Erwin Dekker and Arjo Klamer
This chapter argues that the art of phronesis is central to doing the right thing as an economist. Phronesis, or practical wisdom, is what we practice when we deliberate, weigh values, take into account our feelings and those of others, consider the circumstances, and grope for the right thing to do. Central to phronesis is figuring out the goods to strive for and the appropriate means to realize those goods. We argue that the goods can be categorized into personal goods, social goods, societal goods, and transcendental goods. An important choice that any economist faces is which conversation to join, to which part of economics he wishes to contribute. We argue that situating ourselves in a university department, in the search for truth and truth only, is an important moral choice, with consequences for the goods we can realize.
Rachel Glennerster and Shawn Powers
The increasing use of randomized evaluations in economics has brought an increase in discussion about ethical issues. We argue that while there are ethical issues specific to randomization, most important ethical challenges are not unique to this methodology. The rise in direct researcher involvement with antipoverty programs that has accompanied the rise in randomized evaluations has made ethics issues more salient and raised complex regulatory questions. Though the principles of respect for persons, justice, and beneficence outlined by the 1978 Belmont Report continue to provide a useful ethical framework, we note a number of challenging tradeoffs in applying them including those around data confidentiality, informed consent, and misleading research subjects. We conclude by discussing how ethical guidelines are applied in practice, noting a number of gaps, ambiguities, and areas where we believe practice is diverging from the underlying principles. These issues apply with equal force to all empirical methodologies.
“Econogenic Harm”: On the Nature of and Responsibility for the Harm Economists Do as They Try to Do Good
George F. DeMartino
Economists have long recognized that virtually all economic policy interventions that they advocate entail foreseeable and/or unforeseeable harm to some economic actors, even while promising benefits for others. And yet there is no tradition in economics that explores carefully the harm that economists cause as they try to do good. “Iatrogenic harm” (from the Greek, “doctor-originating”) refers to the harm that results from medical practice. This chapter proposes the term “econogenic harm” to name the harm that results from economic practice. Despite the ubiquity of econogenic harm, economists have failed to give a good account of the complex nature of economic harm or to wrestle with its ethical entailments. Instead, economists have relied too eagerly on the Kaldor-Hicks compensation test, often operationalized through cost-benefit analysis, as a sufficient ethical guide for their own conduct in policy formation. But Kaldor-Hicks cannot serve the ethical purposes to which it has been put.
Christianity has had a long-standing interest in economic justice, rooted in its Scriptures, especially Old Testament prophets and the New Testament Gospels. It was taken up by the Church Fathers and the Scholastics, in their concern for the poor, just prices, and usury. Taking this concern to modern market economies is complicated but important. After all, globalization has resulted in rampant problems of materialism, consumerism, and individualism. It has led to the commodification of the human person who is viewed only as a consumer or as a factor of production. Collective-action problems have become even more severe, as in the cases of global warming and the depletion of fish stocks. Christian thought and practice have unique contributions to offer on these challenges. In particular, its linkage of justice and charity as an inseparable pair, its notion of the common good, and its theological anthropology are well suited to addressing these issues in a rational fashion.
Robert H. Wade
This chapter argues that mainstream economists – mainly American and British contributed to the build-up of the financial fragility which tipped into the Great Recession through their implicit assumption of epistemic asymmetry (hubris) and epistemic sufficiency (close-mindedness, or selective inattention to data and arguments which would upset their way of seeing things). They also contributed, secondarily, through the failure to disclose conflicts of interests, involving collusion between economists and financial organizations. Both these contributions reflect the discipline’s failure to formulate and teach ethical principles for guiding economists as they prescribe policies that may affect the welfare of millions of people and the health of the biosphere. In the absence of ethical restraints economists have too often advocated policies on the assumption that the optimal outcomes will materialize, only to find that their prescriptions bring about unanticipated, harmful effects that catch them off guard.
Jingnan Chen, Angelina Christie, and Daniel Houser
We argue the remarkable increase in the use of experimental methods in economics, and the consequent advances in economic science, rely on two key norms that guide the design, analysis, and reporting of economic experiments in the lab and field. We identify these two key norms as simplicity and availability of data and procedures, which both help to ensure adherence to the ethical standard of transparency. We review many prominent experimental contributions to economic science in personal exchange and market experiments, tracing the connection between the simplicity of design and subsequent developments that advance our knowledge. The norm of availability of data and procedures has been standardized as an official policy by leading academic economics journals. In conclusion, we stress the connection between a scholar’s reputation and the degree to which her results can be replicated by others.
Sven Ove Hansson
The purpose of economic decision rules is to guide decision makers who have competing goals or are uncertain about how their goals can be fulfilled. This chapter discusses the assumptions underlying major decision rules such as expected utility maximization, discounting of future events, maximin, and various types of efficiency criteria including cost effectiveness and Pareto efficiency. All of these decision rules impose restrictions on the information to be taken into account, and since these restrictions are value laden, so are the decision rules. However, in the process of applying decision rules, the value assumptions are often put out of sight instead of being brought forward and discussed.
