Assumption Of Self-interest Research Articles

Revising the theory behind corporate governance and management control: A reflection and roadmap

I reflect on attempts to revise the theory behind corporate governance and management control in light of evolving organizational and market realities. First, I discuss the resistance to early attempts by prominent neoclassical economists to revise the theory of the firm. Second, I discuss the outcome of that resistance—an economic theory that is largely unable to describe common governance systems and management controls found in practice as well as new systems and controls aimed at increasing the environmental and social responsibility of the firm. Finally, I describe recent efforts to revise the theory by relaxing the assumption of narrow self-interest, incorporating insights from stakeholder theory, and incorporating important individual and social factors left out of the theory. I conclude by discussing how these revisions provide a roadmap to further revisions in the theory to improve its usefulness to researchers, practitioners, and policymakers.

Civilize the Business School: For a Civic Management Education

Management scholars have long exposed the inadequacy of management education in addressing the complex problems confronting business and society, including the ecological and climate emergencies. Concerns are expressed about the culture of competition, self-interest, greed and short-termism that still dominates the business school, despite the irreparable ecological damage that this culture has contributed to create, and the innumerable business scandals it has generated. To navigate the grand challenges of our time, management education needs to be shaken at its very foundations. In this essay, I unpack the process that generates these dysfunctional consequences to expose the root of the problem: assumptions of self-interest, instrumental rationality, capitalist organising and mechanistic worldviews generate self-fulfilling prophecies. Only once this harmful process is better understood is it possible to move beyond critique and support the virtuous cycles enabling functional outcomes. Contributing to the current debate around building civic universities and reframing the concept of civility systemically, I propose reconfiguring management education around four different principles: generalised reciprocity, substantive rationality, diverse organising and a system approach. I suggest that these are the pedagogical foundations for a civic management education, capable of producing cooperative humans, substantive business schools, fairer societies and thriving ecosystems.

“Shovel-Ready”

“Shovel-Ready”

Offers beyond the negotiating dyad: Including the excluded in a network exchange experiment

Based on the assumption of self-interest, allocations in network exchange models and experiments are typically restricted to negotiating dyads. Network members beyond the dyad are excluded by design from a share of the divided resource. Social value orientation may, however, induce subjects to allocate parts of the resource to third network members. We experimentally study three-person networks in which subjects can make bilateral offers that allocate payoff shares to all network members. Our results show that subjects give on average ten percent of the bargaining value to third network members if they have this option. The concern for third network members is moderated by social values: the stronger the social value orientations of the deciding individuals, the more payoff is allocated to third network members. We conclude that fairness is an important initial motivator that affects the way in which structural power is used in network exchange.

Social Preferences as an Individual Difference in Offender Decision-making

Objectives: We examined the relationship between social preference game behavior and offender status and tested whether this relationship was attributed to genuine prosocial preferences or confounded by individual differences in future orientation, sensation seeking, and risk-taking. Methods: Offender and nonoffender samples played the dictator and ultimatum games. Ordered and generalized ordered logistic regression models were used to test the hypothesis that when compared to nonoffenders, offenders would demonstrate increased self-interest, while also considering competing theoretical mechanisms. Results: Offenders appeared to be more self-interested as indicated by smaller offers in the dictator game. This relationship, however, was attributed to differences in future orientation between the two groups rather than differences in social preferences. Net of demographic controls and competing theoretical mechanisms, however, offenders made smaller offers in the ultimatum game. We argue this finding revealed differences in strategic decision-making between the two groups. Conclusions: Results suggested that offenders were not distinguishable from nonoffenders by individual differences in social preferences. While nonoffenders made larger offers in both games, this finding was attributed to differences in temporal orientation and risk-taking rather than differences in prosocial preferences. This supported the rational choice assumption of self-interest and highlighted differences in strategic decision-making between offenders and nonoffenders.

Crash Algorithms for Autonomous Cars: How the Trolley Problem Can Move Us Beyond Harm Minimisation

The prospective introduction of autonomous cars into public traffic raises the question of how such systems should behave when an accident is inevitable. Due to concerns with self-interest and liberal legitimacy that have become paramount in the emerging debate, a contractarian framework seems to provide a particularly attractive means of approaching this problem. We examine one such attempt, which derives a harm minimisation rule from the assumptions of rational self-interest and ignorance of one’s position in a future accident. We contend, however, that both contractarian approaches and harm minimisation standards are flawed, due to a failure to account for the fundamental difference between those ‘involved’ and ‘uninvolved’ in an impending crash. Drawing from classical works on the trolley problem, we show how this notion can be substantiated by reference to either the distinction between negative and positive rights, or to differences in people’s claims. By supplementing harm minimisation with corresponding constraints, we can develop crash algorithms for autonomous cars which are both ethically adequate and promise to overcome certain significant practical barriers to implementation.

