Saturday, February 08, 2014

Which is better, altruism or greed?



This debate between Frances Coppola and Tim Worstall got me thinking: Which is better, altruism or greed?

That probably sounds like a silly question. Altruism, duh! Right? But it's not so simple.

Imagine a world where everyone lives in a glass box with a fruit tree (in econ grad school you learn to imagine stuff like this). Watering the fruit tree takes work - the more work you do, the more fruit you get. Suppose everyone is totally altruistic, and cares only about how much fruit other people get. So nobody does any work - they just sit there feeling sad that no one else has any fruit to eat, while not caring that they themselves are going hungry. In this situation, people are a lot worse off than if they were greedy.

Now, of course this is a silly example. But maybe not so silly! After all, our ability to help each other is limited in some basic, fundamental ways. Information about preferences is asymmetric - we don't always know what other people want. You may bake your friend a cake, only to find out that she doesn't like chocolate. In general, we're more equipped to help ourselves than we are at helping other people. A world with no greed at all, and only altruism, would see us wandering around trying to help each other (and often failing), but doing nothing for ourselves, and hurting other people indirectly with our self-neglect.

OK, so is greed better? Well, so far I've been implicitly assuming that there's a tradeoff between selfish utility and altruistic utility. But maybe there's no such tradeoff. If I desire both my own consumption and the consumption of others, isn't that better than just desiring my own consumption? Well, maybe, maybe not. For example, suppose my utility function is:

U = sqrt(C_me) + sqrt(C_other people)  

(For the non-economists among you, "U" is "utility", "C" is "consumption", and "sqrt" means "squirt yourself in the face with a squirtgun, upload the video, and send me the link.")

The first part of this utility function is the selfish (greedy) part and the second part is the altruistic part. Both terms are positive, so my utility is strictly higher than the purely selfish utility function U = sqrt(C_me).

But what if my utility function is this?

U = log(C_me) + log(C_other people)

I'm still altruistic, since my utility is still increasing in both my own and other people's consumption. But now the form of the utility function has been changed, so it can go infinitely negative. In fact, since there is always someone out there starving to death, in this case, altruism will make everyone worse off.

In plain English, if you sit there feeling happy because someone somewhere is having a good life, then it's good that you have some altruism in addition to your greed. But if you sit there feeling terrible that someone, somewhere is starving to death, then you would be better off ditching the altruism. (Actually, one time I sat around feeling sad for hours thinking about bears starving in the wild. In retrospect, this was a giant waste of time.)

Also, you may have noticed that I've defined altruism in a slightly weird way so far - I've assumed that altruism means caring about other people's consumption instead of other people's utility. But having people care about each other's utility will have similar results, because you also have to have someone's utility based on something other than someone else's utility, or the whole thing becomes undefined. What's interesting about this notion of definition of altruism is that it's complementary with greed. You may smile when you watch your daughter open a Christmas present...but if she weren't greedy for a present, she might not be as enthused about the present! 

So far we've been talking about welfare (in other words, we've been thinking altruistically!). But what about Pareto efficiency? In a standard general equilibrium setup, altruism leads to inefficient outcomes, since it creates an externality. But if you add altruism without subtracting greed, then that new, inefficient outcome can represent a Pareto improvement over the old efficient outcome! Weird, right? In other words, adding altruism can make everyone better off by 10, but at the same time raise everyone's ceiling for better-off-ness by 20. See?

Also, where externalities already exist, altruism can help eliminate them, thus increasing efficiency. For example, consider the prisoners' dilemma. If you care a bit about whether your buddy gets out of jail, then the cooperative equilibrium can become a Nash equilibrium, resulting in a Pareto improvement over the perfectly selfish case. 

So the answer to "Which is better, altruism or greed?" is not so simple. If you're sitting around feeling depressed because you carry the weight of the world on your shoulders, you might want to pick up a copy of Atlas Shrugged. But if you're spending your life engaged in zero-sum competition with coworkers or political opponents, it might behoove you to pick up Adam Smith's The Theory of Moral Sentiments instead.

64 comments:

  1. Two sisters. They love each other very much. One day, the mother buys them two dresses, one red and the other green. Older sister comes in and sees both dresses on the bed. And she thinks: how beautiful is the red one! I leave it for my sister and I will keep the green for me. Then, the younger sister comes in and sees both dresses and says: How beautiful the green one! So, it must go to my beloved sister and I will keep the red one.

