In 2000, University of Chicago behavioral economist Richard Thaler trumpeted that economics was finally moving “From Homo Economicus to Homo Sapiens“—that is, dropping the outdated assumption that people are robo-beings who always know what exactly they want and pursue those desires perfectly rationally (think Spock from Star Trek). Six years later, even after psychologist and outsider Daniel Kahneman stumbled the field of economics and walked off with their Nobel Prize, much of the field continues to go on ahead as if the psychologists had never kicked over one of their central pillars. (Thaler, who’s next in line to win a Nobel for behavioral economics, actually realized his optimism was misplaced, pointing out several reasons why psychological factors will “trap me into thinking that other economists will agree with me—20 years of contrary evidence notwithstanding.”)
Tim Harford’s recent article claiming that people are not really being altruistic when they give to charity relies heavily on this antediluvian thinking. For example, he says that anybody that gives money to charity should give it all to the one project that they think would do the most good, because if it does the most good with your first dollar, it’ll do the most good with your second, and your third, and so on (as long as you’re not actually giving a Gates-ian amount that could actually end the problem entirely). And because most people don’t donate this way, they must not really care about their donations actually doing good, he says. This of course ignores the fact that giving money is not only a transfer of funds but also a statement of support, one that is understood by the giver, the receiver, and everyone else, seemingly, that’s not practicing narrow-minded economics. And even if we accept that one-cause giving is the most rationally effective way to give, it’s plainly obvious that people very often do not maximize economic effectiveness—even when it would be to their own advantage. That’s the whole point of behavioral economics! The well-documented 35-year history of these ideas seems to have sailed right by without troubling Harford’s analysis a bit.
He also says people should almost never do charitable volunteer work but instead just work more and use the money to hire people for do-gooder work. “A Dutch banker can pay for a lot of soup-kitchen chefs and servers with a couple of hours’ worth of his salary, but that wouldn’t provide the same feel-good buzz as ladling out stew himself, would it?” Harford’s off-hand coarseness reflects well how pre-behavioral economics misses the human dimension of humans. Mightn’t the folks eating at the soup kitchen be happy that professional people are volunteering to help in addition to people who are professional helpers? Couldn’t the banker be affected by her experience at the soup kitchen and donate money to a political campaign that eventually had even greater power to improve the lot of poor people?
But if you’re hoping to find a piece on the economics of Vulcan charity, look no further.