The rapid evolution of homo economicus: Brief exposure to neoclassical assumptions increases self-interested behavior

Economics students have been shown to exhibit more selfishness than other students. Because the literature identifies the impact of long-term exposure to economics instruction (e.g., taking a course), it cannot isolate the specific course content responsible; nor can selection, peer effects, or other confounds be properly controlled for. In a laboratory experiment, we use a within- and across-subject design to identify the impact of brief, randomly-assigned economics lessons on behavior in the ultimatum game (UG), dictator game (DG), prisoner's dilemma (PD), and public-goods game (PGG). We find that a brief lesson that includes the assumptions of self-interest and strategic considerations moves behavior toward traditional economic rationality in UG, PD, and DG. Despite entering the study with higher levels of selfishness than others, subjects with prior exposure to economics instruction have similar training effects. We show that the lesson reduces efficiency and increases inequity in the UG. The results demonstrate that even brief exposure to commonplace neoclassical economics assumptions measurably moves behavior toward self-interest.

Levels of other-regarding preferences and the structure of the interaction

The paper contributes to the literature on other-regarding preferences challenging the narrow self-interest assumption. Experimental evidence confirms that the same individuals might express different otherregarding preferences in different situations or contexts. The structure of their interaction, their relative positions in it might trigger different behavioral patterns. In this paper we propose a model of multi-level other-regarding preferences assuming that different levels are actualized depending on the context in which an individual has to take her decision. We analyze the experimental trust game letting the players have multi-level preferences. Under certain parameterization and asymmetric information assumption, we show that the share given up by the leader of the game in favor of the follower is strictly monotonically increasing with altruism of the former. It is also demonstrated that utilitarian social welfare is increasing with the leader’s altruism if the players are not extremely risk-averse. In the case when information for both players is incomplete, a separating equilibrium exists allowing to distinguish between leaders with different other-regarding preferences.

Постоянная и переменная рациональность как предпосылка экономической теории

The article deals with evolution of rationality assumption as component of the model of man in economic science. In classical political economy this assumption didn't play the key role separating the scope of economic science - this role was performed by the assumption of self-interest. The rationality assumption became important as a result of the Marginal revolution and began to be an object of special research only in the context of expected utility maximization hypothesis of von Neuman and Morgenstern. These developments made it remote from everyday human behavior. In order to make economics a bit more realistic various strategies are used which are briefly surveyed. Within the constant rationality approach we could choose a model of a representative agent characterized by full or bounded rationality. Within the variable rationality approach an additional economic agent may be introduced who will be responsible for observed deviations from rational behaviour, while all the other agents could be described by the familiar rational model. The second variant consists in splitting the economic agent into different subpersonalities, having different, and moreover, conflicting goals. Still another option is to make rationality not only variable but also continuous. In this case it is possible to reach the optimal rationality which differs from the maximum one.

Putting Behavior into International Cooperation

Cooperation among countries to deal with climate change and other global challenges seems almost impossible. However, recent research in the behavioral and evolutionary sciences suggests that people cooperate willingly and perhaps even naturally. Why the contradiction? In this paper we call for the need to think about international relations beyond the assumptions of rational choice and narrow self-interest. We suggest that seemingly intractable international challenges are not only the result of power struggles, but may also reflect the under-provisioning of the key enablers of cooperation—what we call the “cooperation hexagon”: reciprocity, trust, we-identity, enforcement, communication, reputation and fairness.

Honoring a pioneer: Gordon Tullock (1922–2014)

Gordon Tullock made seminal contributions to three disciplines, economics, political science, and biology. He was also a founder of bioeconomics. Although economic theory has moved beyond the rational self-interest assumption that underlies his work, Tullock’s contributions were important theoretical stepping stones.

