The Systematic Place of Morals in Markets—Response

Abstract

In our Research Article, we ran a series of controlled laboratory experiments and report a causal effect of market institutions on moral transgression. Our findings contribute to the literature on the malleability of morality in general and the effects of institutions on moral transgression in particular. As we argue in our Research Article, we do not aim at questioning market economies per se. Markets often improve social welfare for market participants in efficiently allocating goods ([ 1 ][1]). Competition in markets may also pressure firms to reduce discrimination against certain groups of workers or customers ([ 2 ][2]). Our research interest, however, was not to study effects of markets on active market participants but on third parties—i.e., those who are not directly involved in market trading, and who potentially suffer from trade. Our study shows that market interaction reduces how people value harm and damage done to third parties. To study how markets affect moral outcomes, we implemented bilateral and multilateral markets, using the double auction institution. This is a well-established and widely used market set-up in economics, which displays the positive properties of allocation mentioned above ([ 3 ][3]). We deliberately abstained from imposing additional regulatory details, to allow for more general conclusions. As is standard in economics, these markets are real, with real participants and real incentives. Thus, we are convinced that the chosen market institution is well suited for the research questions at hand. We agree that our findings raise the pressing question of how to design policies that mitigate the problem of moral erosion in markets. This, however, requires a thorough understanding of the relevant underlying mechanisms, as we discuss in our Research Article. First, markets generate information about selling and buying behavior and thus provide systematic social information about prevailing norms. Second, because trading involves at least two parties, market interactions allow traders to share guilt associated with immoral outcomes. Third, in markets with many buyers and sellers, the notion of being pivotal is diffused: Traders may apply a “replacement logic” ([ 4 ][4]), telling themselves that if they do not trade, some other trader may. These mechanisms potentially play a crucial role not only in markets but also in many nonmarket contexts. For example, in group decision-making, sharing of guilt and diffusion of pivotality may contribute to moral transgression. In recent work, we used the same mouse paradigm and found causal evidence that the diffusion of pivotality in groups erodes moral behavior compared with individual decision-making ([ 5 ][5]). We hope that our study laid ground for thinking about moral consequences of market interaction and that it will stimulate research on relevant mechanisms. 1. [↵][6]1. K. Arrow , An Extension of the Basic Theorems of Welfare Economics (Univ. of California Press, Berkeley, CA, 1951). 2. [↵][7]1. G. Becker , The Economics of Discrimination (Univ. of Chicago Press, Chicago, IL, 1971). 3. [↵][8]1. C. R. Plott, 2. V. L. Smith , Eds. Handbook of Experimental Economics Results (Elsevier, Amsterdam, 2008), vol. 1. 4. [↵][9]1. J. Sobel , Markets and Other-Regarding Preferences (Discussion Paper, Economics Department, Univ. of California, San Diego, CA, 2010). 5. [↵][10]1. A. Falk, 2. N. Szech , Organizations, Diffused Pivotality, and Immoral Outcomes (Discussion Paper, Centre for Economic Policy Research, London, 2013). [1]: #ref-1 [2]: #ref-2 [3]: #ref-3 [4]: #ref-4 [5]: #ref-5 [6]: #xref-ref-1-1 View reference 1 in text [7]: #xref-ref-2-1 View reference 2 in text [8]: #xref-ref-3-1 View reference 3 in text [9]: #xref-ref-4-1 View reference 4 in text [10]: #xref-ref-5-1 View reference 5 in text