Ethics and Economics: An infinite game

Sustainability, ensuring the future of life on Earth, is an infinite game, the endless expression of generosity on behalf of all.

Paul Hawken

Whenever I tell anyone I am getting my PhD in Economics, I usually get two reactions: The ones who think I do Business, and the ones who think I study inapplicable models. In some sense they are both right, and yet, incredibly wrong.

In my studies I don’t “do Business” per se, but rather I understand how they work, what are their incentives, their role in society, the relationship between CEO’s and shareholders, the relationship between employer and employees, the relationship between the firm and its competitors…so to some extent, I understand business strategy, an why some might some in sme situations and not on others, and so on, so forth.

I also so study models, which is so man was are a simplification of reality and filled with somewhat “unrealistic” assumptions…but in most of those cases, the intent isn’t to reproduce reality in a model, but rather dissociate reality’s parts in order to understand its composition, the hiden forces which drive each and everyone of us to arrive in an equillibrium (as a Game Theorist, I could add: The point where no one involved wishes to change their strategy towards a certain situation). From my point of view, when facing reality and its complexity, you have two options: to summarize or synthesize (i.e. either pick the main points and ignore its details or to break it into parts, try to understand the pieces and join them later on during analysis). There are very good economic models that will perform both of these functions.

But with no doubt, I believe the greatest misconception people have when comes to Economics is the idea that in all of our models people are sefish. I have to admit, this may have been enforced and grown by even some of our authors, as it is expressed on the quote below by Adam Smith’:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

And yet, if you keep reading his book, and go beyond the available common sense of his work, you would come across:

To feel much for others and little for ourselves; to restrain our selfishness and exercise our benevolent affections, constitute the perfection of human nature.

We would indeed understand that regarding our own interests and being selfish are two different things, because if I in my human nature develop the care for others’ well-being, than my interests include the greater good, and there is nothing more beautiful than this. As a matter of fact, models such as “Overlapping Generations”, “Inner-Species Evolutionary Game Theory”, “Ricardian Tax models”, and many others have built-in parameters for the control of “How much we care for others well-being” to better calibrate people’s decisions (but those are all exogenous variables). So we, Economists as the Social Scientists we are, have already developed the tools to understand how people will make decisions, taking their interests as given, now it is up to society to grow in caring for one another, so that people’s decisions may reflect the ethics and morals we all long for.

Going back to the quote I started my post with, Sustainability and the future of Earth is the result of a continuous choice, in which generation after generation goes through the trade off of over using natural resources for their own benefit, and caring enough for future generations to make sure they have access to them.