The Rapid Evolution of Homo Economicus: Brief Exposure to Neoclassical Assumptions Increases Self-Interested Behavior

Economics students have been shown to exhibit more selfishness than other students. Because the literature identifies the impact of long-term exposure to economics instruction (e.g., taking a course), it cannot isolate the specific course content responsible; nor can selection, peer effects, or other confounds be properly controlled for. In a laboratory experiment, we use a within- and across-subject design to identify the impact of brief, randomly-assigned economics lessons on behavior in games often used to measure selfishness: the ultimatum game (UG), dictator game (DG), prisoner's dilemma (PD), and public-goods game (PGG). We find that a brief lesson that includes the assumptions of self-interest and strategic considerations moves behavior toward traditional economic rationality in UG, PD, and DG. Despite entering the study with higher levels of selfishness than others, subjects with prior exposure to economics instruction have similar training effects. We show that the lesson reduces efficiency and increases inequity in the UG. The results demonstrate that even brief exposure to commonplace neoclassical economics assumptions measurably moves behavior toward self-interest.

The Effect of Cognitive Moral Development on Honesty in Managerial Reporting

This study examines whether truth-telling in the form of honest reporting is associated with cognitive moral development. Conventional agency theory assumes that people are self-interested and willing to tell a lie to increase their personal payoffs, while recent empirical evidence shows that some people give up monetary rewards to tell the truth (e.g., Evans et al., Account Rev 76:537–559, 2001). The social psychology literature suggests that cognitive moral development influences individuals’ ethical decisions. We carried out an experiment whereby participants submitted managerial reports in which truth-telling decreased their monetary payoff. Despite the fact that their decisions were not subject to monitoring, auditing, or reputation effects, some participants reported honestly or partially honestly. We find the relationship between honest reporting and cognitive moral development to be both positive and linear. Compared with those at lower stages of cognitive moral development, participants at higher stages of cognitive moral development were more likely to submit an honest report and give up potential monetary gains from lying. We further examine the economic impact of honest reporting on the firm’s profit. With the assumption of self-interest and profit maximization, Antle and Eppen (Manag Sci 31:163–174, 1985) suggest that a contract with a hurdle-rate feature reduces managers’ information rent. We find that in comparison with the expected outcome of a hurdle contract, the firm can yield higher profits with a trust contract by hiring managers with a P-score higher than 16.67.

Deriving 'General Principles' in Adam Smith: The Ubiquity of Equilibrium and Comparative Statics Analysis Throughout His Works

This paper contributes to the debate over the unity in Smith's corpus by emphasizing Smith's pervasive methodological approach based on an assumption of self-interest. Specifically, Smith consistently relies on equilibrium arguments to explain why a given pattern of economic, political, or social interaction is stable; and comparative static arguments to explain how a stable pattern changes. Some scholars have noted this technique in Smith's economics; however, missing in the literature is an appreciation for Smith’s usage of equilibrium and comparative statics arguments virtually every topic that he studies. As we demonstrate, this includes his explanation of morality and benevolence; the theory of languages; the political economics of development; and his theories of law, politics, and government, such as the form of government, property rights, family structure, and virtue in his famous “four stages” theory of history. We close the paper by arguing that equilibrium and comparative statics analysis has significant implications for the contents of Smith's so-called “missing second book” on government, law, and jurisprudence.

Toward a New Economic Sociology of Development

What explains the differential growth rates that foster international income inequality? The leading sociological answers have taken conflicting positions on the assumptions of self-interest and diminishing returns that are taken for granted in the neoclassical literature. While modernization theorists traced the periphery's inability to take advantage of diminishing returns in the core to “traditional” values that allegedly militated against savings, investment, and growth, and thus denied the universality of self-interest, their neo-Marxist successors traced underdevelopment less to the values of the poor than to the “cumulative” advantages of the rich, and thus denied the inevitability of diminishing returns. The result is a two-front assault that suffers from a serious coordination problem, and I therefore take issue with both the neoclassical accounts and their critics by, first, calling the validity of their assumptions—self-interest and diminishing returns—into question and, second, defending an alternative approach that treats the subordination of self-interest to norms of fairness, trust, and cooperation in the short run as the sine qua non of increasing returns and growth over the long run. The research challenge, therefore, is to unearth the roots of collaborative social norms in particular historical contexts—a challenge that will prove more tractable if development sociologists not only abandon the assumptions of self-interest and diminishing returns but embrace the tools and insights of the new economic sociology.

