Sunday, 21 March 2010

Trade and fairness

The Science Fair website has any interesting article about new research into why we are fair to strangers we'll never see again. The article points out that fairness makes possible the large, interconnected, market-based societies that have grown up mostly in the last 10,000 years. Two rival theories have been put forward as to why: one suggests that we're fair to strangers because we mistakenly treat them like kin, the other that social conditioning makes us this way. In a recent edition of the journal Science, new evidence is presented that comes down solidly on the side of social conditioning. The researchers found that people who live in small groups and who grow or catch most of their own food don't really care that much whether they're fair or unfair to strangers, or whether a stranger is punished for being unfair. But people who trade for a larger percentage of their daily food and therefore live in more integrated, larger social groups, are much more likely to be fair to strangers.

The Science Fair article continues
"We think its was really a lot of cultural learning, and it took 10,000 years of cultural evolution to get to the point where you have a well-run society with billions of people," says Joe Henrich, an evolutionary anthropologist at the University of British Columbia in Canada, the paper's lead author.
It also appears that religion plays a part as well. People who follow tribal religions are also more focused on their kin and friends and don't care too much about fairness with strangers. People who followed the two world religions in the areas studied, Christianity or Islam, were more likely to be fair to strangers and to want to punish unfairness.

The article goes on to say
One thing this means is that the assumption that markets run because people are selfish doesn't quite work. Actually, Henrich believes, markets run best because people have some motivation towards fairness and equality. "If you have fully selfish agents, markets don't work because people can't trust each other."
Actually economists don't argue that markets work because people are selfish but rather that markets work despite people being selfish. It is normally said that trust and fairness do help markets to work, they are very cheap ways of regulating commerce, but even with selfish people markets can lead to socially good outcomes. You don't have to have feelings of fairness towards those you trade with, although it does help.

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