Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

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Monday, July 21, 2008

People and Awards

Posted by Simon Halliday | Monday, July 21, 2008 | Category: |

I wish to refer you to this post from Vox EU on a new paper from Bruno S. Frey and Susanne Neckermann. If Frey's name is familiar, it might be because of his recent book, part of the happiness economics frenzy, called Happiness: A Revolution in Economics. Anyway, I am not here to comment on that today. Instead I will comment on the article.

First, a pedantic note. The first couple of sentences:
If an alien were to look at the social life of people on earth, it
would be stunned by the enormous number of awards in the form of
orders, decorations, prizes, and titles. It would be hard pressed to
find any area of society in which awards are not used. Awards are
equally ubiquitous in monarchies as they are in staunch republics.
How do we have any idea what an alien would think? This is a normative question. If the alien came from a society in which everyone were provided with awards on a regular basis then our structures could seem to have barely any award systems, conversely it could be as Frey and Neckermann say: the alien might be from a society where our reward system seems to be award-obsessed. I think it was a poor way to start the article. Nevertheless, the central point stands: awards are (or seem to be) a ubiquitous human social phenomenon.

However, other than this triviality, I think that the article makes a particularly relevant point, though it misses one or two other points. Awards, or specifically the non-material benefits derived from them contradict the standard economic model. Why do individuals pay attention to awards that provide them no (immediate) material gain?
I think that the first response that an economist would come up with is that it improves an individuals reputation. Reputation is a central theme of game theory. If I have a substantial reputation then I can make moves in games that will alter how others move, what their payoffs are and so forth. Frey and Neckermann don't mention this, which is problematic. Reputation could also be linked to access to wider social networks, for increased income prospects. From an evolutionary perspective, awards are a signal that an individual is a worthwhile mate and should be used for reproduction (bit thin I admit).

Economists could also argue that, although an individual reward received may not receive immediate material benefits, the long-run effects of an award tend to improve one's life time income. Consider something like the Academy Awards. Individual actors who receive an academy award are more likely to be cast in later films. Hence the award results in indirect increases in (lifetime) income.
Questions arise though in why we give awards. Have they evolved as an efficient way to signal the qualities of an individual? The fact that the awards themselves are often of negligible cost (relative to paying someone a higher salary) then what is the process of giving rewards about?

I would warrant though that if you could have a regression that controlled for the two factors above (somehow, I don't know how you could feasibly do it), then I intuit that there would still be some left over explaining to do. I believe that this 'left over' stuff is to do with the human award phenomenon, the social and adulation aspect of awards.

Lastly, if you have individuals who already have a high reputation, have a large amount of wealth and don't require awards yet we still give them awards, what are we doing? What are we saying about ourselves by the giving? Can economics help us to understand these dynamics? I think that this warrants more research, not only the dynamics of current award-giving, but also the evolution of awards. Let's watch this space. Come on Frey and Neckermann, you might just be awarded for the research...

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