[Talking about how the development of market capitalism has relied on the cultivation of trust between actors who do not know each other personally]

“Now i realise how improbable this sounds. Markets, we know, foster selfishness and greed, not trust and fairness. But even if you find the history unconvincing, there is this to consider: in the late 1990s, under the supervision of [Samuel] Bowles, twelve field researchers – including eleven anthropologists and one economist – went into fifteen “small-scale” societies (essentially small tribes that were, to varying degreesm self-contained) and got people to play the kinds of games in which experimental economics specialise. The societies included three that dependedon foraging for survival, six that used slash-and-burn techniques, four nomadic herding groups, and two small agricultural societies. The three gmaes the people were asked to play were the three standards of behavioural economics: the ultimatum game (which you just read about [if you were reading the book]), the public goods game (in which if everyone contributes, everyone goes away significantly better off, while if only a few people contribute, then the others can free ride on their effort), and the dictator game, which is similar to the ultimatum game except that the responder can’t say no to the proposer’s offer. The idea behind all these games is that they can be played in a purely rational manner, in which case the player protects himself against loss but forgoes the possibility of mutual gain. Or they can be played in a prosocial manner, which is what most people do.

In any case, what the researchers found was that in every single society there was significant deviation from the purely rational strategy. But the deviations were not all in the same direction, so there were significant differences between the cultures. What was remarkable about the study, though, was this: the higher the degree to which a culture was integrated with the market, the greater the level of prosociality. People from more market-orientated societies made higher offers in the dicatator game and the ultimatum game, cooperator in the public goods game, and exhibited strong reciprocity when they had the chance.

From James Suroweikcki. The Wisdom of Crowds – Why the Many Are Smarter Than the Few (2004) [which i commented on in ignorance here], p.126. Refs for this study are:

Joseph Henrich et al. “Economic Man in Cross-Cultural Perspective: Behavioral Experiments in Fifteen Small-Scale Societies”. Originally a Sante Fe Institute paper but then became a BBS paper.

Henrich et al. (2001). In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies. American Economic Review 91, 73-78. PDF here

What i love about the behavioral economics paradigms is that prosocial behaviour validates itself. Once you drop the narrow, economic, one-shot, sense of the word ‘rational’, it is rational to cooperate in these games because it is rational to cooperate if you think others will cooperate and it is rational for them to cooperate if they think you will.

Surowiecki also discusses [p.106] Vernon Smith, who showed experimentally that a free market of real people with imperfect imformation etc could still be near-optimal in efficiency terms. Apparently a major economics journal wasn’t interested in the result because it had already been demonstrated that markets were efficient theoretically. On the same page Surowiecki aknowledges the caveat that economic efficiency tells us nothing about the social cost of market operation