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    1. altruismo kills ó jesus hijo de la virgen

      all truisms are true

      altruism is a sure death in the cross

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  2. Jesus had the right idea:

    "Love your neighbour AS YOURSELF"

    and "the poor are always with us" (so there's nothing wrong with a foot massage using very expensive perfume)

    I'm quite impressed with New Testament economics generally.

    And this comment is probably really blasphemous. Sorry.

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    1. One time I wrote a story in which Jesus was actually an alien genocidal maniac, who, as his punishment, had his mind doctored to make him infinitely altruistic, and was then sent to a primitive world (Earth) where he would be overwhelmed by human suffering and intentionally get himself killed by the local authorities, after which he was resurrected by alien supercomputers and, having learned his lesson, was made to prepare for the Second Coming.

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    2. I tried to love my neighbour as myself, but she friendzoned me.

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    3. .....in which he will humanely put suffering humanity out of its misery and populate the earth with alien supercomputers. Genocide has its compensations.

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    4. I tried to love my neighbour as myself, but she friendzoned me.

      ZING!

      Delete
    5. Anonymous9:44 AM

      Jesus is God. He deserves more than high quality perfume. He did heal a multitude of people who had suffered from leprosy, blindness, and impaired speech and hearing. He even restored life to a dead man who happens to be the brother of the same woman who poured the enviable perfume on Her God Jesus. Jesus had feed thousands of people by multiplying a couple of fish and five loaves of bread. He did all these deeds without charging a dime for His services.

      I think you should go back and re-read the NT after you make sure that all your biases are left at the door.

      A woman had the life of her dead brother restored by Jesus and she showered upon Him expensive perfume out of delight. What is your problem with that?

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    6. Anonymous9:46 AM

      The above response is meant to Frances Coppola.

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  3. If one is better off being altruistic, then it's altruistic to persuade other people to become altruistic.

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  4. Anonymous6:50 PM

    Hume made an argument approximately like this: he pointed out that it's a rather good thing that people pursue their self-interest by helping others.

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  5. Gogol had an awful story, The Overcoat, I think, in which (sorry if I am not getting this exactly right, but... ) a husband likes his overcoat and his wife likes her long hair. So, she gets her hair cut off to buy him something for his overcoat, while he sells his overcoat to buy something nice for her hair.

    That said, the bottom line of accumulated experimental econ is reality is mostly in-between these extremes. So, there are some people, maybe 10-20% who are very much True Christian altruists, to put in repeated PD games context, will just keep trying to cooperate no matter how persistently they get rejected by others cheating. And there is also a group about the same size of "Machiavellis" who just refuse to cooperate and just cheat cheat cheat every time, no matter the efforts of others.

    However, the vast majority of the population are conditional cooperators, modified tit-for-tatters, if you will. Maybe this makes them ultimately selfish, only cooperating if others do so, but most are willing to try again, and most will also give to others without expectation of reward, as long as it is not too much.

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    1. We all came out of Gogol's overcoat...

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    2. I only know this via wikipedia, but you are combining the plot of O. Henry's The Gift of the Magi with the overcoat (and apprehension) from Gogol's The Overcoat. The moral of The Gift of the Magi is something like "Their love for each other is the best of all possible gifts". The moral of The Overcoat is, I gather, something like "Your attempts at bettering your situation work only to hasten your death, worm."

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    3. Yeah, that's Gift of the Magi. BR's description of the moral of the Overcoat is a reasonable one.

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  6. Anonymous7:46 PM

    I tend to not think of greed and altruism as distinct. Specifically, altruism is a kind of greed, the greed for the satisfaction that comes from helping someone. When looked at that way the idea of altruism is just a way of putting humans tendancy for greed to good use .

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  7. Anonymous8:02 PM

    Can greedy people become altruistic and vice versa? Econ 101 supposedly makes people greedier. Does Ethics 101 make them less greedy? To what extent are institutions and social preferences endogenous?

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    1. This comment has been removed by the author.

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    2. You're equating ethics with altruism. A lot of ethicists believe that you should be fundamentally selfish. The rational egoists, for instance.

