February 26, 2014 Your Ancestors, Your Fate

Your Ancestors, Your Fate

By Gregory Clark
February 21, 2014, NYTimes Website. Opinionator                              Click here for a pdf version

Inequality of income and wealth has risen in America since the 1970s, yet a large-scale research study recently found that social mobility hadn’t changed much during that time. How can that be?

The study, by researchers at Harvard and Berkeley, tells only part of the story. It may be true that mobility hasn’t slowed — but, more to the point, mobility has always been slow.

When you look across centuries, and at social status broadly measured — not just income and wealth, but also occupation, education and longevity — social mobility is much slower than many of us believe, or want to believe. This is true in Sweden, a social welfare state; England, where industrial capitalism was born; the United States, one of the most heterogeneous societies in history; and India, a fairly new democracy hobbled by the legacy of caste. Capitalism has not led to pervasive, rapid mobility. Nor have democratization, mass public education, the decline of nepotism, redistributive taxation, the emancipation of women, or even, as in China, socialist revolution.

To a striking extent, your overall life chances can be predicted not just from your parents’ status but also from your great-great-great-grandparents’. The recent study suggests that 10 percent of variation in income can be predicted based on your parents’ earnings. In contrast, my colleagues and I estimate that 50 to 60 percent of variation in overall status is determined by your lineage. The fortunes of high-status families inexorably fall, and those of low-status families rise, toward the average — what social scientists call “regression to the mean” — but the process can take 10 to 15 generations (300 to 450 years), much longer than most social scientists have estimated in the past.

We came to these conclusions after examining reams of data on surnames, a surprisingly strong indicator of social status, in eight countries — Chile, China, England, India, Japan, South Korea, Sweden and the United States — going back centuries. Across all of them, rare or distinctive surnames associated with elite families many generations ago are still disproportionately represented among today’s elites.

Does this imply that individuals have no control over their life outcomes? No. In modern meritocratic societies, success still depends on individual effort. Our findings suggest, however, that the compulsion to strive, the talent to prosper and the ability to overcome failure are strongly inherited. We can’t know for certain what the mechanism of that inheritance is, though we know that genetics plays a surprisingly strong role. Alternative explanations that are in vogue — cultural traits, family economic resources, social networks — don’t hold up to scrutiny.

Because our findings run against the intuition that modernity, and in particular capitalism, has eroded the impact of ancestry on a person’s life chances, I need to explain how we arrived at them.

Let’s start with Sweden, which — like Denmark, Finland, Iceland and Norway — is one of the world’s most equal societies in terms of income. To our surprise, we found that social mobility in Sweden today was no greater than in Britain or the United States today — or even Sweden in the 18th century.

Sweden still has a nobility. Those nobles no longer hold de facto political power, but their family records are stored by the Riddarhuset (House of Nobility), a society created in 1626. We estimate that about 56,000 Swedes hold rare surnames associated with the three historic tiers of nobles. (Variations on the names of the unfortunate Rosencrantz and Guildenstern of “Hamlet” are on the list.)

Another elite group are Swedes whose ancestors — a rising educated class of clerics, scholars, merchants — Latinized their surnames in the 17th and 18th centuries (like the father of the botanist Carolus Linnaeus). Adopting elite names was limited by law in Sweden in 1901, so a vast majority of people holding them are descended from prominent families.

Given the egalitarian nature of Swedish society, one would expect that people with these elite surnames should be no better off than other Swedes. That isn’t so. In a sample of six Stockholm- area municipalities in 2008, rich and poor, we found that the average taxable income of people with noble names was 44 percent higher than that of people with the common surname Andersson. Those with Latinized names had average taxable incomes 27 percent higher than those named Andersson.

Surnames of titled nobles (counts and barons) are represented in the register of the Swedish Bar Association at six times the rate they occur in the general population (three times the rate, for untitled-noble and Latinized surnames). The same goes for Swedish doctors. Among those who completed master’s theses at Uppsala University from 2000 to 2012, Swedes with elite surnames were overrepresented by 60 to 80 percent compared with those with the common surname prefixes Lund- and Berg-.


Over centuries, there is movement toward the mean, but it is slow. In three of the Royal Academies of Sweden, half of the members from 1740 to 1769 held one of the elite surnames in our sample; by 2010, only 4 percent did — but these surnames were held by just 0.7 percent of all Swedes, so they were still strongly overrepresented. In short, nearly 100 years of social democratic policies in Sweden, while creating a very egalitarian society, have failed to accelerate social mobility.

What if we go back even further in time — to medieval England?

We estimate that one-tenth of all surnames in contemporary England can be traced to the occupation of a medieval ancestor — names like Smith (the most common surname in the United States, England and Australia), Baker, Butler, Carter, Chamberlain, Cook, Shepherd, Stewart and Wright. Tax records suggest that most surnames became heritable by 1300.

We compared the frequency of these common surnames in the population as a whole against elite groups, as drawn from several sources, including membership rolls at Oxford and Cambridge, dating as far back as 1170, and probate records from 1384 onward.

We found that late medieval England was no less mobile than modern England — contrary to the common assumption of a static feudal order. It took just seven generations for the successful descendants of illiterate village artisans of 1300 to be incorporated fully into the educated elite of 1500 — that is, the frequency of their names in the Oxbridge rolls reached the level around where it is today. By 1620, according to probate records, people with names like Butcher and Baker had nearly as much wealth as people with high-status surnames like Rochester and Radcliffe.

Take Chaucer. A commoner by birth — his name probably comes from the French word for shoemaker — he became a courtier, a diplomat and a member of Parliament, and his great-great- grandson was even briefly considered heir to the throne during the reign of Richard III.

Of course, mobility, in medieval times as now, worked both ways. Just as Chaucer’s progeny prospered, other previously well-off families declined. The medieval noble surname Cholmondeley was, by the 19th century, held by a good number of farm laborers.

In any generation, happy accidents (including extraordinary talent) will produce new high-status families. It is impossible to predict which particular families are likely to experience such boosts. What is predictable is what the path to elite status will look like, and the path back to the mean. Both happen at a very slow pace.

For all the creative destruction unleashed by capitalism, the industrial revolution did not accelerate mobility. Looking at 181 rare surnames held by the wealthiest 15 percent of English and Welsh people in the mid-19th century — to be clear, these were not the same elite surnames as in the medieval era — we found that people with these surnames who died between 1999 and 2012 were more than three times as wealthy as the average person.

If your surname is rare, and someone with that surname attended Oxford or Cambridge around 1800, your odds of being enrolled at those universities are nearly four times greater than the average person. This slowness of mobility has persisted despite a vast expansion in public

financing for secondary and university education, and the adoption of much more open and meritocratic admissions at both schools.

