Civilizing Markets and Separating Economics from Ethics

There is a long tradition in political economic thought that emphasizes the moral virtues cultivated on markets [Fourcade and Healy Reference Fourcade and Healy2007]. The classical proponents of the “doux-commerce thesis” held that markets would foster commerce and nurture a series of noble and civilized virtues. Nowadays, Adam Smith’s Theory of Moral Sentiments [Reference Smith1759] still serves as a popular reference point in convincing economists of the prosperity and freedom promised by the market economy. Therein, Smith claims that “sympathy” actuates our moral interest in the fortune and happiness of others, even though we derive “nothing from it except the pleasure of seeing it” [Smith Reference Smith1759, I.i.1]. Sympathy connects us to each other and, because it precedes and supports impersonal exchange, works as a moral glue to market societies. While we may address “ourselves, not to […] humanity but to […] self-love” and expect our dinner not from “the benevolence of the butcher, the brewer, or the baker […], but from their regard to their own interest” [Smith Reference Smith1776, I.ii.2], our conduct on markets is far from brutish and “red in tooth and claw”. Instead, market exchange impels us to acknowledge the dignity, the respect, and the rights of each of us. Thus, markets would represent the paradigmatic moral relation among people [Otteson Reference Otteson and by2019].

Still today, many mainstream economists are portrayed as market fundamentalists whose belief in the merits of unfettered markets underpins their normative position [Hodgson Reference Hodgson2020: 1154].Footnote ¹ Accordingly, the communicative and conversational aspects of commerce prompt anonymous strangers to agree to the rules of trade and to engage in cooperative tasks in business and at the workplace [Swaney Reference Swaney1983]. As market economies satisfy the basic needs of their populaces, they offer the ideal conditions for their members to forge a responsible and docile character [Brennan Reference Brennan, Baker and White2016], and encourage ethical virtues including honesty, integrity, and civility [McCloskey Reference McCloskey2006]. What is in mind here is apparently an image of a market as a concrete site in which buyers and sellers interact [Swedberg Reference Swedberg, Smelser and Swedberg1994].

However, definitions of markets as areas of actual exchange (“marketplaces”) were gradually replaced by definitions that viewed markets as allocation mechanisms or tools to determine relative prices [Rosenbaum Reference Rosenbaum2000]. During the marginal revolution, the market was established as an analytical device to determine the prices of fictitious commodities under a bundle of technical assumptions. In the post-war period, the role model of the physical sciences further promoted the application of mathematical methods and the development of a technical apparatus, which culminated in a mechanistic view of markets [Arrow and Debreu Reference Arrow and Debreu1954]. During the heyday of general equilibrium theory, the term “market” was thought to directly map onto the principle of the price mechanism [Coase Reference Coase1988: 7]. At that time, the markets of orthodox economic theory were represented by the laws of demand and supply and thought to emerge spontaneously under well-defined property rights and flexible price adjustments [Callon Reference Callon1998; Rosenbaum Reference Rosenbaum2000]. Ultimately, Becker’s “economic approach to human behaviour” [Reference Becker1976] universalized market reasoning beyond its original domain to all social activities, and enabled the analysis of non-market phenomena according to the laws of demand and supply.

In tandem, the model of the market actor—the infamous homo oeconomicus—became tailored to the artificial world of mathematical theories. Adam Smith favoured a multifaceted description of economic agency entailing human propensities, talents, and motivations; but the homo oeconomicus established as the centrepiece of standard economic theory was configured differently [Morgan Reference Morgan2006]. Classical political economists started to reduce the complexity of “economic man” and stripped him down to essential elements, such as the motive for wealth accumulation or the calculation of utility from consumption. What unites these early approaches is that they sought to capture realistically how individuals act in economic affairs. Homo oeconomicus was assumed to be cognitively capable of weighing financial costs and benefits, and to hold psychological and physiological needs underlying his utility.

