Science Shows That Markets Make People Fairer

Are people innately fair-minded or is it learned behavior? A fascinating new study, "Markets, Religion, Community Size, and the Evolution of Fairness and Punishment," that is a big step toward resolving this question is being published today in the journal Science [subscription required]. The researchers find strong evidence that market institutions cause people to treat each other, especially, strangers more fairly. The research is based on the results of behaviorial experiments in 15 different societies which have varying amounts of integration into markets. The study, headed up by University of British Columbia anthropologist Joseph Henrich, finds:

… a crucial ingredient in the rise of more-complex societies was the development of new social norms and informal institutions that are capable of domesticating our innate psychology for life in ever-expanding populations. Larger and more-complex societies prospered and spread to the degree that their norms and institutions effectively sustained successful interaction in ever-widening socioeconomic spheres, well beyond individuals' local networks of kin and long-term relationships. It is these particular norms and their gradual internalization as proximate motivations that recalibrate our innate psychology for life in small-scale societies in a manner that permits successful larger-scale cooperation and exchange in vast communities…

[punishment, signaling, and reputational] … norms can facilitate trust, fairness, and cooperation in a diverse array of interactions, thereby allowing the most productive use of unevenly distributed skills, knowledge, and resources, as well as increasing cooperation in exchange, public goods, and warfare. More-effective norms and institutions can spread among societies by a variety of theoretically and empirically grounded mechanisms, including conquest and assimilation, preferential imitation of more-successful societies, or forwardlooking decision making by leaders or high-status coalitions.

This is exactly the sort of argument that libertarian thinker and economics Nobelist Friedrich Hayek made, especially in his last book, The Fatal Conceit: The Errors of Socialism. Successful societies are those that adopt market norms and they tend over time to outcompete societies organized in more primitive top-down ways. The upshot is that efforts to extract people from markets (e.g., communism, socialism, fascism) encourage them to revert to the innate savagery of dealing fairly only with kin and fellow tribespeople.

As the press release for the study notes:

Members of large-scale, complex human societies have learned to play nice with strangers through the norms that are associated with market participation and world religions, and not solely due to an evolved psychology for cooperation in small groups as previously believed, according to UBC-led research.

In a paper to appear in the March 19 issue of Science, lead author Joe Henrich and a 13-member research team explore the evolutionary underpinnings of human societies.

Fifteen years in the making, the study combines two major, comparative cross-cultural projects that examine how motivations for fairness and punishment influence economic decisions, and how these motivations relate to variables that differ across societies, such as community size, adherence to a world religion and market dependence and exchange.

"Our results contradict previous theories that humans learned to treat strangers fairly by transferring behaviour and norms developed in their actions and attitudes toward family and kin," says Prof. Henrich, an anthropologist who holds the Canada Research Chair in Culture, Cognition and Coevolution and teaches in the UBC Departments of Psychology and Economics.

The interdisciplinary team of anthropologists and economists conducted behavioral experiments with 2,100 respondents from 15 societies, whose communities ranged in size from 20 to 10,000 people. These small-scale societies, from Africa, North and South America, Oceania, New Guinea, and Asia, included hunter-gatherers, marine foragers, pastoralists, horticulturalists, and wage laborers.

"Our findings suggest that the evolution of societal complexity, especially as it has occurred over the last 10 millennia, involved the selective spread of those norms and institutions that best facilitated successful exchange and interaction in socioeconomic spheres well beyond local networks of durable kin and reciprocity-based relationships," says Henrich.

The study measured participants' motivations for fairness and their willingness to punish unfairness in interactions with an anonymous other. These experiments took the form of games played with real money where participants would give a portion of the cash to the second player, someone unknown to them. Some of the games allowed the second player or a third-party participant to pay some of their money to punish the first player for making low offers.

The findings show that people living in small communities lacking market integration or a world religion – absences that likely characterized all societies until about 10,000 years ago – display relatively little concern with fairness or punishing unfairness in transactions involving strangers or anonymous others, a pattern that makes sense given how local norms and institutions actually function in these societies.

Third-party observers, for example, from the smallest-scale, purely face-to-face, communities from Tanzania and Kenya to Amazonia and Oceania, show little willingness to pay to punish those making unfair offers.

"It's a pattern that makes sense given how local norms and institutions actually function in these societies," says Henrich. "Small-scale communities have local norms governing all kinds of interactions, but they often don't have default social norms of dealing with strangers or anonymous others in monetary transactions."

In contrast, the largest societies with the highest levels of market integration and participation in world religions show both a greater willingness to make fair offers and the most willingness to punish unfair offers.

I reported on earlier research in this area in my 2002 column, "Do Markets Make People More Generous?"