Gee, it’s not often that experimental economics hits the headlines, but here it is … according to this New York Times science article, today’s Nature has an article describing research by economists Ernst Fehr, Paul Zak, and others on the hormone oxytocin:
In the study, the Swiss researchers had 178 male college students play a simple investment game. Investors began the game with an allowance of 12 monetary units, of which they could send 12, 8, 4 or none to an unseen, anonymous “trustee.” The amount was tripled before being transferred to the trustee, who then chose how much of this income to share with the investor.
In previous experiments using this game, economists have shown that investors are guarded with their money at first, increasing their investments only after seeing evidence that their partner is playing fair. The oxytocin study did not allow for this adjustment: Investors knew that they would be dealing only once with four different partners.
Yet those who inhaled oxytocin before playing the game invested an average of 10 monetary units, 17 percent more than did players who got a placebo spray. In the oxytocin group, 45 percent invested all their money, compared with 21 percent in the placebo group.
Neuroscientists, including the Swiss researchers, argue that oxytocin is not so much a trust serum as a kind of brain messenger that primes animals to overcome their natural aversion to others. It allows for what they call “approach behavior,” that push to walk up and to a stranger and say hello.
One of the results that I found most striking was the asymmetry of the effect of oxytocin on investors and not trustees. From the Fehr et. al. Nature article (from NU Library):
What mechanisms might be involved in generating the effect of oxytocin on trusting behaviour? One possibility is that oxytocin causes a general increase in prosocial inclinations. This implies that oxytocin should affect not only the prosocial behaviour of the investors but also that of the trustees. We would therefore predict that those trustees who are given oxytocin should make higher back transfers at any given level than the trustees who received placebo. However, trustees given oxytocin do not show more trustworthy behaviour (Fig. 3). At every positive transfer level (4, 8 or 12 MU), their back transfers are statistically indistinguishable from those of placebo trustees (Mann Whitney U-tests; P > 0.243, two-sided tests for each positive transfer level). Thus, oxytocin does not increase the general inclination to behave prosocially. Rather, oxytocin specifically affects the trusting behaviour of investors.
This neuroeconomics research (and similar research by Kevin McCabe (see his trust post from April), and others) is important on several levels. At its most fundamental level, neuroeconomics is probing the connections between the brain and human action, and this is one strand of that fundamental research. But it’s the implications for human action that I find most fascinating. Think about the great puzzle that is the move from personal exchange to impersonal exchange that occurred slowly over the early medieval period around the Mediterranean. I claim that the move to impersonal exchange, grounded in formal and informal legal institutions that facilitate exchange, is at its core the main reason for the great prosperity and plenitude that we enjoy and have enjoyed for over two centuries. But how do you overcome those deep, biological hard-wired tendencies not to trust strangers? Because if you’re going to have impersonal exchange, you have to at least be willing to risk having some trust, you have to have at least some of that trust pay off, and you have to generalize it into trust not of a specific individual. This research suggests that such a process occurs at a hormonal level.