The Hidden Hand
The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life
By Uri Gneezy & John A. List
PublicAffairs, 288 pages
The range of subjects covered by those who deem themselves economists has exploded in recent decades. Today, it is not unusual to find articles in economic journals on topics as diverse as crime, marriage, environmental pollution, and even drug addiction. The movement away from traditional topics such as exchange rates and monetary policy is largely due to the pioneering work of Nobel Prize–winning economist Gary Becker. Growing up in New York in the 1930s and 40s, Becker was the frequent target of anti-Semitic slurs, and, as a student in the 50s, he used that experience as a basis for economic inquiry. While studying with Milton Friedman at the University of Chicago, Becker applied economic reasoning to demonstrate that when people discriminate based on prejudice, it reduces their own incomes as well as those of the affected minority. While many felt that such issues were best left to psychologists and sociologists, Becker persevered. By the time he won the Nobel Prize in 1992, a whole host of social-science topics had become part of the economics mainstream.
Naturally, using an economics lens to examine colorful phenomena such as sumo wrestling or drug dealing helps to expand the audience for academic economics. The books Freakonomics and Super-Freakonomics, co-authored by Steven Levitt and Stephen Dubner, did just this and were bestsellers. The Why Axis, by Uri Gneezy and John A. List, clearly seeks to follow upon the heels of those “crossover” successes. Indeed, research by Gneezy and List figured prominently in Freakonomics, and, in turn, Steven Levitt has written the foreword to The Why Axis.
Gneezy is best known for his work investigating the use of fines to discourage late parental pick-ups from Israeli day-care centers. Surprisingly, the imposition of fines was found to increase the incidence of late pickups. This demonstrated the importance of non-economic consequences, such as the guilt parents feel by forcing day-care providers to stay late, relative to monetary penalties (the incentive traditionally emphasized by economists). While The Why Axis is full of similarly provocative findings, Gneezy and List’s main innovations here are actually methodological.
Randomized laboratory experiments, the gold standard for scientific research, have long eluded economists; the world’s economies exist outside of lab conditions. Frequently, therefore, economists use statistics in an attempt to emulate the precision of controlled research. List and Gneezy, however, both of whom only received their Ph.D.s in economics in the mid-1990s, happened upon a new idea: They could attain near laboratory conditions through the use of randomized trials in the real world. For example, one might test the efficacy of various techniques for increasing charitable donations, such as matching funds and entering donors in sweepstakes, by trying both strategies on randomly selected members of a potential donor pool.
The Why Axis contains valuable summaries of this approach to research in three areas: charitable giving, inequality, and discrimination. But Gneezy and List make a problematic detour in the direction of research-based policy. When their science meets their ideology, the latter seems to dominate. Consider the discussion of their research among the Khasi, a matrilineal tribe in northeast India. They find evidence to suggest that the Khasi males are less competitive than Khasi females, suggesting that the tendency for males to be the more competitive sex in most other societies might be the result of “nurture” rather than “nature.” But this research is introduced in the context of a larger assumption that they do not bother to question: that women are not paid as much as men. The authors ignore the extensive research showing that this supposed pay gap shrinks—arguably disappears—when observers control for factors like education, job tenure, and professional responsibilities. Additionally, Gneezy and List go on to advocate for programs that raise the self-esteem of girls while taking no notice of the work of Christina Hoff Sommers and others who’ve found that such programs can have a devastating effect on boys.
In their discussion of discrimination, the authors make a useful distinction between prejudice motivated by animus and “economic discrimination,” which they define as the charging of different customers different prices for the same good. Economic discrimination is motivated by the desire for more profits. For example, movie theaters may seek to increase their profits by charging middle-aged adults more than students since the middle-aged are likely more able or willing to pay. The authors find that prejudice motivated by animus appears to be waning, while economic discrimination is increasing. It is difficult to disagree with their common-sense recommendation that consumers protect themselves by comparison shopping or at least by appearing to be informed customers. Moreover, perhaps government could play some role by providing more information to consumers about their choices. Nevertheless, Gneezy and List ignore many aspects of economic theory regarding economic discrimination. For example, it is not clear what the price of a given good or service would be in the absence of economic discrimination. Would it be closer to the high price charged those with a greater willingness to pay or to the lower price of those who won’t or can’t pay more? It is very difficult, if not impossible, to predict. Indeed, it may be that economic discrimination often makes a good or service available to more customers than would otherwise be the case. From a policy standpoint, placing limits on the ability to engage in economic discrimination may hinder firms from experimenting with prices. Whether or not Gneezy and List realize it, the private sector has long been conducting its own “field research.”
For those readers slow to pick up on ideological bias, the authors provide a helpful bit of commentary in their exploration of charity: “Some folks on the fringes of the right-wing see National Public Radio (NPR) as one of the places where liberals gather to launch socialist plots.” NPR, they then note, “actually is a pretty good organization.” If this claim now falls within the bounds of academic economics, perhaps the science’s limits have been pushed far enough.