Super Freakonomics Part 12

Economists, however, have never been as reliant on the lab. Most of the problems they traditionally worry about-the effect of tax increases, for instance, or the causes of inflation-are difficult to capture there. But if the lab could unravel the scientific mysteries of the universe, surely it could help figure out something as benign as altruism.

These new experiments typically took the form of a game, run by college professors and played by their students. This path had been paved by the beautiful mind of John Nash and other economists who, in the 1950s, experimented broadly with the Prisoner's Dilemma, a game-theory problem that came to be seen as a cla.s.sic test of strategic cooperation. (It was invented to glean insights about the nuclear standoff between the United States and the Soviet Union.)

By the early 1980s, the Prisoner's Dilemma had inspired a lab game called Ultimatum, which works as follows. Two players, who remain anonymous to each other, have a onetime chance to split a sum of money. Player 1 (let's call her Annika) is given $20 and is instructed to offer any amount, from $0 to $20, to Player 2 (we'll call her Zelda). Zelda must decide whether to accept or reject Annika's offer. If she accepts, they split the money according to Annika's offer. But if she rejects, they both go home empty-handed. Both players know all these rules coming into the game.

To an economist, the strategy is obvious. Since even a penny is more valuable than nothing, it makes sense for Zelda to accept an offer as low as a penny-and, therefore, it makes sense for Annika to offer just a penny, keeping $19.99 for herself.

But, economists be d.a.m.ned, that's not how normal people played the game. The Zeldas usually rejected offers below $3. They were apparently so disgusted by a lowball offer that they were willing to pay to express their disgust. Not that lowball offers happened very often. On average, the Annikas offered the Zeldas more than $6. Given how the game works, an offer this large was clearly meant to ward off rejection. But still, an average of $6-almost a third of the total amount-seemed pretty generous.

Does that make it altruism?

Maybe, but probably not. The Ultimatum player making the offer has something to gain-the avoidance of rejection-by giving more generously. As often happens in the real world, seemingly kind behaviors in Ultimatum are inextricably tied in with potentially selfish motivations.

Enter, therefore, a new and ingenious variant of Ultimatum, this one called Dictator. Once again, a small pool of money is divided between two people. But in this case, only one person gets to make a decision. (Thus the name: the "dictator" is the only player who matters.)

The original Dictator experiment went like this. Annika was given $20 and told she could split the money with some anonymous Zelda in one of two ways: (1) right down the middle, with each person getting $10; or (2) with Annika keeping $18 and giving Zelda just $2.

Dictator was brilliant in its simplicity. As a one-shot game between two anonymous parties, it seemed to strip out all the complicating factors of real-world altruism. Generosity could not be rewarded, nor could selfishness be punished, because the second player (the one who wasn't the dictator) had no recourse to punish the dictator if the dictator acted selfishly. The anonymity, meanwhile, eliminated whatever personal feeling the donor might have for the recipient. The typical American, for instance, is bound to feel different toward the victims of Hurricane Katrina than the victims of a Chinese earthquake or an African drought. She is also likely to feel different about a hurricane victim and an AIDS victim.

So the Dictator game seemed to go straight to the core of our altruistic impulse. How would you play it? Imagine that you're the dictator, faced with the choice of giving away half of your $20 or giving just $2.

The odds are you would...divide the money evenly. That's what three of every four partic.i.p.ants did in the first Dictator experiments. Amazing!

Dictator and Ultimatum yielded such compelling results that the games soon caught fire in the academic community. They were conducted hundreds of times in myriad versions and settings, by economists as well as psychologists, sociologists, and anthropologists. In a landmark study published in book form as Foundations of Human Sociality, a group of preeminent scholars traveled the world to test altruism in fifteen small-scale societies, including Tanzanian hunter-gatherers, the Ache Indians of Paraguay, and Mongols and Kazakhs in western Mongolia.

As it turns out, it didn't matter if the experiment was run in western Mongolia or the South Side of Chicago: people gave. By now the game was usually configured so that the dictator could give any amount (from $0 to $20), rather than being limited to the original two options ($2 or $10). Under this construct, people gave on average about $4, or 20 percent of their money.

The message couldn't have been much clearer: human beings indeed seemed to be hardwired for altruism. Not only was this conclusion uplifting-at the very least, it seemed to indicate that Kitty Genovese's neighbors were nothing but a nasty anomaly-but it rocked the very foundation of traditional economics. "Over the past decade," Foundations of Human Sociality claimed, "research in experimental economics has emphatically falsified the textbook representation of h.o.m.o economicus."

Non-economists could be forgiven if they felt like crowing with satisfaction. h.o.m.o economicus, that hyper-rational, self-interested creature that dismal scientists had embraced since the beginning of time, was dead (if he ever really existed). Hallelujah!