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  8. Ok, talk to me like I'm an undergrad who hasn't taken micro:

    In the glass box example, why wouldn't people work to get more fruit to give to other people?

    I really like the example about needing to define utility in terms of *something* else. At first I thought "oh, surely that's just mathematical formalism", but you're right that somewhere along the line what you do for someone is going to have to make them happy on it's own merits. A good example, I think, of where a good model can help clarify your thinking.

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    1. They can't get through the walls.

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    2. Gotcha, that makes a lot more sense.

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    3. True altruism does lead to farming in the glass boxes.
      Making yourself more food makes others happier.
      Defining altruism as wanting to see others eat more fruit just for the sake of eating more fruit is nutty. And it's just not how people are wired up.

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    4. I had the same confusion. I think Noah means to say that everyone is in a different glass box, not one giant one, so they can't help each other.

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    5. Urgg.
      Can't. Leave. Alone.

      Spot the derp in the following.
      If we define altruism to mean utility derived from others' consumption of peppermint humbugs and put everyone in glass boxes with a fruit tree that needs actively watered, assume everyone is 100% motivated by altruism, 0% by self-interest then everyone will starve to death.
      Therefore altruism is not always good, and self-interest is sometimes necessary.

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  9. Anonymous10:02 PM

    If everyone else is altruistic too, then wouldn't you want to eat the fruit in order to make them happy?

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  10. OK, let me got theoretician here for a moment. So, if person A has U(U(b)) and person B has U(U(a)), then there may be no equilibrium. It becomes a question of convergence on an infinite regress: A worries about how B will react to A's action, but B will be worrying about how A will react to B's reaction to A's action, which will lead to A worrying about B's reaction to A's action, which will lead to....

    So, in game theory this became the Holmes-Moriarty problem, which was solved when Oskar M. met Johnny von Neumann who told him about tossing dice from his 1928 Gesellschaft paper on minimax game theoretic solutions using Brouwer's fixed point theorem (for the first time in an econ situation). But, for better worse, while baseball pitchers or tennis servers may throw dice on what to do, there are plenty of other infinite regress problems in econ where there is no such simple solution to end an infinite do-loop that may explode. That this was a problem for the problem of bounded rationality dates to Luce and Raiffa in the late 50s with an excellent exposition by John Conlisk in JEL later and others as well, such as Bart Lipman. In any case, this becomes the fundamental problem for ratex: how much time should I spend on calculating the other's analysis of my analysis of his analysis...of my expectations. This issue is usually just assumed away by such simpletons as followers of Lucas.

    It is sometimes reformulated as Keynes's beauty contest problem from Chap. 12 of the GT, the most important and innovative moment of his intellectual career (with the possible exception of his Treatise on Probability), This has now been beaten to death by experimentalists and others. In principle it leads to Godelian incompleteness, but in empirical practice people are just not smart enough to play that far. The most extreme of the experiments at Caltech of their supersmart undergrads overseen by Colin Camerer and others has gotten to n=8 levels, although in fact very few people in most situations go beyond level 1, with 0 being just knee jerk projection. Level 2 is the end of most practical extensions.

    Barkley Rosser

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    1. Oh, I think chess grandmasters have been shown to get to maybe even higher than n=8 in the beauty contest game. But their best are now beaten by computers. Last time I checked, the top Go masters can still beat the top Go computer programs (although I cannot beat those suckers). How high n goes for the top Go masters I believe has not been tested, although there may be some other aspect involved in this matter.

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  11. I can't agree with your argument on an altruistic economy. If people only care about others, instead of sitting there feeling sad about other's not having fruit to eat, they will actually take actions to water other people's plant. A waters B, B waters C, C waters A, this gift giving equilibrium is pareto efficient, which sometimes couldn't be supported by a monetary equilibrium. I think the argument should lie in what market structure could give us an equilibrium with most efficiency like an altrusic economy, but not to argue if altrusic or greedy is good.

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  12. Altruism can (and most often does) benefit utility, not just consumption. They're not either/or choices.

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  13. Wait, ignore my first comment because I wrote it without reading your whole blog post. Sometimes I'm overeager. But still, your post doesn't appear to me to be more than hypothetical mumbo-jumbo wrapped up in a crapload of econononsense. Why? Because altruism is given only by those who have the power/resources to give it. But anyone can be greedy. So congrats on writing a supremely stupid blog post. You're awesome.