This changed as homo oeconomicus was recast into a formalized agent designed for “the highly idealized mathematical world of neoclassical theories” [Morgan Reference Morgan2006: 15]. In this stage, economic action became equated with the “neutral” choice of means under scarcity [Backhouse and Medema Reference Backhouse and Medema2009; Robbins Reference Robbins1935]. The neoclassical “model man” was equipped with several unrealistic capabilities that made him function on analytical markets, such as full information and perfect foresight. In the 1970s, rational economic man built one of the three main pillars of neoclassical theory—in conjunction with the tenet of perfect competition and general equilibrium theory. Back then, the psychology and the utilitarian imprint had disappeared and homo oeconomicus neither had a tiny utility generator in his head, nor did he deliberately act to maximize utility.

The mathematical analysis of perfect markets and the formal definition of economic agents distanced economic scholarship from debates about the moral ramifications of markets. The perfectly competitive market of neoclassical economics was a morally free zone [Gauthier Reference Gauthier1986]. With a market model that neglected prolonged social relationships, economists “have been unable, or rather have tied their own hands […], to exploit the argument about the integrative effect of markets” [Hirschman Reference Hirschman1982: 1473, original emphasis]. Likewise, if all that was asked of homo oeconomicus was choice consistency, his values were cast aside as inconsequential. The self-perception as value-neutral further liberated economics from the need to “dirty its hands” with moral matters, and so the discipline has outsourced such “messy” speculations to contiguous disciplines. The economic mainstream followed Robbins’ assertion that “economics deals with ascertainable facts; ethics with valuations and obligations. The two fields of enquiry are not on the same plane of discourse” [Reference Robbins1935: 132].

In the following decades, however, an evolving subfield of economics has invoked a different understanding of markets and economic actors, which enabled its practitioners again to theorize moral questions of markets and the market economy. Notwithstanding subtle differences between behavioural economics and experimental economics [Heukelom Reference Heukelom2011], the two branches jointly form a strong and cohesive research program with a strong influence on the economic core business and economic policy.

The Ascent of Behavioural and Experimental Economics and the Rediscovery of the Moral

Although the seeds of experimental economics and “old” behavioural economics were sown throughout the 20th century, it was only in the 1970s that they finally started to blossom [Guala Reference Guala, Durlauf and Blume2010]. As a pioneer of economic experiments, Vernon Smith’s landmark study of the double auction market [Reference Smith1962] was a key influence in the development of market experiments. In tandem with later work by Roth [Reference Roth, Kagel and Roth1995] and others [Davis and Holt Reference Davis and Holt1993; Plott Reference Plott1982], this research has shaped the methodological convictions of a burgeoning field and provided economists with a “testbed” for their model predictions and with controlled conditions to run “horse races” between competing theories. It was favourable to the popularity of these experiments that standard economic predictions not only performed well in experimental markets but also held under weaker information conditions than originally thought [Smith Reference Smith1976]. Thus, as econometrics started to lose credibility [Panhans and Singleton Reference Panhans and Singleton2017] and general equilibrium theory was in demise [Rizvi Reference Rizvi, Fontaine and Leonard2005], experimental economics was able to gain a foothold in the economic mainstream. Today, experimental economics has developed into a fully-fledged research program, which is taught at universities around the globe, has gradually increased its share of articles in the top economic journals up until 2010 [Nikiforakis and Slonim Reference Nikiforakis and Slonim2019]Footnote ², and has been honoured by Nobel prizes to Vernon Smith in 2002 and Alvin Roth in 2012. The growth of market experiments accelerated particularly when they were put to practical use as guides to policy making and for the design of actual auction markets [Guala Reference Guala2001; Muniesa and Callon Reference Muniesa, Callon, MacKenzie, Muniesa and Siu2007; Roth Reference Roth2018].