Development projects have frequently brought clashes between claims for improvement for powerful groups and the rights of marginal groups in project-affected areas, leading to ruinous resettlement of the latter. Economic cost–benefit analysis based on the potential compensation principle endorses sacrifice of weaker groups’ interests for the sake of groups that are already better off. The chapter examines two lines of response: the ethic of responsibilities from Penz et al., based on studying dam projects and existing international agreements, and human rights–based approaches elaborated for mining projects. A global language of human rights, including principles of recognition, accountability, and participation, helps to mobilize and link local and international civil society groups and claim seats for weaker local groups in project negotiations, which can thereby foster mutual learning and accommodation. Attention to these principles plus other elements of a human development ethic should become routine in economists’ training and practice.
David M. Levy and Sandra J. Peart
The collective action problem of economic experts was diagnosed acutely by Knight and Pigou in the 1930s. The interest of economists as a group is in pursuing the public good of truth; the interest of an individual economist is in pursuing the private good of happiness. Pigou’s example is the pursuit of political influence. Deviation from truth-seeking devastates the theory of governance as objective inquiry laid out by Knight and John Rawls, as we saw in the eugenic era. We reformulate the Knight–Rawls position as truth-seeking contingent on a presupposed system. The best case for the Knight–Rawls position is transparency, where presuppositions are common knowledge. If transparency is infeasible making the nontransparency of inquiry itself transparent will serve as a second-best solution to warn third parties to make adjustments. A code of ethics can itself serve as a warning about the temptation. Pigou’s concern about nonpecuniary temptation should be added to the American Economic Association code of ethics.
Joseph E. Stiglitz
This chapter asks, What does it mean to be an ethical economic advisor? Answering this question entails an examination of widely held ethical precepts that ought to guide the conduct of international economic relations and, by extension, the conduct of development and other economists who operate in this environment. The chapter teases out the obligations for economists that derive from the basic ethical concepts of honesty, fairness, social justice, the avoidance of negative externalities, and responsibility. It finds that in the international arena, national policymakers in wealthy countries and economic advisors at the leading international financial institutions performed poorly during the 1990s and early 2000s when judged against these ethical standards. This finding is sustained by an examination of specific issues that have been at the heart of development policy over the past several decades: international trade, global environmental policies, debt forgiveness, growth strategies, crisis management, and finally, population policy.
In claiming to be a “positive” science devoid of normativity, economics ignores a complex operation that involves personal, moral, and ethical assumptions; this chapter critically examines these assumptions via analysis of economic language and practice. We find that there is no such thing as positive, value-free economics; that the normative components are embedded in explicit and implicit assumptions; that economics is consequently heavily value laden; and that these assumptions replace traditionally religious values and archetypes. This chapter also shows how economists use argumentation that appears egoistic, but is at base altruistic. Juxtaposing this treatment of economics with an economic view of ancient myths, we find that consumption and growth are fundamental human problems, and that today our focus and reliance on institutions undermines ethical thinking. In conclusion, suggestions are offered for helping economists to become aware of these dimensions of their work and for increasing cognitive awareness of economic values.
After considering the appropriate definitions of honesty and integrity the chapter uses a framework of behavioral economics to discuss plagiarism, its payoff, its frequency, and its risks. It then discusses outright fraud, that is, the making up of alleged results out of thin air. But its main emphasis is on econometricians distorting their findings either for material gain, or to support their biases, or else to make their work seem more impressive. It discusses ways of doing this, such as biased data mining and misusing significance tests, and also ways by which such maneuvers could be reduced. The picture that emerges is that lack of integrity is a more serious problem in econometrics than is widely assumed.
Bart J. Wilson
Deceiving someone in our everyday lives is a moral failing, one that we are adept at detecting and quick to judge in the words and actions of others. In our professional lives as economic scientists we are also quick to judge experimental procedures as deceptive, but we have problems articulating what that means. Rather than classifying experimental procedural details as deception or not based on what experimenters and participants may or may not know about the experiment and each other, I propose a general rule for adjudging the actions of experimenters as deceptive: Did the experimenters mislead the participants by false appearance or statement? If the answer is yes, then the experimenters have deceived the participants.
Nassim N. Taleb and Constantine Sandis
Standard economic theory recognizes the agency problem but not the compounding of moral hazard in the presence of informational opacity, particularly concerning high-impact events in fat-tailed domains. Nor does it look at exposure as a filter that removes nefarious risk takers from the system so they stop harming others. But the ancients did, and so do many aspects of moral philosophy. The authors propose a global and morally mandatory heuristic that anyone involved in an action that can possibly generate harm for others, even probabilistically, should be required to be exposed to some damage, regardless of context. In the language of probability, “skin in the game” creates an absorbing state for the agent, not just the principal. Although insufficient, the heuristic is necessary to counter risk hiding—and risk transfer—in the tails. The authors link the rule to various philosophical approaches to ethics and moral luck.
Ian Harper and Lachlan Smirl
Usury has a long and varied history. Originally the term referred to the charging of interest per se—that is, requiring a borrower to repay more than the principal sum borrowed from a lender. Over time borrowing and lending evolved to become an integral part of commercial life, and usury came to refer to the charging of excessive or unconscionable rates of interest on loans. The Christian church no longer opposes the charging of interest, although moral sanctions are upheld against certain exploitative lending practices. Bans on interest are recognized as an ineffective means of protecting the vulnerable, and may even have the opposite effect. Contemporary Islamic societies prohibit predetermined returns on loans, instead favoring profit-sharing arrangements. Islamic banking has grown significantly in recent years, but it is unclear how meaningfully these arrangements differ from Western-style commercial lending.