M3119 - BRUNI TEXT.indd

By a selfregarding actor we mean an individual who maximizes his own payoff in social interactions. A selfregarding actor thus cares about the behavior of and payoffs to the other individuals only insofar as these impact his own payoff. The term ‘selfregarding’ is more accurate than ‘selfinterested’ because an otherregarding individual is still acting to maximize utility and so can be described as selfinterested. For instance, if I get great pleasure from your consumption, my gift to you may be selfinterested, even though it is surely otherregarding. We can avoid confusion (and much pseudophilosophical discussion) by employing the selfregarding/otherregarding terminology. One major result of behavioral game theory is that when modeling market processes with wellspecified contracts, such as double auctions (supply and demand) and oligopoly, gametheoretic predictions assuming selfregarding actors are accurate under a wide variety of social settings (see Kachelmaier and Shehata, 1992; Davis and Holt, 1993). The fact that selfregarding behavior explains market dynamics lends credence to the practice in neoclassical economics of assuming that individuals are selfregarding. However, it by no means justifies ‘Homo economicus’ because many economic transactions do not involve anonymous exchange. This includes employeremployee, creditordebtor, and firmclient relationships. Nor does this result apply to the welfare implications of economic outcomes (e.g., people may care about the overall degree of economic inequality and/or their positions in the income and wealth distribution), to modeling the behavior of taxpayers (e.g., they may be more or less honest than a selfregarding individual, and they may prefer to transfer resources toward or away from other individuals even at an expense to themselves) or to important aspects of economic policy (e.g., dealing with corruption, fraud, and other breaches of fiduciary responsibility). Otherregarding preferences were virtually ignored until recently in both economics and biology, although they are standard fare in anthropology, sociology, and social psychology. In economics, the notion that enlightened selfinterest allows individuals to cooperate in large groups goes back to Bernard Mandeville’s ‘private vices, public virtues’ (1924 [1705]) and Adam Smith’s ‘invisible hand’ (2000[1759]). The great Francis Ysidro Edgeworth considered selfinterest ‘the first principle of pure economics’ (Edgeworth 1925, p. 173). In biology, the selfishness principle has been touted as a central implication of rigorous evolutionary modeling. In The Selfish Gene (1976), for instance, Richard Dawkins asserts ‘We are survival machines – robot vehicles blindly programmed to preserve the selfish molecules known as genes. . . . Let us try to teach generosity and altruism, because we are born selfish.’ Similarly, in The Biology of Moral Systems (1987, p. 3), R.D. Alexander asserts that ‘ethics, morality, human conduct, and the human psyche are to be understood only if societies are seen as collections of indi-