Around the same time, “new” behavioural economics was starting to gain momentum in economics, drawing on findings from cognitive psychology. In the 1970s, the two psychologists Kahneman and Tversky published their seminal articles on their “heuristics and biases program” [Tversky and Kahneman Reference Tversky and Kahneman1974] and “prospect theory” [Reference Kahneman and Tversky1979]. Their collaboration with Thaler [Reference Thaler1980], a trained economist, helped to spread their research to a broader economic audience and ultimately laid the groundwork for the emerging field of behavioural economics. Together, their work accumulated numerous deviations from the reigning economic model of choice, and sought to reintegrate them into an empirically informed model of human behaviour. Thus, behavioural economics was launched with the mission to “improve the field of economics on its own terms” [Camerer and Loewenstein Reference Camerer, Loewenstein, Camerer, Loewenstein and Rabin2004: 3] by enhancing its realism, while staying committed to the main tenets of economic methodology [Heukelom Reference Heukelom2014]. Today, the field has evolved into one of the most attractive branches of economics, as attested to by its impact on economic curricula and economic literature [Angner Reference Angner2019; Geiger Reference Geiger2017], and the recognition of Daniel Kahneman in 2002 and Richard Thaler in 2017 by the Nobel prize committee. Most notably, behavioural economics was extremely successful in propagating its knowledge beyond its own academic field, as it seems almost unmatched in exporting its tools (“nudging”) and findings to business, finance, and policy making [Berndt Reference Berndt2015], and communicating its research to the broader public in bestselling books.

Market Experiments

At the outset, market experiments were devised to test the predictions of competitive price theory and the allocative efficiency of the market mechanism. To this end, the essential features of markets were modelled in a laboratory setting. In market experiments, participants act as buyers and sellers submitting “bids” and “asks” for quantities of a fictitious commodity. As market traders, they can observe price offers of the other market side. If a buyer is willing to pay the ask price or a seller consents to a bid price, the respective trade is executed. To create demand and supply, the experimenter provides “induced valuations” [Smith Reference Smith1976] for the fictitious good to the buyers, whereas the sellers mandate production technologies in the form of cost schemes.

Despite their initial intention to emulate the abstract markets of economic theory, experimental markets diverge from them in important ways. While conventional economic theory glossed over the exact procedures and arrangements behind the calibration of demand and supply, in experimental markets these had to be spelled out meticulously. As the experimentalists dealt with real market actors, qua experimental participants, they had to avoid confusion to make the experiment work. Hence, clearly specified trading protocols and explicitly allocated property rights were integral to the setup of the experiment. In consequence, experimental markets involve trade and exchange among real people and are embedded into infrastructures, customs, and rules [Hodgson Reference Hodgson2015: 144].

In this regard, market experiments diverge from views of the market as an equilibrium device and instead treat markets as concrete social arenas involving interactions, negotiations, and adjustments between suppliers, customers, sellers, and buyers [Aspers Reference Aspers, Beckert and Zafirovski2005]. It was evident that experimental markets did not emerge naturally from innate propensities to truck, barter, and exchange, but were invented by the experimenter who defines the rules of the laboratory and the game. These departures from the analytical view of markets opened space for normative questions about the design of markets and the moral conscience of market traders.

Behavioural Experiments

Initially, the efforts of behavioural economics to re-examine the core principles of microeconomics were oriented to uncovering violations of the rationality axiom. In this process, individual decision tasks have revealed a series of “cognitive anomalies” that were amended as corrections to the homo oeconomicus model under the label of bounded rationality. While this “cognitive strand” of behavioural economics primarily integrated psychological insights, a second “social strand” has butted heads with the assumption of economic self-interest [Frerichs Reference Frerichs2019; Zarri Reference Zarri2010]. In interactive scenarios, participants were shown to be far from exclusively motivated by their personal material payoff and instead also displayed non-material, non-economic, and non-selfish motives [Fehr and Gintis Reference Fehr and Gintis2007; Weber and Dawes Reference Weber, Dawes, Smelser and Swedberg2005; Zafirovski Reference Zafirovski2014].

