{"id":3992,"date":"2024-09-02T11:06:19","date_gmt":"2024-09-02T09:06:19","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=3992"},"modified":"2024-09-02T11:06:19","modified_gmt":"2024-09-02T09:06:19","slug":"the-legacy-of-gary-charness-between-economics-and-psychology","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/09\/02\/the-legacy-of-gary-charness-between-economics-and-psychology\/","title":{"rendered":"The Legacy of Gary Charness Between Economics and Psychology"},"content":{"rendered":"

Pioneer of behavioural economics, Gary Charness leaves a vast scientific legacy. His research focussed on social interaction among people, showing that a particular emotion\u2014guilt\u2014drives this interaction. He also studied how financial incentives can encourage good habits, benefiting society as a whole.<\/span><\/i><\/p>\n

The term “dismal science” was coined by 19th-century Scottish historian Thomas Carlyle to describe economics. Those who still use this term think of how economics represents people: rational, cold, cynical, and selfish.<\/span><\/p>\n

Economics Is No Longer a Dismal Science<\/b><\/h3>\n

However, many would change their minds looking at how economic science has developed over the past few decades, as economists have begun to consider aspects of human behaviour closely related to psychology and sociology. This has given rise to a discipline we now call “behavioural economics.” It is increasingly complex, rich, and stimulating. And it is far from dismal. It studies how individuals care about others’ situations, how emotions influence them, how their behaviour changes when they feel part of a group, how they desire to be kind when treated kindly, and how they punish wrongdoing. It studies how people seek cooperation with others or the reasons for their adherence to social norms. In short, behavioural economics studies the individual each of us knows we are.<\/span><\/p>\n

Economists who have contributed to this field’s development have not had an easy path. They had to go beyond the safe boundaries of rationality, where everything is calculable and predictable, or the simplistic idea that people only care about money. They imagined new theories that were not always easy to formalise and had to test them often without reliable data. They, therefore, approached the branch of economics that uses laboratory methods known as experimental economics. Here, individual behaviour is studied in a controlled environment where logic and methodologies are borrowed from exact sciences like biology and physics. Behavioural economists often test their new theories using experiments, and experimental studies often reveal the need to consider psychological factors to explain the data. Thanks to the work of these pioneers, we now know much more about how individuals make economic choices and interact with others.<\/span><\/p>\n

Charness’s Research<\/b><\/h3>\n

Among these pioneers, Gary Charness, a professor of economics at the University of California Santa Barbara, stood out. Brilliant and creative, he crafted his research agenda around the theme of social interaction among people. While other great behavioural economists questioned how individuals deviated from rationality paradigms, Charness pondered what forces led individuals to cooperate with others. His research, which yielded significant results and opened new perspectives for thousands of young economists, was fascinating and boundless.<\/span><\/p>\n

Much of his work focussed on so-called social preferences, meaning that people not only care about others’ situations but also react, sometimes subtly, to others’ behaviour and intentions. For example, they may respond to perceived kindness, care about the well-being of less fortunate individuals, or feel guilty if they do not meet others’ expectations. They may experience pleasure or resentment when competing with others, and their goals and behaviours may depend on the type of communication exchanged with others. Using a combination of theory and experimental methods, Gary Charness was a great source of ideas and fascinating insights.<\/span><\/p>\n

Guilt as a Driver of Collaboration<\/b><\/h3>\n

For instance, guilt is an emotion that can explain many human behaviours that would otherwise be inexplicable if one thought of a rational and cold individual. Americans leave a tip of 15-20% at restaurants or bars, while Italians mostly do not. The reason is that, due to a different social norm, American waiters expect a tip whereas Italian waiters do not. People feel guilty about disappointing others’ expectations. Therefore, Americans leave a tip because American waiters expect it.<\/span><\/p>\n

One of us (Martin Dufwenberg), along with Gary Charness, studied how communication, particularly promises, can foster trust and cooperation among individuals. The mechanism is guilt. Promises increase the expectations of the recipient and, if not kept, cause guilt in the promisor. So, if I make a promise and the other person believes it, they will be disappointed if I do not keep it, and I will feel guilty.<\/span><\/p>\n

This mechanism can create collaboration. It works like this: suppose Lucia has to organize a birthday party and Giovanni runs a catering business. Lucia fears Giovanni will provide poor service, so she decides against hiring him. Both lose out. Now suppose Giovanni makes a promise to Lucia: “Don’t worry, I promise my service will be up to par.” If Lucia believes it and Giovanni knows this, he will feel guilty if he does not provide good service. Lucia anticipates Giovanni’s guilt and decides to trust him with the catering. What happened? The promise generated expectations which fueled guilt if not met, and the presence of guilt generated trust. With guilt in play, promises can become self-fulfilling. This example can be generalised broadly. Consider how many business transactions share these characteristics and how important trust is in this context and more generally in cooperation among individuals. Think of the relationship between an employer and an employee.<\/span><\/p>\n

The described example can be formalised in an economic theory\u2014an abstract scenario based on intriguing psychological ideas. Gary Charness and Martin Dufwenberg built this theory and then tested it empirically through a laboratory experiment where students interacted in games structured like the story involving Lucia and Giovanni. Real money was involved, and students in the role of Giovanni could send messages to those in the role of Lucia. The data confirmed the theory.<\/span><\/p>\n

Financial Incentives for a Healthy Life<\/b><\/h3>\n

Charness also conducted significant studies on topics unrelated to social preferences. For example, behavioural economists are interested in how people form and adopt habits that promote a healthy lifestyle. Together with Uri Gneezy, Charness studied whether financial incentives could be effective in this regard. In an experiment conducted outside the laboratory, they paid people to regularly attend a gym for a month. They found that with this monetary incentive, gym attendance increased not only during the paid period but also remained high after the month (and the incentive) ended. This effect was particularly strong for people who had never regularly attended a gym before. Charness and Gneezy’s creative study invites reflection on the idea that financial incentives could be effective policies for encouraging people to adopt good habits (consider an anti-smoking campaign or an initiative to encourage recycling, for example). Not just incentives for car purchases but\u2014why not\u2014incentives for doing things beneficial to one’s physical and mental health and society as a whole.<\/span><\/p>\n

Gary Charness passed away on May 17, 2024. He left behind an enormous scientific legacy and a great sense of emptiness among the dozens of economists who worked with him and the many people who had the privilege of knowing him personally. Two of these are the authors of this article.<\/span><\/p>\n

Bio<\/b><\/p>\n

Martin Dufwenberg<\/strong> is a professor of economics at the University of Arizona and an Honorary Doctor at the University of Gothenburg. His research uses game theory and experiments to explore psychological factors in economic analysis.<\/span><\/em><\/p>\n

Francesco Passarelli<\/strong> is a full professor of economics at the University of Turin. He is a fellow of the Collegio Carlo Alberto. He has taught at Bocconi University and Dartmouth College in the United States.<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Pioneer of behavioural economics, Gary Charness leaves a vast scientific legacy. 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