Natural born economists?

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Abstract

We carried out a survey among a large group of undergraduate students of different disciplines to test whether the study of economics influences students’ view on profit maximization and the market mechanism. We find that there are significant differences between economics students and the others, suggesting the presence of both a selection bias against the market system in non economics students and a treatment effect in economics students.

Introduction

A number of papers have recently considered how the study of economics influences students’ views on the virtues of the market system and their acceptance of the standard “nonfairness assumption” employed by the traditional economic theory. The general result is that economics teaching has an influence on those views and tends to make students more selfish. If true, this should be carefully considered by our profession since our teaching methods could have an impact on students’ actual behavior in situations that require a balance between profit maximization and ethical aspects.

Kahneman, Knetsch, and Thaler (1986b) revisited the concept of fairness using household surveys of public opinions to identify the standards of fairness and their possible implications on market outcomes. All questions asked involved a firm making a decision on prices or wages that affects some transactors. They find that many actions which would be implied as a result of the standard profit maximization approach are in fact perceived as unfair exploitation of market power by the public. The authors point out how this result has clear implications in so far as it may influence a company’s reputation or even the legislation.

Since then, many other papers have focused their attention on the different behavior of economists, in general economics students, with respect to other groups and they generally found substantial differences. For example, Gorman and Kehr (1992), using the same questions of Kahneman et al. (1986b) find that business executives have a different attitude towards fairness than the general public in that they are less inclined to judge profit maximizing behavior as unfair. Also, Marwell and Ames (1981) found that economics students were more likely to be free riders.

Other papers have studied specifically the issue of self-selection. In this literature, Carter and Irons (1991) use an ultimatum bargaining experiment to find that economists’ behavior is closer to the game-theoretic solution, i.e., they propose to keep more and the other party is available to keep less, than non-economists. However, they also find that this result is essentially due to a self-selection mechanism, since freshman economists are more inclined to behave according to the rational self-interest model than non economists. They do not find evidence for the learning hypothesis since economics students were no more different from the others at the beginning of their studies than at the end. On the contrary, another paper that considers the same ultimatum game, Stanley and Tran (1978), finds that economics students are less motivated by self-interest than other students. However their evidence is based on a rather small sample.

Again on the issue of learning (or indoctrination) versus selection, Frey, Pommerehne, and Gygi (1993) begin by discussing Marwell and Ames (1981) result, cited above, which they find consistent both with the selection hypothesis (an “innate” willingness to apply the price system) and the indoctrination hypothesis (a willingness to behave according to the orthodox economic theory after exposure to formal economic education). Their study tries to discriminate between the indoctrination and the selection hypothesis by distinguishing advanced students from beginners and by using, as a control, a sample of the general population randomly drawn from the telephone directory. They conclude against the indoctrination hypothesis and in favor of the selection hypothesis. On the contrary, Haucap and Just (2003) replicate the same experiment as Frey et al. (1993) on their own students and find just the opposite: the indoctrination effect is important and significant.

Frank, Gilovich, and Regan (1993) carry out a survey on charitable giving by mailing questionnaires to college professors from different disciplines asking them to report their charity giving. They find that economists are among the least generous. Also in a prisoner’s dilemma game situation, they find that economists appear to behave less cooperatively than non-economists. By comparing upperclassmen from underclassmen, they find that there is a trend towards more cooperative behavior towards graduation but not among economics students, which is not inconsistent with the learning hypothesis.

Frey and Meier, 2003, Frey and Meier, 2005, differently from Frank et al. (1993) carry out an analysis of actual charity giving and find no evidence for the indoctrination effect, while there is a selection effect in that business economics students appear as more selfish than the average student. Although their paper has the advantage of addressing this issue in a natural setting, the sum of money involved is fixed (the only decision is whether to contribute or not) and rather small and the control variables include only gender, nationality and age. Some of these studies do not test students at the very beginning of their courses but a couple of months later, when already some economics had been studied (although some, like Carter and Irons (1991), point out that this was macroeconomics and not microeconomics).