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  14. Your experiment is a thoughtless one. We don't all live in glass boxes, in a real sense man is not a basically indivualistic animal; this the logical downfall of most extreme Libertarianism of the Rand variety.
    Humans have always been social animals so a thought experiment that denies a fundamental fact is destined to provide little insight. In your example you're designing altruism like the total empath from the Star Trek episode, a being that suffers the pains of others to her own expense. Better to start with a definition of greed. Let's call greed the maximization of profit without regard to the consequences of others. Greed treats the economy as a zero sum game even when he knows it isn't. Greed is like my black lab, he wants all the toys.
    Altruism then is the recognition that in a society where we live together and affect each other that our general greater utility is enhanced by actions that don't reduce us to a mad scramble for all. Instead by stepping back from greed, by giving up some marginal level of profit we create a more cooperative and therefore congenial economy. Our utility in terms of safety and perhaps pleasant living is increased.
    Altruism is therefore benign self-interest that recognizes the full scope, i.e. externalities while greed is pernicious self-interest with narrowed focus.
    Tom Perkins is greedy. He also seems to be slightly paranoid (or maybe he has a guilty conscience and is exhibiting through fear rather than recognition). Would you say his greed has increased his utility?
    Sometimes it appears that economists live behind glass walls and fail to recognize the limitations of their discipline or perhaps they are greedy with respect to the insights their discipline can provide.

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    1. Anonymous9:01 AM

      I bet your black lab is more empathetic/altruistic than you realize, his compulsion to covet dog toys aside.

      I bet, in fact, he has better insight into what you are thinking/feeling (assuming he's not nuts) than you do into what he is thinking/feeling at any given moment :)

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  15. Two observations:

    A. Bitcoin holder - altruistically greedy or greedily altruistic?

    B. Noah - have you ever seen real poverty? People so poor that they could care less about much of the nonsense we pursue to make a living? And, why use Gandhi in an article that is mostly useless in practice. I also think it is erroneous as it fails to consider transactional nature inherent in any economic (and human) activity.

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  16. Frances has rather over stated my original argument. Which wasn't really about the relative merits of greed and or altruism. Rather, it was that incentives matter. And thus organisations that face different incentives (say, public sector bureaucracies as against private firms in a competitive market) will produce different results.

    Perfectly willing to agree that at times we might prefer one or other set of results and thus opt for one or other of the structures and thus incentive sets. The only argument there is when?

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    1. No, Tim, I haven't.

      This was the argument against state investment that I was questioning:

      "It is often stated that the State is unable to assess risk properly or make rational investment decisions, and that therefore any investments the State makes are likely to be inefficient relative to private sector investments.

      This is an argument frequently made by those who want a smaller State. I argued against it on the following grounds:

      "...the State uses the same management consultancies to advise it on investment projects as the private sector does, engages the same contractors as the private sector uses and recruits people from the private sector. Admittedly, bureaucracy can have a deadening effect, but the same is true of large organisations in the private sector. Bureaucratic inefficiency is certainly not a public sector specialism."

      In other words, there is no reason why a public sector actor providing a particular service should be any less efficient than a private sector actor providing the same service..

      Of course different organisations have different incentives. But that is confusing the purpose with the means to achieve it. Having a social purpose does not imply or require inefficiency.

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  17. Regarding Noah's thought experiment:

    Even if those living in the glass boxes only care about others well being they still water their own tree. Why? Because they know that others care about their own well being. People often make decisions to not harm (kill) themselves because they know the extent to which it would upset their family. Your utility function needs to contain the utility of others not just the consumption. In this way you will then put some weight on your own consumption via the concern of others. Problem solved?

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  18. Anonymous6:42 AM

    Great, just great. Not only am I soaked wet through I also discover I haven't a clue how to upload a video anywhere. Now I'm off to fetch a towel, damn you. bill40

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  19. you depressed the crap out of me with the bears

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  20. This thought exercise explains co-dependency, and it makes me worry.

    Wouldn't the optimum situation, then, be a society where half of the population is completely altruistic and the other half completely greedy? Then the altruistic people give everything to the greedy people, thereby making everyone happy?

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    1. The happiness of the greedy would only last as long as the altruistic survived, which might not be very long. After that they would revert to their usual condition - fighting over the spoils.

