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Morris Altman

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Morris Altman

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Edited by Morris Altman

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Morris Altman

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Handbook of Behavioural Economics and Smart Decision-Making

Rational Decision-Making within the Bounds of Reason

Edited by Morris Altman

This Handbook is a unique and original contribution of over thirty chapters on behavioural economics, examining and addressing an important stream of research where the starting assumption is that decision-makers are for the most part relatively smart or rational. This particular approach is in contrast to a theme running through much contemporary work where individuals’ behaviour is deemed irrational, biased, and error-prone, often due to how people are hardwired. In the smart people approach, where errors or biases occur and when social dilemmas arise, more often than not, improving the decision-making environment can repair these problems without hijacking or manipulating the preferences of decision-makers. This book covers a wide-range of themes from micro to macro, including various sub-disciplines within economics such as economic psychology, heuristics, fast and slow-thinking, neuroeconomics, experiments, the capabilities approach, institutional economics, methodology, nudging, ethics, and public policy.
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Why Ethical Behaviour is Good for the Economy

Towards Growth, Wellbeing and Freedom

Morris Altman

This timely book offers a nuanced critique of the nudge narrative, and demonstrates why and how ethical behaviour can have significant positive economic and wellbeing outcomes. Morris Altman models a complex alternative to the expectations of ethical behaviour and shows how this behaviour can be consistent with competitive market economies, contrary to what conventional economic theory suggests.
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Morris Altman

The question of the inevitability of an ethical economy is examined. Its opposite, the fundamental incompatibility of an ethical economy is critically assessed. A fundamental contribution of this book is to demonstrate that ethical behaviour is viable in a vibrant market economy and can serve as an engine of equitable economic growth and development. Improvements to working conditions, a greener economy, gender rights, human rights are all compatible with a dynamic market economy. But being ethical is not inevitable. Ethical and unethical firms can co-exist over time. Much depends on institutional frames, mental models, preferences, market forces, consumer preferences, information and power relationships. Also, freedom of choice is discussed as being fundamentally important to an ethical society. But freedom of choice and the ability to realize one’s preferences critically depend on whether one has the capabilities to form and then act upon one’s true preferences. Institutional parameters are critically important. More important than nudging individuals to do what experts believe to be in the best interests of the individual is the construction of a decision-making environment where individuals can make decisions that are welfare and wellbeing improving.

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Morris Altman

The conventional economic wisdom predicts that ethical behaviour (non-narrowly profit maximizing behaviour) should negatively affect the competitiveness of the firm. Such behaviour, therefore, would not be sustainable. I argue that ethical behaviour is consistent with competitive market economics and, from a microeconomic perspective, with the efficient operation of the firm and with its capacity to successfully compete. A key modelling assumption made in this chapter is that ethical behaviour contributes to increased production efficiency, technical change and consumer loyalty. But such positive attributes of ethical behaviour do not imply that there is an imperative towards ethical firm behaviour. Unethical firms can survive and even thrive on the market based on ‘low wage’ strategies to remain competitive, low quality, imperfect and misleading information (bounded rationality), government protection, and mental models on what makes firms competitive. One has a multiple equilibrium with respect to ethical and unethical firms co-existing on the market. Ethical behaviour is a function of micro and macro power relationships, mental models, culture, norms, decision-makers’ preferences and government policy. These can shift the balance towards ethical behaviour. But market forces and a socio-cultural-political environment favourable to capitalist free market production are no guarantee that ethical market behaviour will evolve and persist over time. This chapter contributes towards demonstrating the superiority of an ethical economy, whilst explaining why such economies need not dominate the economic playing field.

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Morris Altman

Contrary to some of the leading critiques of neoclassical theory, I argue that this theoretical framework can incorporate the moral dimension into the modelling of economic agents when the consequences of their choices are not answerable to market forces. Neoclassical theory, broadly defined, simply stresses the potential trade-off that exists between altruistic or ethical behaviour and the material wellbeing of the individual. Nevertheless, the behavioural assumptions of neoclassical theory are too narrow to deal with the potential ramifications of introducing the moral dimension into the objective function of workers, managers and owners. The conventional wisdom predicts that moral or ethical firms cannot survive in a competitive market since it is assumed that such firms must produce at relatively higher unit costs. However, higher cost firms can survive as demand is restructured towards the output of the relatively ethical firms. Moreover, modifying mainstream economic theory by introducing more realistic behavioural assumptions into the modelling of the economic agent allows for the simultaneous survival over time of both unethical and ethical firms that are cost competitive and profitable. These revisions of the conventional wisdom have important implications for public policy as well as for an understanding of the actual scope that is afforded to firm decision-makers with regards to altruistic or ethical behaviour.