American Economic Association Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions Author(s): Samuel Bowles Reviewed work(s): Source: Journal of Economic Literature, Vol. 36, No. 1 (Mar., 1998), pp. 75-111 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/2564952 . Accessed: 01/06/2012 18:23 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to Journal of Economic Literature. http://www.jstor.org Journal of Economic Literature Vol. XXXVI (March 1998), pp. 75-111 Endogenous Preferences: The Cultural Consequences of Markets and other Economic Institutions SAMUELBOWLES University of Massachusettsat Amherst Than,ks to Eric Verhloogent, Jamiies Heinitz, Stephaniie Eckmiiani,Nicole Hubei-, an*d Melissa Os- bornte for research assistance, to the University of Sienia for pr-ovidinlg anii,un,paralleled en vi- ronm0ntentfor r-esea-rch ani-d writing, to Robert Boyd1, Coiin. Canerer, Rober-t Cialditti, Lilia Costabile, Joshu-a. Cohen, Gernald Cohen, Martin Daly, Peter- Dormii-ant,Catherine Eckel, Mar- cus Feldlm7an.,Ernst Fehr, Nanicy Folbre, Christina Fong, Bruino Fr-ey, Her-bert Ginitis, Karla Hoff, Daniel Kahneanwn, Melvin1 Kohn, David Kr-eps, Tiniiur-Kuran., George Loewen stein, Eli- n)or Ostromn, Benttley MacLeod, Paul MAaillerbe, Karl Ove Moene, Casey Mulligan, Richard Ni.sbett, Ugo Pagano, Jeani-Philippe Plattealu, John Roemn,er, Susan, Rose-Acker-miiani,Pauil Romiter,Pau-il Ro:zin, Andrewv Schotter, Paul Seabright, Gil Skilltiman, Peter Skott, Rolhini Soal.- nathan, Hillel Steiner, Philippe -van.iParijis, Burtont Weisbrod, Elisabeth Wood, Erik Olini Wr-ight, Viviana Zelizer, and6 twvo anonym-noutsreferee.5 for gutidanice in the literatuires covered here anid commttitenitsoni. ani, earlier draft, andctto the MacArtlhur Foundation for financial slp- port. Correspon.dentce to [email protected],ass.edu. 1. Hobbes' Fiction from the ways that society shapes the de- velopment of its members in favor of [Let us] . return again to the state of na- "taking individuals as they are." Reflect- ture, and consider men as if but even now sprung out of the earth, and suddenly (like ing this canon, most economists have not mushrooms), come to full maturity, without asked how we come to want and value any kind of engagement with each other. the things we do. Hobbes' fiction neatly elides the in- Thomas Hobbes ([1651]1949, p. 100) fluence of social arrangements on the If friends make gifts, gifts make friends.... process of human development and thus Thus do primitive people transcend the Hob- greatly simplifies the task of economic besian chaos. theory. But the scope of economic in- Marshall Sahlins (1972, p. 186) quiry is thereby truncated in ways M /[ARKETS AND OTHER economic in- which restrict its explanatory power, stitutions do more than allocate policy relevance, and ethical coherence. goods and services: they also influence If preferences are affected by the poli- the evolution of values, tastes, and per- cies or institutional arrangements we sonalities. Economists have long as- study, we can neither accurately predict sumed otherwise; the axiom of exoge- nor coherently evaluate the likely con- nous preferences is as old as liberal sequences of new policies or institu- political philosophy itself. Thomas tions without taking account of prefer- Hobbes' mushroom metaphor abstracts ence endogeneitv. In the Dages which 75 76 Journal of Economic Literature, Vol. XXXVI (March 1998) follow I review models and evidence kets and other economic institutions on concerning the impact of economic in- human development.2 But consensus stitutions on preferences, broadly con- eludes any of the grand claims made strued, and comment on some implica- concerning the nature of the effects or tions for economic theory and policy how they might be generated. The rea- analysis.1 son-is that most writers have implicitly The production and distribution of invoked a kind of functionalist corre- goods and services in any society is or- spondence between economic struc- ganized by a set of rules, among which tures on the one hand and values, cus- are allocation by fiat in states, firms, toms, and tastes on the other, without and other organizations, patriarchal and explaining the mechanisms by which the other customary allocations based on former might affect the latter. Thought- gender, age, and kinship (as for example ful works on the subject-Joseph takes place within families), gift, theft, Schumpeter (1950) on "the civilization bargaining, and