught by market interactions are so powerful that many people will willingly forego benefits in order to punish those whom they feel have treated them unfairly. They will, for example, reject stingy offers in the Ultimatum Game. This insight has important consequences. "One of the central points is that the only way for prosociality to work is to have good punishment systems," says Gintis. In other words, in order to get people to behave, a society needs both carrots and sticks.

Gintis' team's research is dispelling the myth of happy generous savages who are corrupted by contact with markets and modern societies. It turns out that the more they participate in markets, the more generous and filled with apparent fellow-feeling they tend to be.

Based on his research, Gintis believes that history traces humanity's rise from tribal selfishness to more cosmopolitan liberality. "Market societies give rise to more egalitarianism and movements toward democracy, civil liberties, and civil rights," Gintis points out. "Market societies and democratic societies are practically co-extensive." And they are more generous too.