Toward a New Economic Sociology of Development

What explains the differential growth rates that foster international income inequality? The leading sociological answers have taken conflicting positions on the assumptions of self-interest and diminishing returns that are taken for granted in the neoclassical literature. While modernization theorists traced the periphery's inability to take advantage of diminishing returns in the core to “traditional” values that allegedly militated against savings, investment, and growth, and thus denied the universality of self-interest, their neo-Marxist successors traced underdevelopment less to the values of the poor than to the “cumulative” advantages of the rich, and thus denied the inevitability of diminishing returns. The result is a two-front assault that suffers from a serious coordination problem, and I therefore take issue with both the neoclassical accounts and their critics by, first, calling the validity of their assumptions—self-interest and diminishing returns—into question and, second, defending an alternative approach that treats the subordination of self-interest to norms of fairness, trust, and cooperation in the short run as the sine qua non of increasing returns and growth over the long run. The research challenge, therefore, is to unearth the roots of collaborative social norms in particular historical contexts—a challenge that will prove more tractable if development sociologists not only abandon the assumptions of self-interest and diminishing returns but embrace the tools and insights of the new economic sociology.

The Veil of Ignorance and Solidarity in Healthcare: Finding Compassion in the Original Position

In this paper I will juxtapose the concept of the veil of ignorance – a fundamental premise of Rawlsian justice as fairness – and solidarity in the context of the organisation of a healthcare system. My hypothesis is that the veil of ignorance could be considered a rhetorical tool that supports compassion solidarity. In the concept of the veil of ignorance, I will find some crucial features of compassion solidarity within the Rawlsian concept of “reciprocity” (actually, not being reciprocity at all) – located between “impartiality” and “mutual advantage”. I conclude that, even behind this “thick” veil, some essential, yet “particular” facts on health and wealth redistribution are available to decision makers. Lastly, I discover that by means of the assumption of self-interest in the original position the veil aims to convert egoism into empathy, thus invoking the solidarity of compassion that in turn could be translated into principles of the organisation of a healthcare system.

Microeconomic degrowth: The case of Community Supported Agriculture

In this paper, we attempt to build a new microeconomic approach that could be considered as a basis of the degrowth macroeconomic view. As degrowth is a critique of the dominant macroeconomic model of the endless search for economic growth, its microeconomic foundations can be built by searching a relevant grass-root economic initiative to theorise. Our approach is based upon the case study research of a self-harvesting Community Supported Agriculture in Belgium. The mainstream microeconomic model is based on the well-known Homo economicus assumption of individual self-interest and competitive behaviour. By contrast, our model is based on a holistic approach of producers and consumers, based upon trust, cooperation and ecologically responsible behaviours. This contribution participates to the flourishing literature on degrowth in Ecological Economics. We begin by reviewing the debate on degrowth and economic behaviour. We discuss the case study and its accounting expression that departs from the capitalist profit-seeking model. We conclude by explaining the limits and challenges of our model that implements degrowth on a small scale and in a capitalist environment.

Prosocial People Take Better Care of Their Own Future Well-Being

There is neuroscientific evidence that people consider future versions of themselves as other people. As a result, intertemporal choice should refer to the interaction between multiple selves. We combine this notion of multiple selves in delay discounting with the approach for other-regarding preferences known as Social Value Orientation. The Social Value Orientation is a psychologically richer framework that generalizes the economic assumption of narrow self-interest. People are assumed to vary in their motivations toward resource allocation between them and the others. When making such allocation decisions they may still be individualistic, but can also be competitive, prosocial, or even altruistic. We apply an experimental measure of impatience to a sample of 437 undergraduates, measure their Social Value Orientation, and collect selected demographic variables: gender, age, handedness, parenthood, religiousness, and current emotional state. We find prosocial participants to be more patient. Those who care for the others in the present also take better care of themselves in the future. We also find a participant’s age and handedness to matter for his or her Social Value Orientation.

Agency Theory and Bounded Self-Interest

Agency theory draws attention to certain behaviors of CEOs and boards that, in aggregate, create losses for society. The empirical literature, however, characterized by contentious findings, suggests that the current form of agency theory is not supporting a clear understanding of these behaviors and their costs. We propose a change to one assumption, with potentially profound implications. Expanding on the assumption of narrow self-interest underlying agency theory, we apply an empirically well-established refinement that self-interest is bounded by norms of reciprocity and fairness. The resulting logic is that perceptions of fairness mediate the relationships derived from standard agency theory through positively and negatively reciprocal behaviors. This mediating variable provides a parsimonious new way to help explain extreme results found in prior studies. Rather than aiming to limit CEOs’ self-serving behaviors, boards that apply these arguments improve social welfare by initiating positive reciprocity and avoiding unnecessary, welfare-reducing “revenge” behaviors.