If this new paradigm-h.o.m.o altruisticus?-was bad news for traditional economists, it looked good to nearly everyone else. The philanthropy and disaster-relief sectors in particular had reason to cheer. But there were far broader implications. Anyone from a high government official down to a parent hoping to raise civic-minded children had to gain inspiration from the Dictator findings-for if people are innately altruistic, then society should be able to rely on its altruism to solve even the most vexing problems.

Consider the case of organ transplantation. The first successful kidney transplant was performed in 1954. To the layperson, it looked rather like a miracle: someone who would surely have died of kidney failure could now live on by having a replacement organ plunked inside him.

Where did this new kidney come from? The most convenient source was a fresh cadaver, the victim of an automobile accident perhaps or some other type of death that left behind healthy organs. The fact that one person's death saved the life of another only heightened the sense of the miraculous.

But over time, transplantation became a victim of its own success. The normal supply of cadavers couldn't keep up with the demand for organs. In the United States, the rate of traffic fatalities was declining, which was great news for drivers but bad news for patients awaiting a lifesaving kidney. (At least motorcycle deaths kept up, thanks in part to many state laws allowing motorcyclists-or, as transplant surgeons call them, "donorcyclists"-to ride without helmets.) In Europe, some countries pa.s.sed laws of "presumed consent" rather than requesting that a person donate his organs in the event of an accident, the state a.s.sumed the right to harvest his organs unless he or his family specifically opted out. But even so, there were never enough kidneys to go around.

Fortunately, cadavers aren't the only source of organs. We are born with two kidneys but need only one to live-the second kidney is a happy evolutionary artifact-which means that a living donor can surrender one kidney to save someone's life and still carry on a normal life himself. Talk about altruism!

Stories abounded of one spouse giving a kidney to the other, a brother coming through for his sister, a grown woman for her aging parent, even kidneys donated between long-ago playground friends. But what if you were dying and didn't have a friend or relative willing to give you a kidney?

One country, Iran, was so worried about the kidney shortage that it enacted a program many other nations would consider barbaric. It sounded like the kind of idea some economist might have dreamed up, drunk on his belief in h.o.m.o economicus: the Iranian government would pay people to give up a kidney, roughly $1,200, with an additional sum paid by the kidney recipient.

In the United States, meanwhile, during a 1983 congressional hearing, an enterprising doctor named Barry Jacobs described his own pay-for-organs plan. His company, International Kidney Exchange, Ltd., would bring Third World citizens to the United States, remove one of their kidneys, give them some money, and send them back home. Jacobs was savaged for even raising the idea. His most vigorous critic was a young Tennessee congressman named Al Gore, who wondered if these kidney harvestees "might be willing to give you a cut-rate price just for the chance to see the Statue of Liberty or the Capitol or something."

Congress promptly pa.s.sed the National Organ Transplant Act, which made it illegal "for any person to knowingly acquire, receive, or otherwise transfer any human organ for valuable consideration for use in human transplantation."

Sure, a country like Iran might let people buy and sell human organs as if they were live chickens at a market. But surely the United States had neither the stomach nor the need for such a desperate maneuver. After all, some of the nation's most brilliant academic researchers had scientifically established that human beings are altruistic by their very nature. Perhaps this altruism was just an ancient evolutionary leftover, like that second kidney. But who cared why it existed? The United States would lead the way, a light unto the nations, relying proudly on our innate altruism to procure enough donated kidneys to save tens of thousands of lives every year.

The Ultimatum and Dictator games inspired a boom in experimental economics, which in turn inspired a new subfield called behavioral economics. A blend of traditional economics and psychology, it sought to capture the elusive and often puzzling human motivations Gary Becker had been thinking about for decades.

With their experiments, behavioral economists continued to sully the reputation of h.o.m.o economicus. He was starting to look less self-interested every day-and if you had a problem with that conclusion, well, just look at the latest lab results on altruism, cooperation, and fairness.

One of the most prolific experimental economists among the new generation was a native of Sun Prairie, Wisconsin, named John List. He became an economist by accident and had a far less polished academic pedigree than his peers and elders. He came from a family of truckers. "My grandfather moved here from Germany, and he was a farmer," List says. "Then he saw that truckers were making more money than he was just to take his grain to the mill, so he decided to sell everything and buy one truck."

The Lists were a smart, hardworking, athletic family, but academics were not of paramount importance. John's father started driving trucks when he was twelve, and John too was expected to join the family business. But he rebelled by going to college. This happened only because he earned a partial golf and academic scholars.h.i.+p to the University of WisconsinStevens Point. During school breaks he'd help his father unload calf feed or haul a load of paper goods down to Chicago, three and a half hours away.

During golf practice at Stevens Point, List noticed a group of professors who had time to play golf just about every afternoon. They taught economics. That's when List decided to become an economics professor too. (It helped that he liked the subject.)

