Fairness — yes, fairness — is essential to capitalism, business, and economics

Writing about fairness in the business section risks ridicule and derision, but only from people who read just the first few pages of their Econ 101 textbook, then nap through the rest of the class. There’s some great research into people as economic actors and how they react to unfairness.  PeopleScience.com recently asked me to explore this touchy issue. 

OK, ok, if you’re busy, just skip to the cute monkey-grape video, but there’s a lot more to this story.  Obviously, some people are more devoted to the concept of fairness than others, and it can seem like the bad guys are winning right now. (My podcast this week offers a hint about why: good faith actors can’t really beat bad faith actors at their own, ‘infinite,’ game.)

Naturally, marketers (and politicians) have figured out how to exploit our lesser angels. For that part of this story, I turned to Nelson Schwartz, author of the new book The Velvet Rope Economy: How Inequality Became Big Business.  He’s fascinating to talk to. I believe there is some kind of a reckoning taking place, however.  Some people who benefit from special treatment don’t think it’s fair; and some primates even refuse it!  Not this one….

 

Please visit PeopleScience.com for the original story, or read an excerpt below.


The words “first class” sound great, until you aren’t in it. We’ve all been there: Waiting to board the plane, headed for a cramped seat, clutching your carry-on and hoping it fits, all the while watching a few privileged others glide past you, soon to be offered a pillow and a cocktail. Your resentment builds even more when you realize that your boarding pass says something absurd like, “Group 9.” Somehow, the airline thinks eight other groups of people deserve to get on that plane before you do. You clutch your bag even tighter and pray that a flight attendant doesn’t grab it away from you at the gate.

And you think, “This isn’t fair.”

Fair? How did that word get into a blog about behavioral economics? After all, doesn’t econ teach that people always act in their own self-interest? As Tina Turner sang….sort of…what does fairness have to do with it?

Quite a bit, in fact. Fairness, it turns out, seems to be built into the human condition. And not some equation-driven, self-interested, logical kind of fairness. Nope. People come preloaded with a deep desire for equality, and a deep aversion to unfair treatment. Ask any parent of a newly verbal child and you’ll find that soon after the ability to say, “Mommy” and “Daddy” comes the phrase “That’s not fair.”

And it’s not just humans. You might be familiar with the famous capuchin monkey experiment, but the story is so delicious that it never hurts to retell it. Dutch primatologist Frans de Waal put two monkeys in two cages next to each other. Each received a cucumber as a reward for completing a task. All was well. Then, one animal was upgraded to a grape. That grape is like a first-class seat to capuchin monkeys. The coach class monkey noticed immediately and did what most of us wish we could. He started throwing cucumbers at the experimenter. This astonishing result can be repeated in all sorts of primates. They’d rather eat nothing than sit by and watch a peer get a grape upgrade.

Humans actually do this too, given the right circumstances. The Ultimatum Game proves this: If a pile of money is to be split among study participants, it better be split up in a way that’s at least not too unfair, or else the underpaid player will burn all the money so no one gets anything. What would you do in a random game if your neighbor got $1,000, but you only got $2? Would you celebrate the $2? Or would you start complaining about executive pay?

Nelson Schwartz, author of the new book The Velvet Rope Economy: How Inequality Became Big Business, has studied nine-group airline boarding procedures and other similar tactics. Creating faux classes to socially stratify people does work, at least for a while, he says.

“Human beings are very into what economists call positional goods,” he said. “Businesses are very attuned to how people want to feel special, to feel they are like getting something others aren’t getting.”

But things can go too far, he says. Airlines seem to test this boundary all the time.

“That level of stratification has a way making people angry. It has an assaultive quality. That speaks to why there is so much anger flying,” he said. “Tempers are so frayed that people react… Nine groups to board a plane? On airlines, flight staff refers to the last group as ‘group niners.’ They come aboard angry.”

One might call that reciprocity – treat me badly, company, and I’ll treat you badly right back. We’ve written about that behavioral concept before, and it’s useful in the business world. Send a holiday card to a random stranger, she or he is likely to write one back. Give a little, get a little.

But fairness can go far beyond reciprocity. Group niners might be focused mostly on their own middle-seat misery and lack of overhead bin space, but plenty of research shows that concern about fairness isn’t only self-centered. Humans – at least many of them – actually seem wired to worry about other people being mistreated, too. If the ultimatum game hints at other-regarding motives, the Dictator Game suggests outright altruism. Given the choice to keep all the money, the dictator usually offers to share at least some with the other player – and there’s no good explanation other than some sense of fairness.

You will hear behaviorists refer to this as “disadvantageous-inequity aversion,” and it can be witnessed in many forums. People don’t like to see other people treated unfairly. Some express dislike even when they directly benefit from the poor treatment of others.

That higher level of cognitive behavior and generosity isn’t found in lots of other cucumber-throwing mammals, but it’s not solely human, either. Dr. de Waal has witnessed it in chimpanzees – who sometimes turn down a first-class seat when friends nearby are left in coach class.

“The chimpanzees may refuse a grape if the other one doesn’t also get a grape. So they want to equalize the outcome,” Dr. de Waal told a radio interviewer in 2014.

There are plenty of implications around the concept of fairness at work. Talk about excessive executive compensation is popular and populist lately, and there is at least some research suggesting a connection between perceived unfair CEO pay and worker morale. During times of crisis – a natural disaster like a hurricane, or a virus outbreak – businesses that react logically to the market and drastically raise prices on gas, hand sanitizer, or other essential goods often pay a price socially, and sometimes end up paying fines too.

The feelings of unfairness can trip up companies in more mundane ways, too. Consumers generally find it unfair to pay a surcharge for credit card payments, for example. Here is where framing can help. Economist Richard Thaler has found that consumers find it much less unfair to be offered a discount for paying cash. Similarly, they find a seven percent pay cut during a time of zero inflation to be far more unfair than a five percent wage increase when inflation is 12 percent.

Still, beware of the use of tricks to convince workers or consumers that you aren’t being unfair. Consumers with built up resentments will quickly jump ship as soon as an alternative is found. Blockbuster learned this the hard way when Netflix disrupted the video rental market. Long before movies could be reliably streamed, the small tech firm with the goofy U.S. Postal Service business model slayed the Blockbuster Goliath in part because of seething resentment over late fees. Ditto for taxi drivers; passengers couldn’t wait to escape their well-earned reputation for dishonesty and smelly cars when Uber came around. Airlines might feel this wrath as they ask Uncle Sam for help during the age of coronavirus, even while legions of pub-goers raise money with virtual tip jars for out-of-work waitstaff. Group niners have been waiting for a chance to throw those tiny bags of pretzels back at the airlines, and it’s a safe bet this is it.

Read my entire behavioral science / cognitive bias series. 

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About Bob Sullivan 1477 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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