Altruism, identity and social image

A similar example is described by Bruno Frey and Felix Oberholzer-Gee in their study investigating how citizens' willingness to accept a nuclear waste repository in their community. The location of hazardous sites presents us with the classic NIMBY (Not in My Backyard) problem. A phenomenon whereby individuals would prefer not to incur an individual cost in order to generate a social benefit for their fellow citizens elsewhere, who will only enjoy the benefits of this choice without bearing any cost. It is usually assumed that if a rational, self-interested agent chooses not to perform a certain action, it is only because the associated costs outweigh the benefits. A public intervention, therefore, that wanted to increase the willingness to accept a hazardous site would only have to reduce the costs or, symmetrically, increase the benefits associated with the consequences of that choice. This is why people generally think they can solve problems such as NIMBY through various forms of monetary compensation. Frey and Oberholzer-Gee therefore decided to conduct their research in a region of Switzerland where government officials were trying to install a radioactive waste storage site. As part of the study, 305 randomly selected subjects from two communities potentially suitable for the installation of the repository were interviewed.  Respondents were initially asked whether they would be willing to accept the facility in their community. About half, 50.8 per cent, of the participants say they are willing. In a second phase, an attempt is made to increase this level of adherence through an intervention involving different forms of compensation: sums of money ranging from two thousand to six thousand dollars per year for each member of the communities involved in the project. Now, for the same cost, the benefits of accepting the hazardous site are much greater and so, one would expect, adherence to the project should increase. But on the contrary, willingness decreases from 50.8 per cent in the absence of compensation to 24.6 per cent in the case of compensation, and this regardless of the amount of such compensation. The prospect of receiving monetary compensation in exchange for the willingness to overcome the NIMBY problem leads half of those who originally said they were in favour to change their minds and oppose the project ("The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out". American Economic Review 87, pp. 746-755, 1997).

Underlying the findings of these two studies is an important issue, namely, how incentives influence our motivations and choices.

The main channel conveying this influence is the 'price' channel. The 'price effect' of incentives works by altering the relationship between the costs and benefits of each individual action. In the case of compulsory vaccination, imposing penalties on those who do not comply would have increased the costs of that choice for the same benefits. In the case of waste storage in Switzerland, on the contrary, subsidies would have increased the benefits for the same costs. Yet both studies point to unintended consequences. Beware because this does not mean that monetary incentives do not work - we have discussed their effectiveness on many other occasions - but rather that they work too much. Alongside the 'price effect', in fact, in many circumstances a 'psychological effect' is also triggered, which interacts with the underlying motivation. Both those who vaccinate voluntarily and those who would be willing to 'do their bit' by accepting a waste dump near their home would do so by virtue of that propensity to gratuitousness which we discussed in last week's Mind the Economy and which is deeply rooted in our moral codes and reinforced by circuits in our brains. The use of economic incentives or disincentives, such as compensation in Switzerland and sanctions in Germany, only alters the nature of these motivations, weakening them. Transforming them from intrinsic to extrinsic, from deontological to instrumental.

The psychological reasons behind this phenomenon are varied and are linked to an impatience with control, a reduced sense of responsibility and the impact these interventions have on our social and personal 'image'. This last effect, in particular, has to do with what we imagine others think of us but also with what we ourselves think of ourselves.

It is understandable why, then, certain motivations to perform altruistic actions take on another meaning and strength if they are visible and observed by others.  Economist Patricia Funk, for example, observed a few years ago that the introduction of postal voting in Switzerland, while lowering the cost of casting a vote, has made the choice to vote invisible. Making it easier and cheaper to vote should encourage voter participation. The problem is that people who vote by mail do not meet their fellow citizens at the polling station and therefore cannot see that others have voted and show that they too have voted.