of course markets. Par- of capitalism," Daniel Bell (1976) on ticular combinations of these rules give "the cultural contradictions of capital- entire societies modifiers such as "capi- ism," David Potter (1954) on the "peo- talist," "traditional," "communist," "pa- ple of plenty," Karl Polanyi (1957) on triarchal," and "corporatist." These dis- "the great transformation," or Peter tinct allocation rules along with other Laslett (1965) on "the world we have institutions dictate what one must do or lost"-are surprisingly bereft of causal be to acquire one's livelihood. In so arguments. doing they impose characteristic pat- Nonetheless, the argument that eco- terns of interaction on the people who nomic institutions influence motivations make up a society, affecting who meets and values is plausible, and the amount whom, on what terms, to perform which of evidence consistent with the hy- tasks, and with what expectation of re- pothesis is impressive. Many ethno- wards. graphic and historical studies, for exam- One risks banality, not controversy, in ple, recount the impact of modern suggesting that these allocation rules economic institutions on traditional or therefore influence the process of hu- indigenous cultures.3 The rapid rise of man development, affecting personality, feminist values, the reduction in family habits, tastes, identities, and values. size, and the transformation of sexual One cannot be too far out on a limb practices coincident with the extension when in the company of Adam Smith as of women's labor force participation well as Edmund Burke, Alexis de Toc- likewise suggest that changes in eco- queville and Karl Marx, John Stuart nomic organization may foster dramatic Mill and Frederick Hayek: all cele- changes in value orientations. brated or lamented the effects of mar- Drawing on literatures from the other 1 I abstract from other forms of preference en- dogeneity such as the many variants of Harvey 2 In these pages and elsewhere, Albert Leibenstein's (1950) "bandwagon" and "snob" ef- Hirschman (1977, 1982) has catalogued early fects or James Duesenberry's (1949) analysis of statements of the cultural effects of markets, obvi- keeping up with the Jones' or Thorstein Veblen's ating the need for more than passing mention (1934) emulation effects, or the interdependent here. preferences studied by Robert Pollak (1976). 3 Among the more instructive not mentioned Rather, I here develop the research agenda sug- elsewhere in this essay are Kenelm Burridge gested by Herbert Gintis' early (1971, 1972) inves- (1969), Daniel Lerner (1958), Margaret J. Field tigations of the impact of economic institutions on (1960), T. Scarlett Epstein (1962), Michael Taus- preferences. sig (1980), and Jean Ensminger (1992). Bowles: Endogenous Preferences 77 social sciences, history, and experimen- and desires, including child rearing tal economics, I have identified five ef- and schooling, as well as informal learn- fects of markets and other economic in- ing rules such as conformism (Section stitutions on preferences. Few are 8). supported by empirical evidence that Until recently, economic theory gave will convince a confirmed skeptic, but little guidance in understanding these most are plausible and consistent with effects, for it purposefully abstracted substantial evidence. from wlhat were considered to be the ir- Framing and situation construal: eco- relevant sociological details of the ex- nomic institutions are situations in the change process. In the complete con- social psychological sense and thus have tracting world of Walrasian economics, framing and other situation construal for example, there is little reason for an effects; people make different choices economic actor to be concerned about depending on whether the identical fea- his exchange partner's psychological sible set they face is generated by a makeup or moral commitments; more- market-like process or not (I address over there is no way that these personal these issues in Section 4). traits could be affected, if one were so Intrinsic and extrinsic motivations: concerned. Markets of this type, wrote the ample scope of market choices and Albert Hirschman in these pages (1982, often extrinsic nature of market rewards p. 1473), are peopled by "large numbers may induce preference changes driven of price taking anonymous buyers and by individual desires for feelings of sellers supplied with perfect informa- competence and self-determination; tion"