Homo behaviouralis diverges from formal notions of the rational chooser by evincing a psychologized understanding of core concepts, such as preference or self-interest [Herfeld Reference Herfeld2020; Hudik Reference Hudik2019]. To the formal perspective, the content of preferences was irrelevant, and self-interest was a methodological axiom that licensed the derivation of a utility function from observed choice. In contrast, the behaviouralists sought to detect the actual correspondences of preferences and utility in the psychology and the biology of humans [Bruni and Sugden Reference Bruni and Sugden2007]. As realistic interpretations of economic action have (re)gained momentum, a more complex set of motivations was used to accurately portray human behaviour. In this process, homo oeconomicus was gradually recast as a being also capable of moral action.

Together, the two types of experiments have brought forth mixed evidence about the suitability of neoclassical theory. In market experiments, standard economic predictions received overwhelming support. Behavioural experiments primarily identified predictive failures of the theory. This evidence called for a revision of the view of the socio-economic world as “a complete set of markets for all present and future commodities” [Hodgson Reference Hodgson2015: 141]. Instead, the experimental strands concertedly furthered a dualistic view of market society divided into a market sphere and a social (non-market) sphere. The market sphere was captured by the impersonal exchange of market experiments and the social sphere was represented by the personal exchange of behavioural experiments [Smith Reference Smith2003]. Conceptually, personal exchange reflects the close-knit communities of families, friends, and neighbours, whereas impersonal exchange pertains to the extended order of the market [Smith Reference Smith2013].

The Moral Economy

Experimental markets with concrete traders and behavioural agents with realistic motivations were more accessible to moral aspects than their neoclassical counterparts. Indeed, the turn of the recent century witnessed the publication of several behavioural and experimental articles on morality and markets in leading economic journals (see Methodological Appendix). Against the backdrop of this literature, I identify three approaches to theorize the moral economy (see Table I). The three strands use behavioural or market experiments, assign morality to specific spheres in this dualistic view of market society, and advance arguments in the morals and markets debate.

Table 1 Three Perspectives on the Moral Economy

The Moral Foundations of Market Society

The first steps to integrate morality have taken place in the social sphere. “Moral sentiments” became the umbrella term covering all patterns observed in the canonical repertoire of behavioural games—the prisoner’s dilemma, the dictator game, the ultimatum game, and the public good game [Gintis et al. Reference Gintis, Bowles, Boyd and Fehr2005]. The frequency of cooperation in these games was irreconcilable with narrow definitions of self-interest. Instead, non-selfish participants were described as strong reciprocators, who cooperate conditionally on the cooperation of others and altruistically punish norm violators at their own costs [Camerer and Loewenstein Reference Camerer, Loewenstein, Camerer, Loewenstein and Rabin2004; Fehr, Fischbacher, and Gächter Reference Fehr, Fischbacher and Gächter2002]. In line, economic actors were said to exhibit social, or other-regarding, preferences, which means they also “care positively or negatively for the material payoffs of relevant reference agents” [Fehr and Fischbacher Reference Fehr and Fischbacher2002: C1]. While social preferences account for moral evaluations of material outcomes, succeeding models transfigured homo oeconomicus such that he derives positive or negative utility from psychological income linked to emotions like pride, guilt, envy, shame, or regret [Zak Reference Zak2011: 227].

Collectively, these theories have provided a moral imprint to homo oeconomicus. The moral imprint, however, applied to the behavioural experiments of the social sphere. In situating morality in the social sphere, these approaches keep the main province of economics dissociated from moral considerations. While the social sphere harbours the moral, the market sphere “economizes on virtues” and continues to be governed by amoral self-interest. In his Nobel speech, Vernon Smith argued, with reference to Hayek, that individuals are simultaneously “habitual social exchangers” in the social world and “vigorous traders” in the economic world [Reference Smith2003: 501]. Similarly, economic agents could be rational egoists in markets and strong reciprocators in social exchange.

The dividing lines between the two spheres solidified further when studies adverted to the adverse effects of applying market principles to social domains. A case in point is the crowding-out theory, which posits that market frames change the character of a situation and activate categories associated with self-interest and competition [Bowles Reference Bowles2008; Frey and Jegen Reference Frey and Jegen2001]. Not unlike Zelizer’s “hostile worlds” view [Reference Zelizer2005], these scholars argue that market elements—like performance-based rewards, pecuniary incentives, competition, price tags—jeopardize moral motivations and may eventually backfire. Likewise, there is also the reverse “danger that the rules of ‘personal exchange’ will be applied inappropriately to govern or modify the extended order of markets” [Smith Reference Smith2003: 501].