We selected a sampling of high- and low-status American surnames. The elite ones were held by descendants of Ivy League alumni who graduated by 1850, exceptionally wealthy people with rare surnames in 1923-24 (when public inspection of income-tax payments was legal) and Ashkenazi Jews. The low-status names were associated with black Americans whose ancestors most likely arrived as slaves, and the descendants of French colonists in North America before 1763.

We chose only surnames closely correlated with these subgroups — for example, Rabinowitz for American Jews, and Washington for black Americans.

We used two indicators of social status: the American Medical Association’s directory of physicians and registries of licensed attorneys, along with their dates of registration, in 25 states, covering 74 percent of the population.

In the early to mid-20th century we found the expected regression toward the mean for all of these groups, except for Jews and blacks — which reflects the reality of quotas that had barred Jews from many elite schools, and of racial segregation, which was not fully outlawed until the 1960s.

Starting in the 1970s, Jews began, over all, a decline in social status, while blacks began a corresponding rise, at least as measured by the doctors’ directory. But both trends are very slow. At the current rate, for example, it will be 300 years before Ashkenazi Jews cease to be overrepresented among American doctors, and even 200 years from now the descendants of enslaved African-Americans will still be underrepresented.

Family names tell you, for better or worse, a lot: The average life span of an American with the typically Jewish surname Katz is 80.2 years, compared with 64.6 years for those with the surname Begay (or Begaye), which is strongly associated with Native Americans. Heberts, whites of New France descent, live on average three years less than Dohertys, whites of Irish descent.

But to be clear, we found no evidence that certain racial groups innately did better than others. Very high-status groups in America include Ashkenazi Jews, Egyptian Copts, Iranian Muslims, Indian Hindus and Christians, and West Africans. The descendants of French Canadian settlers don’t suffer racial discrimination, but their upward mobility, like that of blacks, has been slow.

Chen (a common Chinese surname) is of higher status than Churchill. Appiah (a Ghanaian surname) is higher than Olson (or Olsen), a common white surname of average status. Very little information about status can be surmised by the most common American surnames — the top five are Smith, Johnson, Williams, Brown and Jones, which all originated in England — because they are held by a mix of whites and blacks.

Our findings were replicated in Chile, India, Japan, South Korea and, surprisingly, China, which stands out as a demonstration of the resilience of status — even after a Communist revolution nearly unparalleled in its ferocity, class hatred and mass displacement.

Hundreds of thousands of relatively prosperous mainland Chinese fled to Taiwan with the Nationalists in the late 1940s. Under Communist agrarian reform, as much as 43 percent of all land was seized and redistributed. The Cultural Revolution of 1966-76 saw purges of scholars and other former elites and “class enemies.”

In China, there are only about 4,000 surnames; the 100 most common are held by nearly 85 percent of the population. Yet we were able to identify 13 rare surnames that were exceptionally overrepresented among successful candidates in imperial examinations in the 19th century. Remarkably, holders of these 13 surnames are disproportionately found now among professors and students at elite universities, government officials, and heads of corporate boards. Social mobility in the Communist era has accelerated, but by very little. Mao failed.

These findings may surprise two groups that are often politically opposed: those who believe that certain “cultures” are higher-achieving than others and those who attribute success to family resources and social networks.

Culture is a nebulous category and it can’t explain the constant regression of family status — from the top and the bottom. High-status social groups in America are astonishingly diverse. There are representatives from nearly every major religious and ethnic group in the world — except for the group that led to the argument for culture as the foundation of social success: white European Protestants. Muslims are low-status in much of India and Europe, but Iranian Muslims are among the most elite of all groups in America.

Family resources and social networks are not irrelevant. Evidence has been found that programs from early childhood education to socioeconomic and racial classroom integration can yield lasting benefits for poor children. But the potential of such programs to alter the overall rate of social mobility in any major way is low. The societies that invest the most in helping disadvantaged children, like the Nordic countries, have produced absolute, commendable benefits for these children, but they have not changed their relative social position.

The notion of genetic transmission of “social competence” — some mysterious mix of drive and ability — may unsettle us. But studies of adoption, in some ways the most dramatic of social interventions, support this view. A number of studies of adopted children in the United States and Nordic countries show convincingly that their life chances are more strongly predicted from their biological parents than their adoptive families. In America, for example, the I.Q. of adopted children correlates with their adoptive parents’ when they are young, but the correlation is close to zero by adulthood. There is a low correlation between the incomes and educational attainment of adopted children and those of their adoptive parents.

These studies, along with studies of correlations across various types of siblings (identical twins, fraternal twins, half siblings) suggest that genetics is the main carrier of social status.

If we are right that nature predominates over nurture, and explains the low rate of social mobility, is that inherently a tragedy? It depends on your point of view.

The idea that low-status ancestors might keep someone down many generations later runs against most people’s notions of fairness. But at the same time, the large investments made by the super-

elite in their kids — like those of the Manhattan hedge-funders who spend a fortune on preschool — are of no avail in preventing long-run downward mobility.

Our findings do suggest that intermarriage among people of different strata will raise mobility over time. India, we found, has exceptionally low mobility in part because religion and caste have barred intermarriage. As long as mating is assortative — partners are of similar social status, regardless of ethnic, national or religious background — social mobility will remain low.

As the political theorist John Rawls suggested in his landmark work “A Theory of
Justice” (1971), innate differences in talent and drive mean that, to create a fair society, the disadvantages of low social status should be limited. We are not suggesting that the fact of slow mobility means that policies to lift up the lives of the disadvantaged are for naught — quite the opposite. Sweden is, for the less well off, a better place to live than the United States, and that is a good thing. And opportunities for people to flourish to the best of their abilities are essential.

Large-scale, rapid social mobility is impossible to legislate. What governments can do is ameliorate the effects of life’s inherent unfairness. Where we will fall within the social spectrum is largely fated at birth. Given that fact, we have to decide how much reward, or punishment, should be attached to what is ultimately fickle and arbitrary, the lottery of your lineage.

Gregory Clark is a professor of economics at the University of California, Davis, and the author of “The Son Also Rises: Surnames and the History of Social Mobility.”

A version of this article appears in print on 02/23/2014, on page SR1 of the NewYork edition with the headline: Your Ancestors, Your Fate
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William J. Keith

Macomb, Illinois Although it may be slow, if our children, whether we are prosperous or poor, are likely to eventually return to the average, it seems like the most productive thing we can do to better their lot is to focus on improving the lot of the average.

