Economists don't believe in civic honesty, but they should

This article by Alain Cohn (University of Michigan), Michel André Maréchal (University of Zurich), David Tannenbaum (University of Utah), and Christian Lukas Zünd (University of Zurich), published in the journal Science (open access), caused a bit of a stir last year. I've only just had the chance to have a proper read of it.

Cohn et al. conducted a field experiment to test the level of civic honesty in 355 cities across 40 countries. Specifically, they:

...turned in “lost” wallets and experimentally varied the amount of money left in them, which allowed us to determine how monetary stakes affect return rates across a broad sample of societies and institutions...

Wallets were turned in to one of five types of societal institutions: (i) banks; (ii) theaters, museums, or other cultural establishments; (iii) post offices; (iv) hotels; and (v) police stations, courts of law, or other public offices...

Our key independent variable was whether the wallet contained money, which we randomly varied to hold either no money orUS$13.45 (“NoMoney” and “Money” conditions, respectively)... Each wallet also contained three identical business cards, a grocery list, and a key.

They found that:

...our cross-country experiments return a remarkably consistent result: citizens were overwhelmingly more likely to report lost wallets containing money than those without. We observed this pattern for 38 of our 40 countries, and in no country did we find a statistically significant decrease in reporting rates when the wallet contained money. On average, adding money to the wallet increased the likelihood of being reported from 40% in the NoMoney condition to 51% in the Money condition (P < 0.0001).

Here's the key result graphically (note that New Zealand is among the countries with the highest level of civic honesty):

Cohn et al. also tried leaving an even larger amount (US$94.15) in wallets in three countries (the U.S., the U.K., and Poland), and that increased civic honesty even more. They then conducted a survey in those three countries, asking people what they expected to happen. They found that:

Respondents predicted that rates of civic honesty would be highest when the wallet contained no money (mean predicted reporting rate M = 73%, SD = 29), lower when the wallet contained a modest amount of money (M= 65%, SD = 24), and lower still when the wallet contained a substantial amount of money (M= 55%, SD = 29).

So, clearly the average person on the street doesn't think that people are as honest as they actually are. And then comes the real 'gotcha' moment in this paper. Cohn et al. ran a similar survey with a sample of "279 top-performing economists", and found that:

...respondents on average predicted that rates of civic honesty would be higher in the NoMoney and Money conditions (M=69%, SD=25 and M=69%, SD=21, respectively) than in the BigMoney condition (M = 66%, SD = 23). These predictions were again significantly different from the actual changes we observe across conditions (P < 0.001 for all pairwise comparisons).

So, apparently economists don't believe in civic honesty. So, what explains this unanticipated (at least, by the public in general, and by academic economists) result? Cohn et al. create a narrative model to explain, where:

...civic honesty is determined by the interplay between four components: (i) the economic payoff of keeping the wallet, (ii) the fixed effort cost of contacting the wallet’s owner, (iii) an altruistic concern for the owner’s welfare, and (iv) the costs associated with negatively updating one’s self-image as a thief (what we call theft aversion).

It is likely to be (iii) and (iv) that explain the desire to return the wallet. In relation to (iv), Cohn et al. rely on their three-country survey, and find that:

Respondents reported that failing to return a wallet would feel more like stealing when the wallet contained a modest amount of money than when it contained no money and that such behavior would feel even more like stealing when the wallet contained a substantial amount of money (P ≤ 0.007 for all pairwise comparisons)...

It's not the most persuasive evidence, particularly since it doesn't preclude (iii) from having an even larger effect. Some further research will be needed to unpack which of those two effects is largest.

However, this paper has highlighted an important issue. As I noted when I reviewed George Akerlof and Rachel Kranton's excellent book Identity Economics, the omission of identity from economic models is a potentially important omission. If the surveyed economists had recognised that the way that people view themselves is an important component of their utility function, and that self-perception as a 'thief' reduces people's utility, then perhaps these results would have been better anticipated, and the surveyed economists wouldn't have looked quite as foolish. Would it be too much to hope for that economists have learned from this?

[HT: Marginal Revolution, last year]