Even though the encroachment of market principles on social domains might be detrimental in the short run, the main argument of this literature is that a balance between the two spheres is conducive to the long-term success of market societies [Bowles Reference Bowles2011]. This followed from a renowned comparative study of 15 small-scale societies across the globe [Henrich et al. Reference Henrich, Boyd, Bowles, Camerer, Fehr, Gintis and McElreath2005]. In the study, a group of economists and anthropologists found that fairness and altruism in behavioural games flourish in societies with a high degree of market integration—that is, in societies where people depend on selling products or working for wages. In line with this finding, moral behaviour in experimental games on lying was also shown to thrive in market economies. In coin-flip experiments—in which participants privately flip a coin and report the outcome to an experimenter, while asymmetric payments for heads and tails encourage unethical misreporting—honesty tends to be greater in economically developed countries [Hugh-Jones Reference Hugh-Jones2016]. Thus, over time, markets—combined with the right social infrastructure—facilitate the development of moral preferences. Nevertheless, these moral preferences are thought to reside in the social sphere, for example in civil society, democratic institutions, or welfare systems [Herrmann, Thöni, and Gächter Reference Herrmann, Thöni and Gächter2008; Gächter and Schulz Reference Gächter and Schulz2016], and not in the market itself.

The Moral Limitations of Market Expansion

A second variant of the “moral turn” shifts the focus to the market sphere and deals with moral considerations that restrain market expansion. The mastermind of this literature, Alvin Roth, applied market experiments to the design of real markets (“market design”) and compared economists to practical engineers. Surveying an array of cases that evoke moral repugnance—such as price-gouging after disasters, transplantation of organs, or dwarf tossing––, Roth stresses the moral reactions of some people to the installation of new markets [Reference Roth2007]. Accordingly, subjecting a good to market exchange alters its meaning and many people express distaste if transactions involve objects that are incommensurable with market reasoning. Roth cautions his economic audience that these moral reactions should not be belittled, since they are “every bit as real as the constraints imposed by technology” [Reference Roth2007: 38].

In common with the first variant, Roth situates the root source of morality in a social sphere. But in his outlook, the research focus shifts to the market sphere, where morality acts as an external constraint to the bounds of market reasoning. In this respect, Roth’s view bears a curious resemblance to the “moral limits of markets” thesis in moral philosophy, according to which the commodification of a good may corrupt its character and undermine its pluralistic values [Sandel Reference Sandel2013; Satz Reference Satz2010]. Like the “moral limits of markets” philosophers, Roth claims that non-market domains are organized by their own distinctive values, and he agrees that some ethical questions cannot be resolved on the basis of efficiency. Unlike them, Roth remains reluctant to pass judgment on why some goods are morally reprehensible [Sandel Reference Sandel2013: 124]. The sources of moral repugnance are beyond the economic jurisdiction and described as irrational because repugnance also arises if someone is not directly affected and because it cannot be outweighed by welfare gains.

Instead, he advises economists to concentrate on the (amoral) market sphere, where the technical apparatus of positive economics works best; but not without insinuating that, over time, market principles may successfully colonize non-market domains. Like technological constraints, Roth stresses that moral repugnance requires savvy workarounds and recommends “market-like” systems of exchange that do not arouse moral indignation, but still produce welfare gains. He urges his colleagues to not “give up on the important educational role of pointing to inefficiencies and tradeoffs, and costs and benefits” [Roth Reference Roth2007: 54], but the normative premises underlying his efficiency-orientation go unmentioned.

