By Arnold Kling
Newsweek has a survey of what I think it should have called neuroeconomics. They use the term “behavioral economics,” which I think of as looking at cognitive biases in decision making. Neuroeconomics links cognitive biases to brain science.
Observing that some societies are consistently richer than others, social scientists have invoked such ingenious explanations as “the Protestant ethic” (of working and saving for the future) or “the resource curse” (when an elite controls a valuable natural resource, such as oil, and has no incentive to encourage political and economic modernization). One of the newest explanations is “trust,” which varies widely between societies and is strongly correlated with economic growth, says Paul Zak, an economist at Claremont Graduate University. Trust encourages savings and investment, and reduces the “transaction cost” of investigating the people you do business with. But, compared with well-studied behaviors such as aggression, relatively little is known about the biological basis for trust. (Zak’s own research is not on brain function directly, but on oxytocin, a hormone that seems to promote trust. It is usually studied in relation not to the stock market but to lovemaking and breast-feeding.)
The question of what makes some societies richer than others is much more complex than the preceding paragraph implies. And I would argue that the very fact that it there are differences across socieities implies that individual hormone levels are not the answer. In my view, institutional and cultural differences are likely to provide better explanations.
I mean, if you want to try to do research showing that South Koreans have more trust than North Koreans, go ahead. But I think you are more likely to find that the difference between the two societies is that one uses a market system and one uses a Communist system.
For Discussion. If economic success and high levels of trust are correlated, which way is the causality arrow to be drawn?