Friday, April 10, 2009

Selfish Actors?

A recent debate at the Harvard Business Review will resonate for readers of this blog. Link here.

Its topic: have business schools taught the wrong values, and, if they have, do they bear some responsibility for the current financial crisis?

Today I will focus on a point I have made, and that is well articulated by Stanford Professor Robert Sutton.

If the models and theories taught in business school start with the assumption that human beings act out of individual self-interest, are they encouraging future businesspeople to act selfishly. And does this selfish behavior seem to confirm an assumption that is both false and dangerous.

Sutton explains what happens when you assume that human beings are fundamentally selfish agents: "If you travel through life believing that all human beings behave this way, you will look to screw people at every turn and assume that they will do it to you given the chance. And if you act as if this is true of every human interaction, and treat everyone around you as if they too are always looking for short-term and selfish wins, you will create a self-fulfilling prophecy."

But how did such an idea become dogma. After, the idea of selfish actors does not even offer a cogent explanation of what happens in a marketplace.

When two people negotiate the price of a product, neither will get everything he wants. To ensure that the transaction takes place, each participant will have to compromise.

If it was not natural to compromise some of your self-interest for the good of the group, there would be no marketplace.

People who compete in an arena must place the integrity of the game over their will to win. the game cannot be played if people were willing to do anything to win. Ignoring the rules and displaying poor sportsmanship might give a team a competitive advantage, but its victory will be bittersweet.

Great athletes love to win, but they love the game more. So too do market participants. They love to win but they love the markets more. They will not destroy the markets just to get a great deal for themselves.

The recent financial crisis began when the markets seized up, when they ceased to function. This suggests that some of the participants cared more for themselves than they did for the markets.

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