Orazio New York 3 days ago
Regarding the inference of genetic transmission as measured by surnames I would like to point out that the genetic inheritance is reduced by 50% with each succeeding generation. Thus, a high status person today received 50% of his/her genes from each parent, 25% from each grandparent, 12.5% from each great grandparent, 6.25% from each great, great and 3.125% from each great, great, great-grandparent. Or in other words, each of us has 2 parents, 4 grandparents, 8 great grandparents, 16 great, greats and 32 great, great, great grandparents. However, one’s surname is transmitted intact and undivided from only one of these 32 great, great, greats to whom the individual is 96.875% genetically unrelated. Thus, it seems more plausible to me that admission committees, professional societies and society in general are influenced by surnames that are recognizable and associated with higher social status – think legacy admissions to Ivy League universities. The slow decay of social status may simply reflect the time necessary for surname recognizability to fade from memory.
SP Singapore Yesterday

This article pushes an odd theory – it equates surnames with genetic identity. This makes no sense – I got only 25% of my DNA from my father’s father, and only 0.1% of my DNA from my male-lineage ancestor ten steps up the paternal line. In other words, surname continuity does not imply genetic identity – the resemblance fades very rapidly! I don’t think the author understands this point.
Also, if Gregory Clark believes that blacks in America compete on a level playing field, he is completely deluded – one wonders which planet he was on when he wrote this piece.
Lastly, the effects of poverty on brain development, metabolic health and other traits important for social success have all been very well documented. Perhaps Mr Clark got carried away by his research into surnames – he seems to have completely ignored every other factor.
volutes Switzerland
This article presents an interesting statistical/historical analysis and then jumps to a conclusion that the reason must be predominantly because of genetical factors.
The evasive dismissal in the article of family resources and social networks as an explanation of the situation described is extraordinarily short. The hint that racial classroom integration programs did not change the relative social position of their recipients does not explain much: millions of dollars for starting a company, intimate life and business connections with wealthy people and acquired social patterns for fending life challenges are not something that can just be taught in one classroom program.
Therefore, I wonder whether the authors are following a hidden agenda.
Doug R. New Jersey 2 days ago
The 1% in America have rigged the game by creating a tax structure that gives them all the advantages & the rest of us all the cost. The most prosperous families have advantages in education & connections. You rigged your game by selecting names by a subjective criteria & looking for results to prove your point. You begin with elite names in Sweden citing the Royal Academy membership where most elite surnames have declined from 50% 250 years ago to 4% today. Doesn’t that prove the opposite point. Sweden has really only been a democratic society since the end of WW 1 less than a hundred years ago. That’s a pretty quick decline in status for those elite families in that time.

May I suggest you study orphans with elite names & without. No family to help, or to pay for better educational opportunities, no nepotism. That might give more objective results.
Changed and Changed Back San Francisco CA I am a woman. I bear my father’s family name but I am also the child of my mother who bore the family name of her father. Should my social status be aligned with my father and paternal grandfather? how about my son who bears the family name of his father? Failing to address the issue the relationship of naming to gender is egregious although using the data available may be perfectly acceptable as a sampling technique.


Texancan Ranchotex
Great study but I would like to add two factors: 1) the assets and connections for the upper class provide their children a superior (and unfair) advantage for generations to come 2) same for recognition and justice from the Courts In addition, children of lower class will have to work harder
jcb Portland, OR
Demonstrating by surname the persistence of “genetic” traits influencing social mobility is so scattershot that it confuses. For example, by taking changes in professional affiliation as a measure of social mobility (in, e.g., Sweden) it ignores the persistence of paternal models that determine the occupation of sons (but not daughters). There is an overwhelming survivors bias toward the male, primo-genetic line. Lawyer fathers, lawyer sons.
The analysis lacks any comparative standard of low-, medium-, or high- social mobility. Or of the long-, medium-, or short- period over which it is supposed to occur. And it confuses social mobility (rate and degree of change) with persistence of inequality (difference in wealth).
It’s unclear whether, e.g., a comparison of high status surnames in Swedish Royal Academies in the 18th and 21st century revealing a decline of 92% (from 50% to 4%) signals mobility, or why “mobility” is measured by overrepresentation in current Swedish population (do they mean “inequality”?)– or whether the 92% rise in non-elite academy surnames is high upward mobility. (The same problem with the Chinese example: “disproportion” is not mobility.)
But the larger problem is simply resorting to “genes” as an explanatory catch-all after eliminating (to their satisfaction) other explanations. We’ve reached the degree of precision in genetic research where a reader is entitled to electron-microscopic images in an appendix: Which genes– on which chromosomes?
rjnyc NYC
To take just one of many examples of the inadequacy of this author’s methodology, look at how he tests mobility in the U.S. A serious test would measure the mobility of the descendants of high status Anglo Americans against that of the descendants of low status Anglo Americans, so that the results would not be corrupted by the influence of racial prejudice–a factor that surely has limited mobility for a certain minority but not for all. This author however does not perform such a comparison; rather, he compares the mobility of Anglo Americans to that of African Americans. Moreover, he treats the initial status of Ashkenazi Jews as if it were no different from the status of the highest status Anglo Americans–a laughable assumption, and also fails to consider changes to the status of American Jews resulting from the massive immigration in the late 19th Century, which brought a population of Jews unlike the one here before that. Either the author’s methodology is utterly inept, or else the relevant details have not been included, so that the author has essentially provided nothing to the reader except unsupported assertions.

A Cranky Alumna Ohio Yesterday
I was an untraditional student at an elite college in the 70s, by virtue of gender, economic status, geography, and family background. After watching the lifetime career trajectories of my peers and, eventually, our children, I’ve become increasingly convinced that elite status is maintained more by a narrowly circumscribed world view than by intelligence, work ethic, social skills, or even startup funds or family connections.
Those of us from diverse backgrounds face a nearly infinite array of life choices: we can listen to our hearts, follow our dreams, and use our intelligence and our education to pursue the life that’s right for us, unfettered, for the most part, by status issues.
The options of our high-status peers are, by contrast, tightly circumscribed: it’s simply not acceptable to be “just” a teacher or “just” a nurse or “just” a photographer or a researcher or a social worker. So only the truly rebellious make those choices. Everyone else does their part to maintain the family status, but we shouldn’t be surprised when the lawyer (who dreamed of coaching basketball) and the banker (who wanted to write children’s stories) prove again and again that they’re only in it for the money.
LR NYC Yesterday
This is completely illogical and I can’t believe the NYT published this irresponsible and pernicious argument for a genetic component to success. The author treats it as axiomatic that surnames can be seen tracing gene inheritance. But surnames pass only from father to son to son to son (until very recently). As they are inherited, the sons’ genes are mixed with innumerable other ancestors’, equally. One’s number of ancestors doubles with each generation. You have about 1/32 of each of your great-great-grandparents’ genomes, regardless of whose last name you have. You have a 1 out of 32 chance of having great-great-grandpa Rockefeller’s “success gene,” and so do all of his descendants who DON’T have his last name (i.e., who are descended from his daughters). So the notion that we can assume that these last names reliably track the inheritance of a success gene is absurd.
The author states that genes must be responsible for his findings, because neither culture nor inherited social advantages explain those findings. Well, just because you’ve ruled out A and B doesn’t mean that C is correct. You may need to come up with a D. You may need to look again at A or B. Etc. Then, the author cites evidence of adoption studies, which only measure the relation of one generation (adopted child) to previous generation (biological parents). This has nothing to do with proving his assertion of a genetic component influencing status across 15 generations. In sum, preposterous.
Bruce Crossan Lebanon, OR
So the authors out with an idea and then searched and searched for measurements that would support (at least in their minds) their conclusions. I realize that finding suitable data to analyze, for the question you wish to research, can be challenging; however, the wide divergence of apples and oranges comparisons brings the conclusions into doubt.


