The Economics of Greed, Love, Groups and Networks

I launched Paul Frijters and Gigi Foster's new book last night, titled Economic Theory of Greed, Love, Groups and Networks.

Speech launching Economic Theory of Greed, Love, Groups and Networks by Paul Frijters (with Gigi Foster)

Andrew Leigh
Federal Member for Fraser

Australian National University
2 May 2013

If you want a quick way to assess a piece of academic writing, try starting at the end. A skim through the reference list can tell you a great deal:

  • Is it long, or so short you get the impression the author thinks they’re the only one to have considered the problem?

  • Does the author’s own name dominate the reference list, or is there a sense that other people have sensible things to say too?

  • Are the references all by people from the author’s country, or are they international?

  • Are the references all in the same discipline, or are other disciplines cited too?

  • How old are the references? (Frighteningly, the typical reference in an economics article is just five years old)

So, what does starting at the back tell you about Paul and Gigi’s book? They’re extensive, global and interdisciplinary – like the authors themselves. You’ll see references to Fox’s Behaviour of Wolves, Dogs and Related Canids; to a Sherlock Holmes novel; to Bourquin’s ‘The Zulu Military Organisation and the Challenge of 1879’; to Dr Seuss; and to Besse’s 1910 classic Hermits.

Indeed, the book betrays little sense of the authors’ national origins, and only a few pointers that they both work at Australian universities. The book contains more references to China than Australia, and only hints like the reference to the ‘Solow-Swan growth model’ give it away. Indeed, the only clue that the lead author is Dutch is that it contains over a dozen references to sex.

Speaking of Paul, I see that there is some uncertainty in the book as to how he has been treated by the profession. Is this the man who has been ‘labouring for 20 years mostly without acknowledgement’ (p.xii), or the man whose work ‘features regularly in the global media’, and was the second-ever winner of the Economics Society of Australia’s medal for the best Australian economist under 40 (back cover)?

Something of the same tension relates to the book itself. Is this the book that ‘heralds a new dawn in social science’ (p.xiii) or is it the case that ‘with one exception, none of the specific observations or individual theoretical arguments in this book is new’ (p6)? Is this groundbreaking, or a gentle seasonal tilling the soil?

I’m going with groundbreaking, perhaps because I learned some fascinating things from this book. Let me share a few of my favourites:

  • In experiments in the mid-1940s, René Spitz followed infants who were raised in a foundling home, where seven infants were allocated to each nurse, and sheets prevented them from seeing out of their cribs. By age two, only one in ten of them could walk and talk. (p98)

  • The output collapse in Eastern Europe in the 1990s can be partly explained by a collapse in people’s social ties (p257), exacerbated by a refusal to hand over control to local party bosses and bureaucrats (p264).

  • If a life events – like being fired or promoted – happens to your spouse, then it has about 1/10th the impact on your mental health than if it happened to you (p105)

  • The ‘golden rule’ of ‘do unto others’ can be found in surprisingly similar form in the teachings of Buddhism, Christianity, Confucianism, Hinduism, Islam and Judaism.

  • In a 1968 experiment conducted the day after Martin Luther King’s assassination, third grade teacher Jane Elliott divided her class of white children into brown eyed and blue eyed. She watched as they formed strong bonds, and eagerly discriminated against one another. (p171)

  • On average, workers spend at least one-seventh of their time on ‘information seeking’ activities (p237)

  • 12 percent of Chinese men – but only 2 percent of women – are Chinese Communist Party members (p288)

  • If social norms are the main driver of littering behaviour, then Clean Up Australia Day is likely to be more effective in discouraging littering than higher spot fines (p323)

I also read some outrageous sentences, which reminded me of the differences between my former profession (where scandalous statements are encouraged) and my current one (where it is not so rewarded). Indeed at some points you feel as thought Paul and Gigi doing their best to provoke the reader. Try some of these for example:

  • ‘From a simple cost-benefit point of view, then, self-interested individuals in advanced economies should be paying much less in taxes than they are.’ (p20)

  • ‘Women are attracted to power’ (p126)

  • ‘I would expect the poor to be loath to band together as a group of “losers” and instead to become more fervent members of religious groups, patriotic groups, and other large reciprocal groups.’ (p212)

  • ‘Australia has no comparative advantage in banana production, and … from an efficiency perspective it should not therefore have a banana industry in the first place’ (p318)

  • ‘A politician who says he loves his country is merely wasting time on irrelevant and even nonsensical statements.’ (p325)

Not to mention the fact that Paul describes his colleagues with the well-known Marxist appellation ‘fellow travellers’.