Roth propagates a very technical vision of the economic profession, in which moral issues fall outside their purview, while simultaneously the limits of this purview are pushed further on terms of welfare and efficiency. Thus, the market competes with its social surroundings and morality is portrayed as an unwanted hindrance to the growth of markets. Roth’s practical approach does not flesh out an explicit conception of “economic man”. Nevertheless, it parallels with theories of moral norms as constraints to the utility maximization problem [Dowell, Goldfarb, and Griffith Reference Dowell, Goldfarb and Griffith1998]. From this angle, moral norms do not affect people’s intrinsic values and preferences but restrict economic behaviour as an external factor. They do so by imposing additional costs or benefits to action alternatives, by acting as an absolute barrier to unthinkable actions, or by restraining the choice set of an agent [Bénabou and Tirole Reference Bénabou and Tirole2011; Stringham Reference Stringham2011]. In any case, morality remains exogenous to the core of the rational actor who continues to be self-interested.

The Moral Consequences of Market Trading

Another strand of the literature has brought forth a third view on morality in markets. In this literature, the laboratory protocols of market experiments were adapted such that each market trade triggered negative externalities to third parties. Thus, experimental markets were deliberately designed to internalize their own costs only imperfectly. In a controversial study by Falk and Szech [Reference Falk and Szech2013], each market transaction generated a monetary surplus to the traders, but also caused the death of a laboratory mouse. The participants were informed that the mice were bred for scientific purposes but could not be used because a gene manipulation had failed. If they renounced from trading, the surplus money could be used to provide the mouse with a healthy life.

The results caused a stir in the economic discipline, as they pinpointed the erosive effects of markets on morality. Far more laboratory mice were killed in bilateral or multilateral markets than in a scenario in which participants individually decided between the life of a mouse and the monetary surplus [Falk and Szech Reference Falk and Szech2013]. In searching for potential explanations, the authors resorted to market critics such as Marx and Schumpeter. Like the crowding-out theory, they reasoned that markets would accentuate materialistic aspects and activate culturally evolved reference frames that increase the salience of conflict and degrade elements of morality. Besides, markets would increase the number of persons involved in a decision and therefore diffuse moral responsibility and guilt. Buyers and sellers might not think that they are “pivotal” to an immoral outcome and tell themselves that if they abstain from trading, someone else will step in instead [Falk, Neuber, and Szech Reference Falk, Neuber and Szech2020; Sutter et al. Reference Sutter, Huber, Kirchler, Stefan and Walzl2020].

Despite an initial wave of criticism aimed at its policy implications [Luetge and Rusch Reference Luetge and Rusch2013; Breyer and Weimann Reference Breyer and Weimann2015], the design was adopted by subsequent studies [Bartling, Fehr, and Özdemir Reference Bartling, Fehr and Özdemir2021]. Therein, the moral cost to third parties was operationalized by withholding donations for the vaccination of measles [Kirchler et al. Reference Kirchler, Huber, Stefan and Sutter2016; Sutter et al. Reference Sutter, Huber, Kirchler, Stefan and Walzl2020], taking away a warm meal from a needy child [Irlenbusch and Saxler Reference Irlenbusch and Saxler2019], or causing a monetary loss to other experimental participants [Bartling, Weber, and Yao Reference Bartling, Weber and Yao2014]. However, the emphasis shifted away from the corrosive effects of the market mechanism. Instead, the individual actions of market participants became the object of moral evaluation. Researchers were mainly interested in the moral—or social—responsibility of market traders and sought to explore the market characteristics under which individuals were inclined to internalize the social costs of markets. To do so, experimental participants could refrain from unethical market exchange and forfeit their gains from trade or purchase an alternative, “ethical” commodity without negative externalities, but at a price premium. The main take-away was that moral concerns could prevail on competitive markets and even react to demand and supply similar to normal commodities.

In contrast to the previous two strands, this literature dealt with morality as inherent to the market sphere and as internalized by market actors. However, in most settings the market itself is not an object of moral evaluation. Instead, morality is attributed to the market actor, whose “moral responsibility” corresponds to the willingness to compensate the negative externalities of markets.