Did the authors look at why people have the last names that they do; in any countries other than England (Smith etc). How did people who lacked surnames, like emancipated slaves choose their last names? Could Washington or Jefferson be a hint of a cultural influence? How about the Schmitts that came to America and changed their names to Smith, so that they blended into the country they moved to. Doesn’t the fact that the WASPs in North America wiped out most of the indigenous population have a cultural effect on Native American surnames? Did a lot of rich Irish doctors and businessmen come to America because there was social unrest that threatened to take away their wealth? No?: How about the Iranians? Seems to me that where their from and why they came could have a large effect on rare last names that are identified with status.

I can find alternate explanations for every surmise that the authors make, in countries/cultures I’m familiar with. So I’m sorry, the arguments presented are not convincing. bc
RTB Washington, DC

So the authors leap from the observation that social status changes three or four generations, which is more slowly than our political myths would suggest, to the conclusion that “genetics” is the most likely cause. This is a rather curious conclusion given that three or four generations is a nanosecond in terms of significant genetic change among humans.
The much better conclusion is that high status families are extraordinarily good at preserving their advantages regardless of the political system in which they exist.
This book appears to be one of a growing number arguing for the inherent superiority of some people over others while strenuously avoiding terms like superiority. The claim that some are born to lead and rule and others to be ruled over is as old as human civilization. This book is merely a restatement of that tiresome idea.
ADRIAN San Francisco, CA
Oh, but the article points you away from mobility altogether:
“As the political theorist John Rawls suggested in his landmark work “A Theory of
Justice” (1971), innate differences in talent and drive mean that, to create a fair society, the disadvantages of low social status should be limited. We are not suggesting that the fact of slow mobility means that policies to lift up the lives of the disadvantaged are for naught — quite the opposite. Sweden is, for the less well off, a better place to live than the United States, and that is a good thing. And opportunities for people to flourish to the best of their abilities are essential.” !
So what can governments do? Never mind mobility! But organically promote opportunities for people to flourish to the best of their abilities, however great or not so great such abilities may be.
Jerry Beilinson New York, NY Yesterday


How bizarre to include Ashkenazi Jews. In other case, the author looks at a concrete marker of past elite status: noble rank, admission to Oxford, slavery. Then, he just assumes that Jews were elites in early 20th century America without presenting evidence. In reality, the millions of Jews flooding the U.S. from Eastern Europe at that time tended to arrive in poverty, and find work in sweatshops, as pushcart peddlers, ice-delivery men, and so on. Newspaper columnists at the time complained about Jews because they were considered poor, dirty, uneducated, etc. This is my ancestry, and none of my grandparents had more than an 8th grade education. From what I’ve read and my parents tell me, that was typical. In the Jewish neighborhoods of the Lower East Side and Brooklyn, no one of their generation knew any adult with a college education, or anyone who worked in a white-collar setting of any kind. Among my parents’ generation, who became adults in the 1950s, typical professions included teaching, the civil service, doctors, and accountants: Expressly areas where ancestry could be overcome by earning a degree and taking a test. (Those accomplishments were made possible by essentially free tuition through New York City’s public universities and the GI bill.) Certainly, there were a few prominent Jews in the United States in the 19th century, just as their were a few prominent Irish Catholics and even African-Americans. But they weren’t at all typical.

Justice Holmes Charleston Yesterday
Nothing like an article that tells us that what we thought was bad isn’t so we can just stop complaining and allow the rich to continue getting richer. As a product of the American dream I can tell you that social and economic mobility was once the norm. Working class parents saw their children graduate high school, college and law school. They saw them succeed in their chosen fields and become economically comfortable and stable. Then, the corporations and the really, really rich woke up. They realized that those upwardly mobile lawyers, teachers, CPAs and others were making changes, protecting unions, consumers and holding the government agencies accountable. well, we couldn’t have that. It was time to bring the hammer down. Crush the unions that helped the middle class grow; disarm the concumers and the government agencies that regulated the corporations and banks and make sure working class and middle class kids could not longer afford college and while you are at it tell them that college is just an elitist romp so they will thank you for it.
Has the deck always been stacked agains the working class in this and other countries? Of course. But the US was different, working class kids had a shot. Now they don’t and minority kids well it hasn’t gotten easier for them either. But thanks to articles like this we should all just be quite because well its always been this way. I say malarkey.


February 12, 2014 Morals

Morals and Markets

Armin Falk,  Nora Szech –  Abstract    Editor’s Summary   Click here for a pdf version

The possibility that market interaction may erode moral values is a long-standing, but controversial, hypothesis in the social sciences, ethics, and philosophy. To date, empirical evidence on decay of moral values through market interaction has been scarce. We present controlled experimental evidence on how market interaction changes how human subjects value harm and damage done to third parties. In the experiment, subjects decide between either saving the life of a mouse or receiving money. We compare individual decisions to those made in a bilateral and a multilateral market. In both markets, the willingness to kill the mouse is substantially higher than in individual decisions. Furthermore, in the multilateral market, prices for life deteriorate tremendously. In contrast, for morally neutral consumption choices, differences between institutions are small.

It is a pervasive feature of market interaction to impose costs on uninvolved third parties. Producing and trading goods often creates negative externalities, such as detrimental working conditions for workers, possibly associated with reduced life expectancy, child labor, suffering of animals, or environmental damage. People who participate in markets by buying such goods often seem to act against their own moral standards. The risk of moral decay through market interaction has been discussed in politics, ethics, and in the social sciences (1–7). Observing that with technological progress and the increasing ubiquity of market ideas, markets continue to enter further and further into domains of our social life (8), political philosopher Michael Sandel has recently reemphasized this critique, stating that “we have to ask where markets belong—and where they don’t. And we can’t answer this question without deliberating about the meaning and purpose of goods, and the values that should govern them” (9). The relationship between markets and values has received attention both in theoretical work (10, 11) and in empirical cross-sectional studies that compare the level of prosociality across different market societies and cultures (12–14). Identifying a causal effect of markets on values is difficult with cross-sectional or historical data, however, simply because institutions and values coevolve. Moreover, comparing values across societies implies comparing a set of multiple institutions at the same time with unknown and possibly interacting features. For example, markets are observed in very different legal systems, which renders the isolation of the effects of “markets” across societies extremely difficult. For these reasons, we implemented a controlled environment by randomly assigning subjects to different institutions. This allows identifying a causal effect of institutions on outcomes. Our evidence shows that market interaction causally affects the willingness to accept severe, negative consequences for a third party.