Paul and Gigi draw on a wealth of prior research, but they are essentially economists. Both are very comfortable with mathematical models. Yet this doesn’t stop them making fun of their own discipline, saying at one point ‘Much like an army sergeant successfully makes a platoon sergeant out of a selfish recruit by physical exhaustion, so too does the complexity of economic theory force clever yet ambitious young students to accept the group beliefs inherent in it.’ (p431)

This book is heavily informed by the advances in behavioural economics over recent decades. As they point out, the key challenge for behavioural economics now is not to keep identifying quirks (that way lies psychology). Instead, it is to attempt to build a coherent model that incorporates the new behavioural insights.

These insights are rich indeed (ten years ago, Thomas Schelling once told me that he thought behavioural economics had already contributed more to our discipline than game theory). But Paul and Gigi cite Drew Fudenberg, who argues that behavioural economics must ‘devote more attention to the foundations of its models, and develop unified explanations for a wider range of phenomena’ (p222).

* * *

At the core of this book is love. As those of you familiar with the economics of the family will know, we often put love in the error term. Indeed, I myself have written down models in which love is implicitly an independent and identically distributed random variable.

But Paul and Gigi want to know about love itself. They define love as ‘caring about [a] thing or person regardless of any observable reward’ (p74). [i] Their notion of love overlaps with what we might also call loyalty, and so covers parents and soldiers, sports fans and honest judges. They argue that love is a form of submission, and contrast it with greed, which they describe as a form of dominance.

Going further still, they contend that the ‘main game’ of life is a struggle between love and greed (p307). In the Frijters-Foster scoreboard, love wins in the short-term, greed wins in the medium term, but that the ‘thrust of history’ is towards love winning in the long term.

This is heady stuff.

The book is also incisive on the value of groups. As the authors point out, ‘No individual alone can produce procreation, defence, knowledge or insurance in meaningful amounts.’ (p198-9). Perhaps more persuasively to an Australian audience, they also say ‘No individual worker, machine, customer or supplier on his own would have produced or consumed beer.’ (p274)

We can drink to that.

* * *

This is a big, bold, ambitious book. As social science has grown increasingly complex, people have naturally come to focus on narrower fields. Most of us don’t have brains big enough to add to the literature on optimal income taxation, let alone to link it to psychology.

In the breadth of its subject matter and the sweeping nature of its claims, it has more in common with Adam Smith’s Theory of Moral Sentiments than the typical article written by an academic economist these days. This also means that it has the feel of a very good dinner party conversation with Paul and Gigi. And that’s no bad thing.

I notice also that the book refers to another work – cited as ‘Frijters and Foster 2013’, but tantalisingly omitted from the reference list. I eagerly await its arrival.

So, a final question: is this a book about greed or love?

In the former camp, we have the fact that entry tonight was contingent on purchasing a copy of the book. (Is that greed, or merely a convenient pricing model? I’ll leave you to decide.) But like most Australian authors, I expect that their hourly wage for working on this book is likely to be measured in cents rather than dollars.

Moreover, this project perfectly fits their definition of love. The production of this book demonstrates a care for us – the readers – regardless of any observable reward.

I thank them for it, and am pleased to launch, Paul Frijters and Gigi Foster’s Economic Theory of Greed, Love, Groups and Networks.

[i] The authors relate their formal model to the identity model of Akerlof and Kranton. But I regard their model of greed and love (set out in the book’s technical appendix) as better cast than Akerlof and Kranton’s, since it does not simply add a term into the utility function.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.