Our work has been inspired by a recent paper by Rubinstein (2006). He criticizes the existing literature which, in his opinion, has not provided decisive evidence to support the claim that the study of economics influences students’ views. His main experiment deals with the different (students’) views on the profit maximizing behavior when the pursuit of the company’s objectives is in direct contrast with the workers’ welfare. However, as Rubinstein admits in the paper, a major drawback of his study is its inability to distinguish clearly between a selection effect and indoctrination. A major objective of our paper is to shed some light on the role of selection vs. indoctrination as determinants of students’ opinion in the different economic contexts when there is potential for a trade-off between ethical motives and efficiency considerations. Firstly, we investigate whether economics students have a different perception of the fairness of alternative allocation systems and of market equilibrium outcomes. Secondly, following Rubinstein (2006) we examine if they have different views on a firm’s profit maximizing behavior when higher profits imply fewer jobs.

Throughout the paper we shall use the word “treatment” to denote the effects of economics teaching on students’ views. This rather neutral word has been preferred to the words “learning” or “indoctrination” often used interchangeably in this literature. For example, Frey et al. (1993) call indoctrination the situation in which students “learn to apply economics in daily-life situations in order to perform better than people without economics training, who possibly behave in a more altruistic way”. They use a setting similar to our first two questions asking about the fairness of price increases following an increase in demand and about the best allocation mechanism. Rubinstein (2006), our source for the third question, uses indoctrination to mean that the economics teaching “encourage students to lean towards profit maximization”. Frey and Meier, 2003, Frey and Meier, 2005 refer to indoctrination when “the teaching of economic theory has a negative effect on students’ cooperative behaviors”, i.e., in their paper, if students contribute less than others to a social fund. On the other hand, Carter and Irons (1991) define as learning, in the context of an ultimatum game, the fact that “economics training shapes behavior in accordance with the rational self-interested model”.

Differently from previous studies, we use a larger sample (about 1.5 thousand students) and we present the questionnaire not only to students from different departments but also to students of different years in order to test for the effects of economics teaching. Also, we control for expected income, demographic factors and previous education. In addition, among the economics students we distinguish between those whose degree involves no microeconomics at all from those whose degree involves either a short microeconomics course or an intermediate one. Finally, while some of the previous papers use more heterogeneous groups – for example, Frey et al. (1993) use as a control sample a drawn of households who obviously differ in a variety of ways from undergraduate students – we use other students at the same university attending non-economics courses in order to test for the selection hypothesis.

Our results indicate a significant selection effect supporting the hypothesis of a “natural-born economist”. Moreover, we also find evidence of a treatment effect, since the more the teaching of microeconomics to which economics students are exposed, the more they tend to judge as fair an efficient allocation mechanism or a market equilibrium adjustment. However, we have no unambiguous evidence to suggest that economics teaching tends to create the kind of selfish profit maximizers feared by Rubinstein (2006). The paper proceeds by discussing the data used and the survey design in Section 2. Section 3 presents the analysis and results. Section 4 draws conclusion.

Section snippets

The experiment and survey design

We aim at disentangling the effects of selection into economics and assessing the balance between efficiency and equity considerations after exposure to economics. To do so, in the first place we compare first year students (thus at the beginning of their academic career) from different Departments, to assess whether the students who decide to enroll in Economics are different from the rest. Secondly, to investigate the influence of economics teaching we compare economics students in their

Selection into economics

The first issue addressed in the empirical analysis concerns the existence of a selection effect into economics, whereby students who lean more towards profit maximization, or who give more importance to the functioning of the market mechanism, self-select into the study of economics. Under the selection hypothesis, students’ stance on profit maximizing behavior should be a predictor of the decision to study economics or other subjects. To this end, we consider the sub-sample of first-year

Conclusions

We investigate the effects of the study of economics on the perception of the fairness and efficiency of the market mechanism, and into the conflict between profit maximization and social considerations. Directly aiming at disentangling the selection from the treatment effects, we control for the previous schools type and for other economic and social factors in explaining our results. Comparing economics from other students at the same university, we find evidence of a clear selection effect:

Acknowledgement

The authors thank Nunzio Cappuccio and Raffaele Miniaci for helpful suggestions, Federica Barzi and Dolores Rizzotto for capable research assistance, and two anonymous referees for very helpful comments. The usual disclaimers apply. We also thank our colleagues at the University of Verona for letting us carry out the survey during their classes. Financial support from the University of Verona and MIUR (Cofin 2005) under contract #2005-132539 (Diego Lubian) is gratefully acknowledged.

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