How is rational egoism compatible with socialism?

Pure egoists are rare

Although most normal people do not actually believe in him, he does exist: the economist who rationally pursues his own self-interest, the "Homo Oeconomicus". It not only populates economists' textbooks and provides the basis for countless economic policy proposals. He also lives among us. Japanese researchers found it around 2014 in a suburb of Tokyo: Individuals who consistently pursue their self-interest do not cooperate with others if they do not believe it will benefit them; are above average intelligent and rational; have their impulses under control and - no wonder - are economically successful.

How did the researchers discover Homo Oeconomicus? Most of the time it doesn't have a special color or a characteristic smell. They identified him with the experiments that are now common in behavioral economics. The researchers let 446 randomly selected people play with each other for real money stakes. In two games, the test subjects had the choice of being cooperative or selfish-rational. The stake was given to them, and whatever they had in their pocket at the end of each game they were allowed to keep.

Both games only lasted one round and the players had no way of knowing who they were facing. The idea behind these anonymous one-round games: the actions of the actors have no social consequences. Those who consistently behave selfishly do not have to endure the anger of others; At the same time, there is no recognition from anyone for generosity and good cooperation.

Selfishness without consequences

At the beginning of the first game, the so-called dictator game, the test subjects received their stake and the information that their anonymous playing partner had not received any money. Then, as dictators, they were allowed to decide whether, and if so, how much of their money they would give their gambling partner. Sure, those who rationally pursue their self-interest here keep all their efforts to themselves. And because the respective playing partners have no sanction options, the dictator's egoism has no consequences.

In the second game - the prisoner's dilemma - not just one, but both (again anonymous) game partners receive money. If you give something to the other person, the amount they receive is doubled by the game management. If both get 10 euros each at the beginning, they could end up with 20 euros each in their pockets, for example. That would be the case when everyone is willing to give all of their money to the other.

How does the rational Homo Oeconomicus behave here? Since neither player knows how much money the other is giving away, the egoist simply keeps his money to himself and avoids the risk of ending up with less or nothing. If the other player is not an egoist and gives some or all of his money cooperatively, the egoist can pocket up to 30 euros. The cooperative player, on the other hand, suffers the loss that the egoist tries to avoid.

In both games - the "Dictator Game" and the "Prisoner's Dilemma" - a total of 16 percent of the 446 suburban residents examined behaved perfectly selfishly: So there really is Homo Oeconomicus. But it is just the exception. The vast majority of the subjects - 84 percent - did not behave like this. The Homo Oeconomicus does not seem to be a typical representative of the human species. Over a quarter of the players - 28 percent - even behaved consistently cooperatively: In the dictator game they gave up an average of 50 percent of their money without knowing the beneficiary; and given their money to the other in the prisoner's dilemma. That is, at least in this experiment, more people behaved altruistically than selfishly. The rest - with 56 percent more than half of the test persons - sometimes acted cooperatively in one game, sometimes selfishly in the other, i.e. sometimes took and sometimes gave.

Fairness and norms

These results are not a Japanese quirk. No matter where you carry out such experiments: the rational egoists are always in the minority. In an overview of various experiments with very different people, the behavioral economist Armin Falk found that the egoists are never in the majority. Most people were mostly willing to cooperate without maximizing their sheer self-interest.

Much more often than Homo Oeconomicus, the researchers encountered the so-called Homo Reciprocans, the conditional cooperator. He acts according to the motto: As you me, so I you. If you give me something, I'll give you something; if you don't give me anything, i won't give you anything. This kind of people has a feeling for fairness and social norms - and in some cases so strong that they are ready to punish the pure self-interest maximizers for their behavior, even if this entails costs for them.

This can be seen in another typical experiment from the behavioral economists' play box, the so-called ultimatum game. As in the dictator game, only one of the two players, player A, receives a sum of money from which he can give something to the other, player B. In contrast to the dictator game, B has the opportunity to react to A and reject his offer of money. In this case, both players would come away empty-handed.

If B were now a Homo Oeconomicus, he would accept every offer, no matter how small, because little is still better than nothing. And A would offer some money because B can punish him at no cost if A does not give anything. But A would offer as little as possible. In this experiment - which was carried out with thousands of people from many different cultures - it turns out that most people reject A's offer if it is around a quarter of the total (the threshold differs depending on the culture). So they would rather forego the money than allow themselves to be treated unfairly.

