May 16, 2013

Morals and markets

In a new experimental paper published in Science, Armin Falk and Nora Szech claim that "markets erode moral values" and that, as a result, "we as a society have to think about where markets are appropriate—and where they are not." In this regard, they say that "discussion has arisen about the appropriateness" of trading slaves, religious indulgences, company stock, risky financial derivatives or goods that involve detrimental conditions for workers, child labor, suffering of animals or environmental damage. Although their experiments do not show that markets erode moral values, other observations do. And I think that such moral "erosion" is a good thing.

Falk and Szech made several interesting experiments, but I will summarize only the three main treatments. In the "individual treatment" subjects chose between receiving 10 euros from the experimenter or saving the life of a mouse. According to Falk and Szech, this choice involved moral values. Half of the people chose the money. In the "bilateral market" pairs of subjects got money from the experimenter to bargain over prices to save the mouse and in the "multilateral market" each subject bargained with several others and witnessed the outcomes of trades between other subjects. In the latter two treatments more than two thirds of participants decided to kill the mouse for 10 or fewer euros. So, subjects became more callous about the life of a mouse when bargaining in markets with other subjects than they did when selling it to the experimenter. A possible mechanism for the difference is that observing other people trade the lives of mice for low prices makes it more acceptable to kill a mouse for a few euros (if other people kill a mouse for four euros then it must be alright for me to do the same). Other possible mechanisms are that each participant feels less responsible for the lives of mice when part of a larger market where other people are killing mice and that each participant focuses more on the bargaining dynamics and so pays less attention to the moral implications of his actions.

Falk and Szech write as if the "individual treatment" consisted of an individual decision outside of a market, while the other treatments replicated market decisions. So they conclude that markets erode moral values. However, the "individual treatment" is a market transaction between a subject and the experimenter. So, the difference is not between markets and non-markets but between markets with bargaining and multiple sellers and buyers and a market with no bargaining and a single seller (the subject) and a single buyer (the experimenter).

Anyway, I have no problem accepting the idea that when participating in free markets people become more sensitive to prices and less sensitive to their moral intuitions. Or, in other words, that moral choices are more price-sensitive in free markets, and more so in larger markets. 

Does this justify forbidding certain markets or trades? No, it doesn't. There is no reason to presume that prior moral intuitions are morally better than the choices made in markets. It seems to me that relaxed moral standards in global commercial markets are preferable to the stricter moral intuitions people express in non-commercial contexts. Some widespread moral intuitions are that foreigners, people of other races and religious beliefs, homosexuals, big corporations and the wealthy are evil. If free markets erode these moral values, as they seem to do, then I applaud free markets. Some people have moral reservations about trading with women, children or people earning low incomes or working in extremely unhealthy conditions. These moral reservations result in more misery for women, children and poor workers and entrepreneurs. I welcome their erosion.

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