Monday, March 23, 2009

Risky Behavior and Morals

I spent the better part of the last three days in the Washington Plaza Hotel at a conference held by IZA, a German labor economics group, on the "economics of risky behavior".

The National Bureau of Economic Research held a similarly themed conference a couple years back. Broadly speaking, the conclusion of the NBER conference was "risk is rational". "Rational addiction models" were popular and common. People engaged in risky behaviors as a part of an explicit decision to maximize lifetime utility. It's not that crazy of a story - certainly we weigh the costs and benefits of some risks and choose a risky course of action. So I don't mean to belittle the NBER conclusions.

To a large extent, though, the IZA came to this conclusion too - but with more nuance and qualification. Empirical work on some risk behavior concluded that it was irrational some of the time. I also don't think this should be hard to accept for most economists, much less most people in general.

But one thing that occasionally came up that is talked about more often in other circles was the role of social norms and morals in risky behavior. The IZA conference covered lots of material, including infidelity, prostitution, murder, binge drinking, drug use, etc. etc. An outsider may have been surprised by the extent to which the group discussed these behaviors in very clinical, value-neutral terms. We talked about crack markets and sex markets as if they were markets for sandwiches or shoes. But occasionally, somebody brought up the constraining influence of morals.

I think economists could explore morals more thoroughly. Usually, economists think about maximizing something like utility or profit based on some decision set available to an actor. Morality could simply be understood as an institutional restriction on the available decision set, or perhaps excessively punitive costs associated certain decisions.

Another important question about the "optimality" of morals is to start to consider where morals come from. Let's assume for the moment that there are two types of morals: (1.) transcendent morals that universally restrict decision sets, and (2.) institutional rules that were created to minimize the costs and externalities of certain decisions. I include type 1 morals so that we don't have to argue about the most divisive and really the most important morals out there. By type 2 morals, I'm thinking about everything from the Jewish restrictions on pork to keep the Hebrews strong and healthy in the desert, to the myth of the evils of marijuana that was concocted in the 1930s. Insofar as type 1 morals are universally applicable and important, we're not especially concerned about any sub-optimality associated with them. If it is always excessively costly to the individual and society to murder, then the moral prohibition on murder that acts as a restriction on the decision set is always going to be optimal.

But what about those residual, type 2 morals that are inherited from the trade offs faced by bygone generations? These types of morals in all likelihood are forcing current generations into sub-optimal decisions.

My question is - if a sub-set of morals and norms really are just leftovers that distort the decision making process today, how do we deal with them? Are ethicists policing this at all? Is there a process for reevaluation? I think people naturally reevaluate morals in their own lives, but that process can be slow (not necessarily a bad thing).

I think it's nice to qualify the NBER assumption that risky behaviors are perfectly rational. Norms and morals do exist for humans, so they should exist in the science of human action. But the broader point of NBER rings true as well. We have rational faculties to weigh risky decisions. Morals inform those faculties. But if morals distort those faculties unnecessarily, what is to be done?

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