In this section, I have mapped three variants in which economists have (re)engaged in debates about the relationships between markets and morality. The first variant has furnished economic actors with moral sentiments to theorize the moral foundations of market society. The second variant has emphasized people’s reflexes of repugnance if market principles transgress into morally loaded domains. The third variant has analysed conditions under which market participants act morally responsible. On the surface, the variants are incongruent with narratives describing economic scholars as blindfolded market advocates or purely technical analysts. In lieu of the universal market and the amoral actor of neoclassical economics, this “moral economy” [Bowles Reference Bowles2016; Thompson Reference Thompson E1971] acknowledges the limits and deficiencies of the market and depicts humans as moral beings.

The Economization of Morality

Now, I seek to look behind the moral arguments and messages, and explore what qualifies as moral in this literature and how economic scholars conceive of morality. In other words, I want to analyse the shared assumptions and the conceptual framework building an underlying “second-order background” to the integration of morality into economics [Abend Reference Abend2014]. This second-order background facilitates, supports, and enables [Reference Abend2014: 53] people’s moral evaluations as well as their judgments, actions, values, and convictions (“first-order morality”). It determines and limits how individuals think and reason about morality, what grounds, theories, and argumentations they use to ascertain goodness, and which explanations and justifications they have available in a certain historical and social context.

Loosely drawing on Abend’s dimensions of a moral background [Reference Abend2014: 33-52], I analyse what objects are open to moral evaluation in this literature. I then seek to determine what contexts and situations are recognized as moral problems and on what grounds certain things are regarded as moral. Finally, I study the key concepts and the terminology used to argue that something is moral (see also Methodological Appendix). I explore these questions, first, by shedding light on the theoretical and conceptual premises guiding the integration of morality into an economic framework and, second, by discussing the methodological conventions underlying the collection of data in the economic laboratory. By moving to the moral background, I search for similarities among the three strands in their perspective on morality, and ask if there is a distinct economic way of looking at morality.

Reconceptualising Morality in Economic Terms

Throughout this literature, morality is attributed to the individual in the form of sentiments, repugnance, or responsibility. The objects of moral evaluation are conceptually located within the individual and inferred from observed choice in experiments (or newly installed markets). To date, the morality conception of (behavioural) economics chimes closely with the one of the “new” behavioural sciences. In both disciplines, the object of moral evaluation is an individual decision following a stimulus [a “thin” moral concept; Abend Reference Abend2011], even if behavioural economists focus on choices with monetary outcomes and the behavioural sciences typically examine judgments. In both disciplines, other objects—such as norms, institutions, organizations, situations, groups, cultures, fields, or even “the market” as a whole— are typically precluded from moral evaluation.Footnote ³ The economic branch further shares with the other behavioural sciences its emphasis on visible choices rather than internal thoughts and evaluations as well as its objective to search for commonalities and similarities of human morality, rather than cultural variation and social contingency [Bykov Reference Bykov2018].

Another similarity among the three strands is that they study morality only in the context of market failures or imperfections. In so doing, they conceptually uphold an amoral market model, limiting the scope of moral claims to situations in which it ceases to function. Behavioural and market experiments do not treat the economic and social world as if it were a perfect market. Instead, it is partitioned into a market and a social sphere, however, with an inherent hierarchical order. Thus, the social sphere is shrunken down to interactions in which “formal markets are not worth their cost” [Smith Reference Smith2003: 501]. Phrased differently, the social is legitimized by its function to organize life wherever markets fail to do so. Already Hirschman speculated that these market imperfections could set the stage “for a partial rehabilitation of the doux-commerce thesis” [Reference Hirschman1982: 1474]. To address market failures, mainstream economics increasingly amended institutions, habits, and social structures to the core of economic reasoning. As it turned out, Hirschman’s speculations were remarkably accurate, and morality joined the ranks of these amendments to correct the fallibility of the market model.

