Is It Rational to Be Selfish

10/24/2013 12:41 pm ET | Updated Jan 23, 2014

A cornerstone of economic theory is people behave rationally when they behave selfishly: Rational agents always choose the option that gives the biggest payoffs to themselves.

But here's the rub: Over a decade of research in psychology and experimental economics has shown that people don't do that. Instead, we evaluate choices based on expected payoffs to others as well as ourselves. A simple way to put this is that our choices appear to be equally motivated by a desire for fairness as well as self-interest.

But here's another rub: What constitutes fairness? It turns out that we do not hold people of different social status to the same standards: What counts as fair for a high-status individual does not necessarily count as fair for a low-status individual.

In order to study economic choices, experimental economists frequently use two games, the dictator game and the ultimatum game. In the dictator game, one person unilaterally decides how to divide a sum of money between self and partner. In the ultimatum game, proposers suggest a division which their partners can accept or reject. If the proposal is accepted, the money is divided as proposed. But if the proposal is rejected, no one gets any money. When people are told they had earned the right to be a dictator or proposer based on their performance on a test, dictators and proposers earned significantly more, meaning that low status partners were offered less, made higher offers to high status partners, and were willing to accept lower offers. (For a summary of this work, click here.)

My colleague, Lawrence Fiddick, and I, however, have found the opposite using a slightly different task. We conducted a series of studies across seven countries (Australia, Canada, Germany, Japan, Singapore, UK and USA) in which people were asked a simple question: How willing would you be to maintain a carpooling arrangement in which you drove another person in exchange for their paying for gasoline? To help them decide, they were shown sample payment ledgers in which their partner paid for the gas 100 percent, 75 percent, 50 percent or 25 percent of the time. Some people were asked to adopt the perspective of a boss driving an employee, while others were asked to adopt the opposite (an employee driving the boss).

As you might expect, people were much less willing to continue the arrangement when their partners were unreliable in paying for gas. But what you might not expect is that people were far more tolerant of employee non-compliance than boss non-compliance -- even when the employee was described as making more than the boss (due to a home-based side-business). People who adopted a boss perspective were far more willing to continue the arrangement despite significant non-compliance, were more likely to feel they had been treated fairly, felt less animosity towards their cheating partners and believed they got the better deal because they felt they bore less cost and received higher value from the arrangement. These results were stable across seven countries that differed markedly in value they placed on competition versus cooperation.

We refer to this pattern of behavior as noblesse oblige, a social norm that obliges those of higher rank to be honorable and generous in their dealings with those of lower rank. Another way to put this is that status has social utility. High status confers greater satisfaction than low status, which shifts the balance of cost/benefit ratios accordingly.

The question is why we behave this way. One promising explanation is that those who practice noblesse oblige acquire prestige within their groups based on generosity. Prestige status contrasts with other types of status that are based on a sense of acquired or conferred entitlement.

Results like these suggest that status leads people to behave exploitatively towards losers in ranked competitions, and generously towards lower ranking individuals when doing so will increase prestige.

The take-home message from this body of research is this: What counts as a fair transaction depends in large part on perceived relative social status -- where the parties stand in their perceived hierarchy and how they believe they got there.

Dr. Cummins is a fellow of the Association for Psychological Science and the author of Good Thinking: Seven Powerful ideas That Influence the Way We Think. For this and other books by Dr. Cummins, click here.

For more information about Dr. Cummins, click here.