For graduate school he chose the University of Wyoming. It was hardly a top-tier program, but even so he felt overmatched. On the first day, when students went around the cla.s.sroom and gave a bit of personal background, List felt everyone staring at him when he said he'd graduated from Stevens Point. They had all gone to places like Columbia and the University of Virginia. He decided his only chance was to outwork them. Over the next few years, he wrote more papers and took more qualifying exams than anyone else-and, like many young economists, started to dabble with lab experiments.

When it was time to apply for a teaching job, List sent out 150 applications. The response was, shall we say, muted. He did land a job at the University of Central Florida, in Orlando, where he took on a heavy teaching load and also coached the men's and women's waterskiing teams. He was a blue-collar economist if ever there was one. He was still writing paper after paper and running lots of experiments; his water-skiers even qualified for the national champions.h.i.+ps.

After a few years, List was invited to join Vernon Smith, the G.o.dfather of economic lab experiments, at the University of Arizona. The job would pay $63,000, considerably more than his UCF salary. Out of loyalty, List presented the offer to his dean, expecting UCF to at least match the offer.

"For $63,000," he was told, "we think we can replace you."

His stay at Arizona was brief, for he was soon recruited by the University of Maryland. While teaching there, he also served on the President's Council of Economic Advisors; List was the lone economist on a forty-two-person U.S. delegation to India to help negotiate the Kyoto Protocol.

He was by now firmly at the center of experimental economics, a field that had never been hotter. In 2002, the n.o.bel Prize for economics was shared by Vernon Smith and Daniel Kahneman, a psychologist whose research on decision-making laid the groundwork for behavioral economics. These men and others of their generation had built a canon of research that fundamentally challenged the status quo of cla.s.sical economics, and List was following firmly in their footsteps, running variants of Dictator and other behavioralist lab games.

But since his days at Stevens Point, he had also been conducting quirky field experiments-studies where the partic.i.p.ants didn't know an experiment was going on-and found that the lab findings didn't always hold up in the real world. (Economists are known to admire theoretical proofs; thus the old quip: Sure, it works in practice, but does it work in theory?)

Some of his most interesting experiments took place at a baseball-card show in Virginia. List had been attending such shows for years. As an undergrad, he sold sports cards to earn cash, driving as far as Des Moines, Chicago, or Minneapolis, wherever there was a good market.

In Virginia, List cruised the trading floor and randomly recruited customers and dealers, asking them to step into a back room for an economics experiment. It went like this. A customer would state how much he was willing to pay for a single baseball card, choosing from one of five prices that List established. These offers ranged from lowball ($4) to premium ($50). Then the dealer would give the customer a card that was supposed to correspond to the offered price. Every customer and dealer did five such transactions, though with a different partner for each round.

When the customer has to name his price first-like the white men who visit Chicago street prost.i.tutes-the dealer is plainly in a position to cheat, by giving a card that's worth less than the offer. The dealer is also in a better position to know each card's true worth. But the buyers had some leverage, too: if they thought the sellers would cheat, they could simply make a lowball offer each round.

So what happened? On average, the customers made fairly high offers and the dealers offered cards of commensurate value. This suggests that the buyers trusted the sellers and the buyers' trust was rewarded fairly.

This didn't surprise List. He had simply demonstrated that the results you get in a lab with college students could be replicated outside the lab with sport-card traders, at least when the partic.i.p.ants know a researcher is carefully recording their actions.

Then he ran a different experiment, out on the real trading floor. Once again, he recruited random customers. But this time he had them approach dealers at their booths, and the dealers didn't know they were being watched.

The protocol was simple. A customer would make a dealer one of two offers: "Give me the best Frank Thomas card you can for $20" or "Give me the best Frank Thomas card you can for $65."

What happened?

Unlike their scrupulous behavior in the back room, the dealers consistently ripped off the customers, giving them lower-quality cards than the offer warranted. This was true for both the $20 offer and the $65 offer. In the data, List found an interesting split: the out-of-town dealers cheated more often than the locals. This made sense. A local dealer was probably more concerned with protecting his reputation. He might even have been worried about retribution-a baseball bat upside the head, perhaps, after a customer went home, got online, and found out he'd been hustled.

The trade-floor cheating made List wonder if perhaps all the "trust" and "fairness" he'd witnessed in the back room weren't trust and fairness at all. What if they were just a product of the experimenter's scrutiny? And what if the same was true for altruism?

Despite all the lab evidence of altruism collected by his peers and elders, List was skeptical. His own field experiments pointed in a different direction, as did his personal experience. Back when he was nineteen years old, he delivered a load of paper goods to Chicago. His girlfriend, Jennifer, came along for the ride. (They'd later marry and have five kids.) When they got to the warehouse, four men were in the loading bay, sitting on a couch. It was the dead of summer and punis.h.i.+ngly hot. One man said they were on break.