DISSERTATION PRESENTATION

Altruism and Economics

Neoclassical Economics

Primary assumptions (The self interest hypothesis)Humans are selfish agents who only act to

maximise their utility. Utility in this case refers to material utility.

But….

The self-interest hypothesis has been systematically and empirically refuted by numerous studies.

Empirical results demonstrate unambiguously that many people are not only concerned with wealth maximisation, but that they also factor in social preferences such as fairness, altruism and reciprocity in their economic decision making process.

Focused on altruism.

Why has the neoclassical theory persisted?

Considerable success in the prediction of economic outcomes and agent behaviour in competitive markets.

However, there is a need to adopt a theory that can account for behaviour outside competitive markets.

Implications

The need to adopt a model that will not only account for altruism but will also account for why people act altruistically in some scenarios and not in others.

A model in which people have different degrees of altruism, but are also concerned about their social reputation and self-respect

What is altruism?

An act is altruistic when it decreases the fitness of the altruistic agent and increases the fitness of the recipient of the act.

Pure altruism: A person is purely altruistic when he derives the value and utility of acts of altruism solely from the increase in fitness that act brings to others.

Impure altruism: An impure altruist is an agent who derives the value of altruistic acts solely from factors like warm glow effects, reputational value and the fact that such acts might be a stepping stone to favourable outcomes.

Mixed altruism

Explanations for the existence of pro social behaviour

Altruism to kin is not considered here. Rather, I will consider the case for altruistic

behaviour towards strangers.

Evolution fosters altruism

This might seem counterintuitive initially, but on closer examination, it is clear that evolution not only permits but enhances both pure and impure altruistic tendencies and the output of humans.

Why will the act of decreasing one’s fitness to enhance the fitness of another be permitted by natural selection?

Because, it produces improvements in pareto efficiency since non altruists might tend to show altruistic behaviour towards altruists as this might lead to better economic outcomes.

Example

Altruist give non altruist $5. Because of this $5, non altruist is able to earn

20$. Non altruist decides to give altruist $10 to

foster good relations in the event that he requires a loan again.

In this case, the altruist’s income increased by $5 while the non altruist’s income increased by $10.

Both parties were made better off without either being worse off.

The 2-way interaction between altruism and economics

Effect of economics on altruismEffect of altruism on economics

Effect of economics on altruism

Does the introduction of a market economy to certain markets (eg. Blood donation) lead to the crowding out of altruism?

Why should the introduction of a private market to something charitable like organ donation/blood transplant decrease the altruism embodied in it. Can it be that the attachment of a price tag to something decreases its intrinsic value.

Implications

Certain goods should not be regulated through market exchange.

Some goods belong to different spheres of valuation.

Effect of altruism on economics

Does an altruistic economy create more wealth?Pareto and Smith have argued that efficiency

can only be achieved in a perfectly competitive market operated by egoists.

Presence of altruism leads to inefficiency due to the informational constraint, while in an egoistic economy, prices serve as an indicator for demand, when people give, there is no such indicator, people are willing to give but do not know who and how much to give.

Can the informational constraint be resolved?

The end