From the point of view of the individualistic egoist, this behavior makes no sense at all, because B has none of it. From the point of view of society, however, it makes a lot of sense: By being willing to take on the costs of punishing selfish behavior, they increase the likelihood for the whole group that all group members will behave cooperatively. And that works: If the test persons play several rounds of the ultimatum game together, the sums offered by the respective A’s increase. They know that if they don't abide by social rules and their supply is too low, they will lose everything.

So far so good. But what follows from this? It gets really interesting when you look at what happens when economic and reciprocal people meet within groups. Then very strange things arise: There are groups in which nobody works with anyone, although the majority of people are actually cooperative and only a minority are purely selfish. Conversely, there can be groups in which everyone works together, although most of them have purely selfish motives and only a minority is cooperative.

Punishment works

The researchers found this out by means of special cooperation experiments with more than two test subjects: The test subjects receive money again and can decide whether they want to keep it or put some of it in a joint pot. The scientists add something to the total that ends up in the pot, so that the pot is a bit larger than the sum of the individual contributions. From this common pot, everyone receives something in equal parts. You can think of it as taxes or some kind of insurance. People played this game over several rounds and could see who was giving something and who was not.

Unsurprisingly, it has been shown that the egoists do not give up anything again. So if all were egoists, the common pot would always be empty. In the first round, however, the reciprocals first threw part of their original sum into the common pot with the optimistic expectation that others would behave in the same way. Because the egoists consistently give nothing at all, the pot will not be empty, but smaller than the optimists thought at the beginning. Because, as homines reciprocansis, they follow the behavior of the others, they threw less into the pot in the next round than in the first round; the pot was again less full than expected, etc. After a few rounds nobody put anything into the pot. No one relied on the others anymore, just as if they were all pure egoists. Such results have come out in very different variants of cooperation games: Despite many willing to cooperate and only a few egoists, the entire cooperation collapses.

But that all changes when the group members suddenly have the opportunity to punish the egoists. They can do that by paying to have sums of money withdrawn from the egoists. So they have to make their own contribution to enforce their fairness norm - which they mostly do.

With this possibility of punishment, the behavior of the group members suddenly changes massively despite the same group composition: Since a majority is usually willing to punish the egoists, they put more money into the common pot than they would give without a penalty; Because everyone knows that non-cooperation will be punished, everyone gives more - the optimistic expectation of cooperation has a basis so that cooperation increases and then remains consistently high.

The wonderful thing about it: The cooperation can be high for a long time even if there are relatively many egoists and only a few genuinely willing to cooperate. So it is often the rules - here the possibility of punishment through withdrawal of money - that decide whether a group works together or not and not necessarily the individual attitude of the people involved to the value of the cooperation.

What are the rules?

What are the consequences for the real (economic) world? Obviously, these results are interesting for the tax system, for example. If more and more people openly get away with tax evasion or even boast about not paying taxes in public, like the current US President Donald Trump before the elections, this undermines everyone's willingness to pay taxes at all. This can then lead to higher levels of tax evasion. But then there is less money for public goods such as schools or infrastructure.

Even on the free market, bad selfishness can cause difficulties: customers are willing to pay higher prices if they get higher quality for it. But if an entrepreneur lowers quality with the intention of increasing his profit at the same prices, he loses the trust of his customers. If too many suppliers do this, the quality of all products suffers, buyers stay away and profits drop. Nobody benefits from that in the long run. Similarly on the labor market: If employers pay higher wages, employees perceive it as fair and are also willing to work more and better. If wages fall, the willingness to do more than is formally stated in the employment contract also falls - the efficiency of the economy falls.

Overall, the Homo Reciprocans seems to be a likeable contemporary. Under the right conditions, it cooperates and enables human collaboration that a bunch of egoists à la Homo Oeconomicus would not be able to achieve. But it also has a dark side, as Armin Falk warns: Homo economicus does not care about revenge and retribution because they are expensive and time-consuming - but not homo reciprocans.

The motto of the Homo Reciprocans - "So you me, so I you" - can in fact overturn into the motto "An eye for an eye, a tooth for a tooth" and end in war and ruin. Adhering to social rules is important to homo reciprocans, but it also depends on which rules apply. So the homo reciprocans is not an altruist, even if he can behave like that under the right conditions. But he is a far more interesting and complex contemporary than his coldly calculating, selfish cousin from the economics textbooks and the suburbs of Tokyo.

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