The Mouse Paradigm

Our paradigm for studying moral values and detrimental effects on third parties is the trade-off between a mouse life and money. In our main treatments, human subjects faced the decision to either receive no money and to save the life of a mouse, or to earn money and to accept the killing of a mouse. This paradigm involves a drastic and irreversible decision and is well suited for studying moral conflict: Although the content of morality is culturally determined and time and space contingent, there exists a basic consensus that harming others in an unjustified and intentional way is considered as immoral (15).

In all treatments of the experiment (16), which was approved by the Ethics Committee of the University of Bonn, subjects were explicitly informed about the consequences of their decision. They knew that their mouse was a young and healthy mouse, which in case it survived would in expectation live for about 2 years in an appropriate, enriched environment, jointly with a few other mice. For illustrative purposes, we presented to subjects the picture of a mouse on an instruction screen (fig. S1). The instructions informed subjects explicitly about the killing process, in case they decided to kill their mouse. The killing process was also shown in a short video that was presented to subjects (17).

The mice used in the experiment were so-called “surplus” mice: They were bred for animal experiments, but turned out to be unsuited for study, e.g., because some specific gene manipulation had failed. They were perfectly healthy, but keeping them alive would have been costly. Although it was true that the mice would live or be killed based on the decisions of subjects in the experiment, the default for this population of mice was to be killed, as is common practice in laboratories conducting animal experiments. Subjects were informed explicitly about the default in a postexperimental debriefing (18). Mice that were chosen to survive because of subjects’ decisions were purchased by the experimenters and kept in an appropriate, enriched environment. Thus, these mice survived precisely as stated in the instructions. As a consequence of our experiment, many mice that would otherwise have been killed right away were allowed to live for roughly 2 years.

Markets are institutions where sellers and buyers interact and can trade items. Trade occurs whenever a seller and a buyer agree on a price. For our main result, we analyzed three different conditions (see table S1): an individual treatment in which subjects decided between the life of their mouse and a given monetary amount, a bilateral trading market, and a multilateral trading market. Treatment assignment was random. The individual treatment serves as a benchmark and comparison standard for decisions made in markets. The bilateral market is the most basic form of a market situation with one buyer and one seller bargaining over prices in order to trade. In the multilateral market, many buyers and sellers potentially trade with each other. In comparing decisions from the individual treatment to decisions made in markets, we abstract away from the question of whether a good is priced at all. In all treatments, subjects could exchange life for money.

In the individual treatment, subjects faced a simple binary choice, labeled option A and option B. Option A implied that the mouse would survive and that the subject would receive no money. Option B implied the killing of the mouse and receiving 10 euros. This treatment informs us about the fraction of subjects who are willing to kill the mouse for 10 euros. One hundred and twenty-four subjects participated in this treatment.

To study markets, we implemented the so-called double auction market institution, which is widely used in economics to investigate market outcomes [for an overview, see (19)]. In the bilateral double auction market, one seller and one buyer bargained over killing a mouse for a total gain of 20 euros that the two parties could split up between themselves. The seller was endowed with a mouse. As in the individual treatment, he or she was explicitly told that the “life of the mouse is entrusted to your care.” Bargaining over the 20 euros was conducted during a continuous auction, i.e., buyer and seller could make as many price offers as they liked (16). If a buyer and a seller agreed on a trade, the buyer received 20 euros minus the price agreed upon. The seller received the price. In addition, the mouse of the seller was killed, reflecting a situation in which trade takes place to the detriment of a third party. If a seller or a buyer did not trade, earnings for both were zero and the mouse survived. A seller in the bilateral market was in the same situation as a subject in the individual treatment in that he or she could either refuse a monetary amount or accept a monetary amount and kill a mouse. Subjects were told that no market participant was forced to make price offers or to accept an offer, that their mouse would be killed only if a trade occurred, and that the mouse would survive if they decided not to trade. There were 10 trading periods. Seventy-two subjects participated in this treatment.

The multilateral double auction market treatment was exactly like the bilateral market treatment, except that in this condition seven buyers and nine sellers bargained over prices (16). The nine sellers were all endowed with one mouse each. Subjects on both sides of the market could make as many price offers as they liked. All subjects could accept a price offer from the other side of the market. Available price offers of both market sides were always shown on a screen. Once a price offer of a trader was accepted, trade occurred implying the killing of a mouse. Payoff consequences were identical to those of the bilateral market. There were 10 periods. We ran six sessions with a total of 96 subjects.

To allow for further analyses, we ran several additional treatments (for details see below). In the individual price-list treatment, we offered subjects a menu of prices to elicit the monetary amount needed to pay subjects to make them indifferent between killing and receiving money. To establish a benchmark in terms of how markets affect morally neutral values, we conducted an individual price-list treatment and a multilateral market treatment analogously to the mouse treatments, but for a consumption good. Finally, we ran two further control treatments based on the individual treatment. In sum, we ran nine treatments with a total of 787 subjects.

Our key hypothesis was that markets would display a tendency to erode moral standards, relative to individual decision-making, because of three essential features of market interaction. First, in markets, it takes two people who agree on trading to complete a trade, implying that responsibility and feelings of guilt may be shared and thus diminished (20, 21). Second, market interaction reveals social information about prevailing norms. Observing others trading and ignoring moral standards may make the pursuit of self-interest ethically permissible, leading further individuals to engage in trade. In addition, the mere existence of a market may provide social information about the appropriateness of trading, rendering the killing of mice more allowable (22, 23). Third, markets provide a strong framing and focus on materialistic aspects such as bargaining, negotiation, and competition, and may divert attention from possible adverse consequences and moral implications of trading (11, 24). In contrast to our market conditions, subjects in the individual condition do not interact with other subjects and therefore receive no social information, do not share responsibility if they trade, and are not exposed to a market framing.

These three features are present in all markets, even in simple bilateral markets. In addition, in the multilateral market with its presence of competing sellers, the notion of being pivotal may be diffused as well (25); unless a seller cares specifically about his own mouse, he may argue that if he does not trade his mouse with some buyer, another seller may conclude the trade with that buyer, selling and killing his mouse. This common feature of markets may make subjects feel less responsible, rendering it more difficult to sustain moral values even if values per se remain unchanged. In sum, we therefore expected a higher willingness to kill in the bilateral and the multilateral market compared to individual decision-making. In addition, owing to notions of being less pivotal, the killing rate was expected to be even higher in the multilateral than in the bilateral market. We further hypothesized that the decay of moral values would also be reflected in prices, such that mice would be killed for lower prices in the market treatments compared to the individual treatments. Finally, we studied markets where the cost of trading involves opportunity costs of consumption rather than moral costs. For these morally neutral consumption good markets, we hypothesized no decline of values through market interaction.