Fuck's data show that this has led, especially in small municipalities, to a reduction in electoral participation ('Theory and Evidence on the Role of Social Norms in Voting'. SSRN Working Paper, 2005). The Israeli economist Uri Gneezy highlights the same principle by telling the story of the Honda fiasco and its hybrid cars launched in the early 2000s on the American market. The launch took place almost simultaneously with that of the Toyota Prius. But while the Prius was a huge success, the Honda was a resounding flop. The main reason for Toyota's success - as Gneezy explains - lies in the fact that the Prius is an ugly, oddly shaped car that is immediately recognisable. Honda's hybrid model, on the contrary, was aesthetically very similar to traditional cars. Those who bought it therefore could not 'signal' that they were driving a hybrid car, that they had decided to spend a little more to help reduce harmful emissions. On the other hand, those who drove around with the Prius could make everyone aware of the altruistic choice they had made and this, of course, benefited their 'social image' and 'self-image'. "By choosing to buy a Prius," writes Gneezy, "consumers announced to themselves and to the world that they were the kind of person willing to sacrifice a lot for the environment" (Mixed Signals. How Incentives Really Work. Yale University Press, 2023).

In order to bring into a coherent framework some of the elements that emerged from these studies, elements that are not generally taken into account in standard microeconomic models, Roland Bénabou and Nobel Prize winner Jean Tirole developed an articulate theory of prosocial behaviour. The starting point is the observation that people differ with respect to multiple dimensions: with reference to the degree of individual altruism and selfishness, the importance they assign to their social image and self-respect. The main property of the model is that the behaviour we observe, both prosocial and antisocial, is the result of a combination of three different motivations: intrinsic, extrinsic and reputational motivations. Their model is able to account for evidence in at least four different areas. The first is that concerning rewards and punishments. The model shows that the presence of extrinsic incentives reduces the reputational value of good deeds - as in the case of the nuclear waste repository in Switzerland - because it raises doubts as to whether these are done instrumentally and not genuinely, to make a profit and not because one genuinely believes in the goodness of the action itself or the cause.

The second area concerns our public behaviour, the role of honour and shame. Making certain actions more visible, whether through sharing on social networks or through outward signs (rosettes, stickers, observable symbols or the strange shape of the Prius) reinforces the motivation linked to reputation, thus encouraging prosocial behaviour. However, excessive visibility may also increase suspicions that such actions are motivated only by considerations of outward appearances. This belief may significantly reduce the effectiveness of policies based on social image, praise or shame.

The third area concerns the subject of social norms and the influences that can be generated by the behaviour of others. For example, an incentive may discourage a certain behaviour, while a sanction may encourage it. In this regard, one may recall Uri Gneezy and Aldo Rustichini's experiment with parents who picked up their children late from kindergarten. After the introduction of a fine for latecomers, their number grew instead of shrinking ('A Fine is a Price'. Journal of Legal Studies 29, pp. 1-17, 2000). More generally, the decisions of individuals will be complementary or substituted for those of others depending on whether reputational concerns are more oriented towards avoiding the stigma of non-conformity or emphasising the need for distinction and originality. The former usually occurs when there are few intrinsically motivated altruists and when there are few good excuses for not doing what others expect of us. The search for distinction will be more likely, on the other hand, when there are many altruists and many excuses for not doing one's part. The fourth area of exploration of the model concerns the effects of competition and social welfare. When, in fact, non-profit organisations, charities, NGOs or even public agencies use reputational leverage to push people to contribute to or invest in socially beneficial projects, they do not take into account the strategic effects that such incentives may have, nor the fact that reductions in social welfare may be generated without improvements in the financing of public goods. When these actors then compete with each other for larger shares of contributions and donations, the negative results are further exacerbated.

In another paper that we will discuss in next week's Mind the Economy, again Bénabou and Tirole apply these ideas and a similar theoretical framework in the organisational domain. In an attempt to reconcile the economic axiom that individuals respond to incentives and the psychological perspective that rewards and punishments can frequently prove counterproductive because they destroy 'intrinsic motivation'. Bénabou and Tirole's model shows how the extrinsic incentives offered by a manager, a teacher or a parent can have a negative impact because of their effect on the perception that workers, students or children have of the task they are being asked to perform and which is being incentivised. These are issues that, as we shall see and as the two French economists point out, 'raise an interesting set of questions in addition to institutional design issues concerning the optimal organisation of educational and work environments'.
(*) Professor of Economic Policy at the University of Cagliari