Individual morality is evoked to correct these failures as it supports market society, prevents market failings, and compensates market externalities. Moral sentiments, for instance, direct individuals to efficient strategies in behavioural games, where the self-interest assumption is insufficient to lead to efficient allocations. Furthermore, moral sentiments are linked to the social sphere, which is thought to stabilize market societies. The social sphere and its moral framework embed the amoral market and build the backbone to a well-functioning society [Zak Reference Zak2011]. This moral framework supports the smooth functioning of economic transactions, which do not fulfil the conventional assumptions of perfect markets. For instance, strong work ethics and norms of reciprocity between employers and employees hold together labour relations in which contracts are only imperfectly specified [Bowles and Carlin Reference Bowles and Carlin2020]. In credit markets, honesty and truth telling—documented in coin-flipping experiments—are essential if information is asymmetrically distributed between borrowers and lenders, and moral hazard arises [Bowles Reference Bowles2011].

The functional importance of morality is also discernible in the two strands drawing on market experiments. Moral repugnance keeps markets from expanding into unwelcome territory and forestalls inefficiencies where markets should not be installed. From this perspective, moral repugnance defines the domain in which the practical economist may intervene to fix dysfunctional markets. In turn, moral responsibility induces experimental market traders to pay a higher price for ethical goods or boycott unethical products, and thus mitigates imperfections and externalities where markets are already established. Thus, morality is integrated into the economic framework on the grounds of re-establishing efficiency.

Eventually, this literature has also reformulated morality according to its key concept of individual rationality. Market and behavioural experiments have furthered an image of homo oeconomicus, which diverges from the selfish and amoral bogeyman rebuked by critics. Instead, economic actors exhibit moral sentiments, react with moral repugnance, and carry a moral responsibility. To synthesize these moral proclivities with the reigning economic model, morality was situated in the individual utility function as an additional argument [Levitt and List Reference Levitt and List2007; Zak Reference Zak2011]. Moral sentiments—in the social sphere—and moral responsibility—in the market sphere—were regarded as part of the actor’s preferences. In this sense, rethinking the economic actor as a homo moralis [Alger and Weibull Reference Alger and Weibull2013] did not challenge the view of individuals as utility maximizing actors. On the contrary, the social strand of behavioural economics queried the assumption of personal self-interest, but its revisionist aspirations did not contest the rationality axiom.

To this end, “rational behaviour” was no longer seen to coincide with “self-interested behaviour” [Frank Reference Frank1988]—an interpretation that is now widely promulgated as erroneous. If “rational” and “self-interested” carried the same meaning, morality was either irrational or reducible to self-interest and hence not worth economic attention [Hausman, McPherson, and Satz Reference Hausman, McPherson and Satz2017: 75]. By decoupling rationality from self-interest, the conflict between acting according to one’s preferences and acting on moral principle dissolves. Thus, economic action is described by a unidimensional utility function, but utility can be adapted to any kind of (moral) behaviour.Footnote ⁴ As some critics argue, this strategy would degrade morality to a person’s “taste” such that “it disappears in the wash because it is dumped with all the other preferences” [Etzioni Reference Etzioni2018: 44].

To vindicate the incorporation of morality into the utility framework, researchers claimed that moral actions were sensitive to financial costs and benefits [Gintis Reference Gintis2016: 147] and found “parsimonious” explanations for moral concerns in monadic utility specifications [Bartling, Weber, and Yao Reference Bartling, Weber and Yao2014]. The conceptualization of morality in rational terms rearticulated psychological and sociological ideas in an economic vocabulary. As such, a moral self-image was maintained due to the “costs” of moral guilt that came from violating this self-image [Dhami and Al-Nowaihi Reference Dhami, Al-Nowaihi and White2019]. Or, moral identity was upheld to prevent the “disutility” from cognitive dissonance [Bénabou and Tirole Reference Bénabou and Tirole2011].

The literature reviewed here configures humans as moral beings, throws overboard the concept of the selfish decision maker, but preserves the principle of rationality. Homo oeconomicus might not be literally selfish, but he is still self-interested—that is, he maximizes his own utility. This change of perspective enabled economics to theorize the moral aspects of human behaviour, but in the language of rationality. Holding on to this axiological monism either translates morality to fit the economic agent or factors out moral standards that are not easily expressible in rational terms, for instance, those that do not permit trade-offs.