Markets Erode Moral Values

Figure 1 shows our main result. Given our interest in studying the effects of institutions on moral valuations in a given population, we compare the fractions of subjects who are willing to agree to the killing in the individual treatment, the bilateral market, and the multilateral market for monetary amounts below or equal to 10 euros (26). For both markets, fractions are calculated with the lowest prices accepted by sellers in actually concluded trades. We focus on lowest accepted prices to approximate from above sellers’ reservation values for killing a mouse.

Fig. 1.  Market interaction erodes moral values, relative to individually stated preferences: fractions of subjects who are willing to kill a mouse for monetary amounts below or equal to 10 euros in the individual treatment, the bilateral market, and the multilateral market. For both markets, fractions are calculated using the lowest prices accepted by sellers in actually concluded trades. Error bars show standard deviations at the means. Differences between the individual treatment and markets are significant at the 1% level. Individual versus bilateral market: P < 0.01, n = 160 (two-sample test of proportions). Individual versus multilateral market: P < 0.01, n = 178 (two-sample test of proportions). The difference between markets is not statistically significant.

In the individual decision treatment, 45.9% of subjects were willing to kill their mouse for 10 euros. In contrast, 72.2% of sellers in the bilateral market were willing to trade for prices below or equal to 10 euros. The increase in willingness to kill relative to the individual condition is statistically significant (P < 0.01, n = 160, two-sample test of proportions) (16). In the multilateral market, the willingness to kill was also substantially higher compared to the individual condition: 75.9% of sellers were willing to kill a mouse for less than or equal to 10 euros (P < 0.01, n = 178, two-sample test of proportions). This is actually a lower bound because in a given period, only seven of the nine sellers could trade at all.

To provide a more detailed understanding of the effects of markets on morals, we implemented an additional individual treatment, the individual price-list treatment. This treatment informs us about how much money subjects would need to receive in the individual condition to yield a similarly high killing rate as in markets. In this treatment, subjects faced an increasing price-list, which is a standard procedure for eliciting individual values and preferences in an incentive-compatible way. As in the individual treatment, subjects were shown a list of binary alternatives, labeled option A and option B. Option A implied that the mouse would survive and that the subject would receive no money. Option A was the same in each decision row. Option B implied the killing of the mouse and the receipt of a monetary amount. Monetary amounts associated with killing the mouse increased from row to row, starting from 2.50 up to 50 euros, in steps of 2.50. Subjects were informed that one choice situation would be randomly selected after all choices had been made. The choice in this situation would be implemented, including payment consequences and, in case option B had been chosen, the killing of the mouse. The switching point from option A to option B informs us about the minimum monetary amount that makes a subject willing to kill the mouse, i.e., the moral value attached to the life of the mouse. The earlier a subject switches, the less he or she values the life of his or her mouse relative to earning money. Despite differences in elicitation procedures, including randomness of the selected choice, the fractions of subjects willing to kill for 10 euros or less were almost identical between the individual and the individual price-list treatment (45.9 versus 42.7% of subjects, respectively; P = 0.636, n = 220, two-sample test of proportions) (fig. S2). Ninety-six subjects participated in the individual price-list treatment.

As shown above, in the bilateral trading market, 72.2% of sellers were willing to trade for prices below or equal to 10 euros. In comparison, in the individual price-list treatment, a similarly high willingness to kill (71.9%) was reached only for monetary amounts of 47.50 euros. Thus, it is necessary for subjects to receive considerably more money in the individual than in the market condition to observe a comparable willingness to kill. Turning to the multilateral market, a similar picture emerges. Here the killing rate was 75.9% for prices below or equal to 10 euros. A similar rate in the individual price-list treatment would require paying subjects monetary amounts above 50 euros. In line with our hypothesis, actual prices in the multilateral market were much lower than 10 euros, however (Fig. 2). The overall average price level was only 5.1 euros (27). In the individual price-list condition, the fraction of subjects who were willing to kill the mouse for 5 euros was only 34.4%. Thus, for prices that actually evolved in the multilateral market, the willingness to kill was much higher than in the individual price-list condition.

Fig. 2.  Evolution of trading prices in the multilateral mouse market and the multilateral coupon market (means over all trades). The downward trend in prices in the mouse market is significant (P = 0.006, n = 297, random effects regression). No significant price trend is observed in the coupon market (P = 0.319, n = 233, random effects regression).

The price-list treatment can also be used to illustrate the decay in valuations in terms of the predicted fraction of trade (16). Assuming that valuations in the price-list condition and the bilateral market were the same, we can use valuations from the price list to simulate the predicted trade probability in the bilateral market. The simulated trade fraction is 25.9%, which is in sharp contrast to the actually observed trade frequency of 47.7% in the bilateral market (P < 0.01, n = 168, two-sample test of proportions). This provides a further confirmation that valuations for mice have declined considerably.

Moral Versus Morally Neutral Values

The final step of the analysis compares decay in moral versus morally neutral values. We hypothesized that for moral values the decay is more pronounced than for private consumption values, where trading involves opportunity costs of consumption rather than costs to third parties. To test this, we ran two additional treatments, identical to the multilateral market and the individual price-list treatment but using consumption goods. The good we considered was a coupon that could be used to buy products at the merchandising shop of the University of Bonn (16). In both treatments, the price-list and the market treatment, subjects were endowed with a coupon. In case they accepted a monetary amount (in the price-list condition) or decided to trade (in the market condition), they had to return their coupon, which was then invalidated. Parameters, instructions, and procedural details were identical to the mouse treatments. Thus, consequences were similar in the mouse and the coupon treatments, except that in the latter, the cost of trading involved opportunity costs of consumption rather than moral costs, i.e., loss and invalidation of a coupon versus killing of a mouse.

