Morals and Markets Armin Falk & Nora Szech Toon Van Camp

Table of contents The Question Basic Hypothesis The experiment Results Main Conclusions

“We have to ask where markets belong— and where they don’t “We have to ask where markets belong— and where they don’t.” Michael Sandel.

1. The question: do markets erode morals? Basic observation: The trading of products often has negative externalities on a third party (ex: child labor) but people go against their own moral standards and trade anyways.

2. Basic Hypothesis: Markets tend to erode moral values A trade involves 2 people: the guilt is shared which means that both parties interacting feel less guilt. Market interaction reveals information on social norms: “if other people trade an item it has to be ok for me to trade it as well”. The existence of a market for something in itself might mean that trading something is morally acceptable. Markets provide a strong framing and focus on materialistic aspects such as bargaining, negotiation, and competition. They may divert attention from the adverse consequences of the trade. In a multilateral market with multiple sellers the notion of being pivotal may be diffused: unless you care about what you are selling you could say “ if I don’t sell it, someone else will”.

3. The experiment The mouse paradigm: participants could decide to save a mouse’s life and receive no money or to earn money but to accept the killing of a mouse. Three different market conditions: 1) The individual market 2) The bilateral market 3) The multilateral market

3. The experiment 1) The individual market: Choice between option A and option B In option A the mouse survives but the participant gets no money In option B the mouse dies and the participant gets 10€

3. The experiment 2) The bilateral market Double auction market: One buyer and one seller bargain over the killing of a mouse over the course of 10 periods There is a total of 20€ that the two parties can split up between themselves. If a trade is made the buyer receives 20€ - the price agreed upon by the seller and the mouse is killed. If no trade is made both players receive nothing but the mouse is saved

3. The experiment 3) The multilateral market Same conditions as in the bilateral market but: There are 7 buyers and 9 sellers Each seller had one mouse

3. The experiment To provide a more detailed effect of markets on morals, another individual treatment was set-up: the 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. Individuals are asked to choose between option A ( saving the mouse and receiving no money) or option B receiving X amount of money which increases by 2.5€ with each refusal of option B up to 50€. A: Save the mouse … B: receive 5€ B: receive 7.50€ B: receive 10€ B: receive 12.50€

3. The experiment The final step of the experiment was to compare the decay in moral versus morally neutral values. Hypothesis: the decay in moral values is greater than the decay of private consumption values. New test: sellers received a coupon for gift shop that they could sell This new test was carried out in the three different market conditions of before and in the price list treatment. Thus conditions were identical and the difference was that the trade involved an opportunity cost of not consuming rather than a moral cost.

4. The results: Main test

4. The results: price list treatment In the bilateral market, 72.2% of sellers were willing to trade for prices below or equal to 10€. In the price list treatment, a similar willingness to kill (71.9%) was only reached for monetary amounts of 47.50 euros In the Multilateral market, 75.9% of sellers were willing to trade for prices below or equal to 10€. In the price list treatment, a similar willingness to kill would require a monetary reward of 50€.

4. The results: decay in moral vs morally neutral values

4. The results: decay in moral vs morally neutral values In the mouse treatments, there is a strong negative effect of market interaction. For a given amount, people reveal a higher willingness to kill in a market than in the individual condition. There is also a difference in the price dynamic between multilateral mouse and coupon markets. In the mouse market, prices start at a lower level and tend to slope downwards. In the coupon market the prices show no significant trend. Therefore, we can conclude that moral values decline significantly more than values that are morally neutral.

5. Conclusions Markets do indeed erode morals: in presence of a market people are far more easily willing to give up on their values than when there is no market. Moral values decline faster than morally neutral values: in a market, prices for moral values decline very fast as a result of social learning and endogenous social norm formation. However, prices for morally neutral values do not really vary. This experiment confirms the need to ban markets for “repugnant” activities This experiment shows there is a need to think about where markets are appropriate.

Questions?