Wednesday, December 19, 2012

Does Economics Lead To Lying?

There are a great deal of stereotypes surrounding certain fields of study at the university level.  Liberal arts or English majors are often mocked for their poor job prospects. Engineers are commonly considered to be socially inept. But have you heard that economists may be liars?

Given the recent global financial troubles including recent LIBOR scandals and liquidity crises dating back to 2008 many people won't consider this news novel or shocking.  However, Perez and Spiegelman at the University of Madrid are the first I've heard of to put the idea to a scientific test. Their experiment put students of different majors to a simple test. One participant viewed a screen which randomly showed either a blue or green circle. They then reported the color of the circle to another participant. Regardless of the actual color of the circle the first participant received 15 euros for saying that the circle was green and 14 euros if they reported it as blue.  Irrespective of any other factors the second participant received 10 euros.

The problem facing the first participant is simple. If they are completely honest they receive lesser total payments but maintain their integrity. If they report the circle as green when it is actually blue they lie but receive more monetary compensation.  The second participant's reward is unchanged in either case and thus experimenters assume that altruism will not play a role.

Unsurprisingly most people went with a profit maximizing strategy. Most of the remainder went with an honest strategy with a handful of people choosing a profit minimizing strategy and an always lie strategy. The percentage breakdown of results was approximately 51%, 39%, 8% and 2%.

So what demographic factors were correlated with an increased chance of lying? Surprisingly, more religious (self reported) participants were more likely to lie. More politically conservative participants were more likely to lie than more liberal participants and women were slightly more honest than men. Differences between these groups however were relatively minor.

When researchers divided participants by major very clear patterns began to emerge. In particular economics, business and engineering majors lied nearly twice as much as humanities, law and science majors. While their are easy jokes to be made about the fact that future lawyers were generally more honest than average there are also some interesting questions to be taken from this data.  In particular does the optimization oriented training of economics lead students towards dishonesty when no one is harmed by their deception or do naturally deceptive people gravitate towards economics.

Fortunately, Perez and Spiegelman anticipated this question.  Further analysis of their data indicated that economists and business majors generally become more dishonest while studying their chosen discipline rather than choosing those disciplines because they appeal to dishonest persons. Their data also found connections between the expectations participants had of others tendency to lie and participants tendency to lie.  Economics and Business students consistently rated others as more likely to lie than participants from other majors.  This phenomenon is most likely a result of the tendency of economics to view people as purely rational and self interested.  Thus Homo Economicus  begets artificially high expectations of others lying rate which then begets participant's increased lying rates.

It's not surprising that a discipline as optimization oriented as economics trains students to in fact optimize. An interesting follow up to this study would be to see if economists are more likely to maximize total reward for a group or maximize their own personal reward.  My feeling is that economists would generally work for the greatest good rather than their own self interest.

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