To assess the effect of markets on moral versus private consumption values, we use valuations from the individual price-list conditions and compare them to valuations in the respective multilateral markets (16). The dependent variable is a subject’s minimum trading price. Running Tobit and interval regressions, we find that in the mouse treatments, there is a strong negative and statistically significant effect of market interaction. Thus, for a given monetary amount, subjects reveal a higher willingness to kill in markets than in the individual condition. For coupons, the effect of markets is much smaller and insignificant. We also find that the effects of markets differ significantly between mice and coupons (16). In addition, we observe a difference in the price dynamic between multilateral mouse and coupon markets (Fig. 2). In the mouse market, average prices start at rather low levels (compared to the individual condition) and decline from 6.4 euros in the first period to levels as low as 4.5 euros in the final period. This decline in prices is statistically significant (P = 0.006, n = 297, random fixed effects regression). The downward trend provides a further indication of moral decay in the mouse market and is suggestive of social learning and endogenous social norm formation. Intuitively, observing low trading prices in the market may make it normatively acceptable to offer or accept low prices as well (16). In contrast to the downward trend in prices in the mouse market, no significant price trend is observed in the coupon market (P = 0.319, n = 233, random fixed effects regression). The analysis thus reveals a systematic difference between markets involving moral versus morally neutral values: When identical procedures, parameters, and market institutions are used, moral values decline significantly more than values that are morally neutral.

Whereas prices decline in the multilateral mouse market, trade volumes in both bilateral and multilateral markets are constant across periods, suggesting that a number of subjects were not tempted to engage in trading. Apparently, markets did not erode values of all subjects (16). We speculate that subjects who refused to exchange money for mouse life at all may have followed a rule-based, e.g., Kantian, ethic: “… everything has either price or dignity. Whatever has price can be replaced by something else which is equivalent; whatever, on the other hand, is above all price, and therefore admits of no equivalent, has a dignity” (16, 28).

Robustness and Discussion

Three potential concerns may be raised with respect to our main finding. First, one could argue that we observe the main treatment effect because total surplus was greater in markets than in the individual condition (20 versus 10 euros). If traders dispose of social preferences, they may have cared not only about their own payoff but also attached some value to the payoff of the other trader (buyer). We therefore ran a control condition, which was identical to the individual condition but in which we introduced a second passive participant. One hundred and sixteen subjects took part in this control treatment, with 58 subjects participating in the role of active decision-makers. A passive participant received 10 euros if the active participant decided to kill the mouse (such that the death of a mouse generated a total surplus of 20 euros as in the market treatments). The observed fraction of killing among subjects in the active role is 44.8%. This fraction is significantly different from fractions in both market conditions (bilateral market, P = 0.009, n = 94, and multilateral market, P = 0.001, n = 112, two-sample test of proportions). Furthermore, this fraction is remarkably similar to the individual condition (P = 0.890, n = 182, two-sample test of proportions).

Second, subjects may have perceived killing the mouse as a side-effect of the act of trading in the market treatments, whereas in the individual treatment subjects may have perceived killing the mouse as a direct means to earn money. If this were the case, subjects may have found it more difficult to opt for killing in the individual treatment. We therefore ran another control treatment identical to the individual treatment but in which subjects could buy a lottery ticket for 2 euros. This renders it more likely that subjects perceive the mouse death as a side-effect of a buying decision. The lottery paid out either 10 or 15 euros, respectively, both with 50% probability. We chose an expected net value of 12.50 – 2 = 10.50 euros to compensate for possible risk aversion of subjects. If subjects bought the lottery ticket, a mouse got killed “as another consequence” of the buying decision, i.e., as a side-effect. Forty-three subjects participated in this additional control condition. Again, outcomes are very similar to those in the individual condition: 46.5% of subjects decided to buy the ticket accepting the killing of a mouse. This fraction is significantly different from fractions in both market conditions (bilateral market, P = 0.021, n = 79 and multilateral market, P = 0.003, n = 97, two-sample test of proportions). Unsurprisingly, the killing rate is not significantly different from the individual condition (P = 0.946, n = 167, two-sample test of proportions).

Third, let us comment on why we used the minimum trading price as our main dependent variable to assess a seller’s willingness to kill a mouse in markets [see also (16)]. Very likely, traders tried to negotiate higher prices than their reservation values to realize positive gains from trade. This should be the case for any market situation with information rents in which reservation values are private, as in our case. For example, a seller in the bilateral market with a reservation value of 5 euros is unlikely to actually trade at 5 euros. Instead, he should try to negotiate higher prices. We therefore think that concluded prices provide an upper bound for the sellers’ reservation values. One may also argue that using the minimum concluded price could bias results if sellers made mistakes, erroneously agreeing to trade at prices lower than they would have actually liked to accept. We believe that it is unlikely that traders made such mistakes, because trading involved a deliberate decision to either accept or make offers. Yet, accounting for this possibility, we also calculated median values of concluded trading prices below or equal to 10 euros. The corresponding killing fractions are 67% for the bilateral market and 76% for the multilateral market, very similar to the ones reported in Fig. 1. These fractions are statistically significantly different from the individual condition (P = 0.029 for bilateral market and P < 0.001 for multilateral market, two-sample test of proportions).

We stress another aspect of our results: following the methodological standards in experimental economic, it was essential to incentivize subjects’ decisions in the individual condition, i.e., subjects needed to receive money according to their decisions. Otherwise, a comparison with market outcomes would have been misleading. For subjects, it would be “cheap” to claim that they are moral if being moral costs nothing. The comparison of the individual treatment with markets did therefore not involve paying money versus not paying money. Yet, introducing a money prime may already lower moral standards, as several studies have pointed out. For example, it has been shown that material primes or labels reduce helpfulness or prosocial behavior and increase competitiveness (29–31) and that an economics background correlates with selfishness (32). Hence, the impact of markets on moral behavior may in general be even more pronounced than our study suggests.

We have shown that market interaction displays a tendency to lower moral values, relative to individually stated preferences. This phenomenon is pervasive. Many people express objections against child labor, other forms of exploitation of the workforce, detrimental conditions for animals in meat production, or environmental damage. At the same time, they seem to ignore their moral standards when acting as market participants, searching and buying the cheapest electronics, fashion, or food, and thereby consciously or subconsciously creating the undesired negative consequences to which they generally object. We have shown that this tendency is prevalent already in very simple bilateral trading where both market sides are fully pivotal in that if they refuse to trade, the mouse will stay alive. In markets with many buyers and sellers, diffusion of being pivotal for outcomes adds to moral decay. This “replacement” logic is a common feature of markets, and it is therefore not surprising that the rhetoric of traders often appeals to the phrase that “if I don’t buy or sell, someone else will.”

In the experiment, subjects were fully aware of the consequences of their decisions in that they could save the life of a mouse if they refused to accept a monetary amount. Our findings therefore suggest that appealing to morality has only a limited potential for alleviating negative market externalities. For example, anti–child-labor or environmental protection campaigns may not be that effective because markets for goods undermine the relevant social values. The results also suggest why societies do ban markets for certain “repugnant” activities (33). Historically, dispute about the marketability and the appropriateness of markets has led to some of the most fundamental upheavals within modern societies. For example, the abolishment of trading human beings was a major issue in the American Civil War. Martin Luther’s critique of the trade of indulgences, in which buyers and sellers exchanged money for the freedom from God’s punishment for sin, was a key element of the Protestant Reformation. Karl Marx’s idea that capital stock should not be tradable, that it must belong to the workers themselves, is a cornerstone of communist ideology. With the recent financial crisis, discussion has arisen about the appropriateness of markets for complex financial products like derivatives involving high risks. Stock traders have been criticized for riding bubbles and for cashing in short-term profits without thinking about possible negative long-term impacts on companies, as well as on society in general.

Markets have tremendous virtues in their capability to generate information about scarcity and to allocate resources efficiently. The point of this study is not to question market economies in general. Indeed, other organizational forms of allocation and price determination such as in totalitarian systems or command societies do not generically place higher value on moral outcomes (34). Furthermore, the development of a complex market structure may require and therefore correlate with the prevalence of moral and social values, such as trust and cooperativeness. Results confirming this intuition, in line with the Doux-commerce Thesis (35), are expressed, e.g., by Kenneth Arrow (36). However, focusing on the causal effects of institutions, we show that for a given population, markets erode moral values. We therefore agree with the statement quoted at the beginning that we as a society have to think about where markets are appropriate—and where they are not.

Supplementary Materials
Supplementary Text
Figs. S1 and S2
Tables S1 and S2
References (40, 41)

References and Notes
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42.Acknowledgments: We thank F. Kosse and S. Walter for excellent research assistance. For technical, programming, or administrative support, we thank in particular M. Antony as well as T. Deckers, U. Fischbacher, H. Gerhardt, B. Jendrock, J. Radbruch, S. Schmid, and B. Vogt. We also thank J. Abeler, K. Albrecht, S. Altmann, J. Costard, T. Dohmen, M. Gabriel, S. Gächter, H.-M. von Gaudecker, J. von Hagen, D. Harsch, P. Heidhues, D. Huffman, S. Jäger, S. Kube, G. Loewenstein, C. May, A. Oswald, F. Rosar, N. Schweizer, A. Shaked, G. Wagner, M. Wibral, F. Zimmermann, and participants at various seminars for helpful comments. Finally, we thank all students, colleagues, and post-docs for helping to run the experiments. We acknowledge financial support by the German Science Foundation (Deutsche Forschungsgemeinschaft) through the Leibniz Program. Data reported in the paper are available at www.cens.uni-bonn.de/experiments/falk-szech/. This study was approved by the Ethics Committee of the University of Bonn (reference no. 066/12).

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Letters The Systematic Place of Morals in Markets—Response Armin Falk, Nora Szech
Science Vol. 341  no. 6147  p. 714  16 August 2013. Christoph Luetge and  Hannes Rusch

Research Article Morals and Markets Armin Falk, Nora Szech
Science 10 May 2013:  707-711.

In their Research Article “Morals and markets” (10 May, p. 707), A. Falk and N. Szech gave participants a choice between saving the life of a mouse and receiving money. The value of the mouse’s life was higher when participants sold it directly to the experimenter than when they bargained over the price with other participants.

For the particular comparison they draw between selling a mouse’s life directly and bargaining for it, the findings mark a substantial advance in experimental economics and experimental moral philosophy. We do not believe, however, that the general claim that “markets erode moral values” (p. 710) can be justified by this observation. The real-world examples of “immoral markets” chosen by the authors—slave trade and the sale of indulgences—are extreme cases. It is easy to find counterexamples in which markets lead to moral improvements. For example, as Falk and Szech acknowledge, replacing potentially arbitrarily acting private or state authorities with markets can benefit all affected parties (1, 2) and is a direct moral improvement. More important, free markets can sometimes even create incentives for their participants to morally improve, such as by yielding lower returns to vendors who discriminate against certain groups of customers (3, 4).

The moral consequences of real markets, we think, are mostly determined by the regulatory framework in which those markets are embedded (5, 6). Falk and Szech’s conclusions reach too far in that they claim to discuss “the market” without taking into account that different markets, while using the same mechanism of supply and demand, are subject to quite distinct rules.

Finally, Falk and Szech’s design, ingenious as it is, is unable to answer the crucial question: Which institutional alternative to markets would cause less moral erosion? Therefore, their critique of the market mechanism does not lead to any constructive policy recommendation.

Christoph Luetge,
Hannes Rusch

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Science 16 August 2013:  Vol. 341  no. 6147  p. 714
The Systematic Place of Morals in Markets—Response

In our Research Article, we ran a series of controlled laboratory experiments and report a causal effect of market institutions on moral transgression. Our findings contribute to the literature on the malleability of morality in general and the effects of institutions on moral transgression in particular.

As we argue in our Research Article, we do not aim at questioning market economies per se. Markets often improve social welfare for market participants in efficiently allocating goods (1). Competition in markets may also pressure firms to reduce discrimination against certain groups of workers or customers (2). Our research interest, however, was not to study effects of markets on active market participants but on third parties—i.e., those who are not directly involved in market trading, and who potentially suffer from trade. Our study shows that market interaction reduces how people value harm and damage done to third parties.

To study how markets affect moral outcomes, we implemented bilateral and multilateral markets, using the double auction institution. This is a well-established and widely used market set-up in economics, which displays the positive properties of allocation mentioned above (3). We deliberately abstained from imposing additional regulatory details, to allow for more general conclusions. As is standard in economics, these markets are real, with real participants and real incentives. Thus, we are convinced that the chosen market institution is well suited for the research questions at hand.

We agree that our findings raise the pressing question of how to design policies that mitigate the problem of moral erosion in markets. This, however, requires a thorough understanding of the relevant underlying mechanisms, as we discuss in our Research Article. First, markets generate information about selling and buying behavior and thus provide systematic social information about prevailing norms. Second, because trading involves at least two parties, market interactions allow traders to share guilt associated with immoral outcomes. Third, in markets with many buyers and sellers, the notion of being pivotal is diffused: Traders may apply a “replacement logic” (4), telling themselves that if they do not trade, some other trader may. These mechanisms potentially play a crucial role not only in markets but also in many nonmarket contexts. For example, in group decision-making, sharing of guilt and diffusion of pivotality may contribute to moral transgression. In recent work, we used the same mouse paradigm and found causal evidence that the diffusion of pivotality in groups erodes moral behavior compared with individual decision-making (5).

We hope that our study laid ground for thinking about moral consequences of market interaction and that it will stimulate research on relevant mechanisms.

Armin Falk,  Nora Szech

Science 10 May 2013:  Vol. 340  no. 6133  pp. 707-711

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2.G. Becker, The Economics of Discrimination (Univ. of Chicago Press, Chicago, IL, 1971).
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5.A. Falk,  N. Szech, Organizations, Diffused Pivotality, and Immoral Outcomes (Discussion Paper, Centre for Economic Policy Research, London, 2013).    Search Google Scholar