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  21. Anonymous8:02 AM

    In the glass box example, since preferences are of the sort you describe, everybody dies in a (mutually reenforcing) spiral of sorrow about everyone else dying because no one gets any fruit. There is no way out of that because of the way you frame the example. Indeed you make the point that having that sort of preferences is dooming because their bearers go extinct.

    Isn't the last sentence unwarranted: "In this situation, people are a lot worse off than if they were greedy." That is a value judgement that doesn't follow from 'their' preferences, right?

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  22. Lulz4l1f38:35 AM

    Honesty, I'm not sure what an abstract thought experiment does to enlighten us here.

    Generally, what we call altruism has more to do with our ability to mirror what we expect others might be experiencing, and this is needed to communicate and to have any social order whatsoever on top of its more sentimental aspects.

    What I find interesting is that most people are pretty danged empathetic, and they regulate that (shut it down sometimes) by more-or-less labeling people as "others", as in "not one of us" and so on. There's a group/tribal component to shutting down empathy usually.

    Now this isn't true for everybody. Psychopaths (sociopaths) kind of work in the opposite way. They are normally not particularly empathetic and are more "goal oriented" when it comes to others. But they don't lack the capacity for empathy. If they did, they'd be obvious social misfits and unable to relate to others, and so their capacity to manipulate others would be non-existent. They can regulate empathy too. It's just normally off, but if they believe they need to imagine what somebody else is feeling/thinking, the old mirror neurons begin firing.

    So I guess this is my conclusion:

    1. Perfectly empathetic (and altruistic) doesn't exist. It's a unicorn.
    2. Perfectly selfish doesn't even exist in psychopaths, so let's call that a leprechaun.

    We are debating which is better, unicorns or leprechauns?

    Doh!

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  23. What is the utility of being dead under U=log(C). If 0, people will kill themselves as their C goes below 1. If it is equal to C=0, they will spend all their resources on health improvements.

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    1. Anonymous8:51 AM

      I.e. In the first case, you do not have to be concerned with negative utility. In the second case, we are screwed whether people are altruistic or not.

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    2. Final comment. In the case of altruists in the glass box - each person would of course produce fruits since it makes everyone else happy , and (s)he cares about their happiness.

      With altruism, the choice compatible with greed is still an option - and will be exercised if it maximizes social welfare, but only if it maximizes social welfare.
      Given a shared social welfare function, altruism weakly dominates greed - i.e. it is better or, as a corner solution, equally good.

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    3. Lulz4l1f39:03 AM

      So... you favor Unicorns over Leprechauns? lol

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    4. The utility of death is assumed to be not 0, but negative infinity. Death is C=0.

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    5. . "Death is C=0"
      Then everyone's Utility, summed over all time periods, is negative infinity whether they are altruists or not - right? (alternatively, if they only sum utility over the time were they are alive, they should still kill themselves as their utility turns negative, i.e. C<1)

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    6. @Lulz4l1f3
      My point is that U=log(C) is a very bad (cardinal) utility function, and that all results derived from it are suspect.

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    7. The utility function is ordinal, the actual value is meaningless. U_1(c)=sqrt(c), represent exactly the same preferences than U_2(c)=log(c). If c<1, then U_2(c)<0 and U_1(c)>0, so what? They both tell you that more consumption is preferred.

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  24. When the upper classes get too greedy and blinkered in their lack of altruism (incentives or not) you get things like the French and Russian Revolutions which are obviously bad because of the death and misery. (If Tom Perkins was more learned he would mentioned those and not Kristallnacht. Although once could argue that the rise of Nazism was in part a result of the Bolsheviks in the east and the Great Depression which was in turn brought on by misguided monetary policy by the French and American Central Banks - both domains of the rich banksters.))

    With too much greed you get class suicide via revolution. With too much altruism you get ... what? Mother Teresa? Pope Francis? A mensch who brightens your day?

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  25. In fact, since there is always someone out there starving to death,

    But that is just a consequence of the interaction between our utility functions and the constraints on the system. Most people in the Western world have the resources to personally save at least several lives but they either do not have the desire (utility function) or there may be a constraint that prevents it. We could have saved lives in Zimbabwe but it would have required first sending in soldiers to murder the Mugabe regime and we were not prepared to do that. We have the resources to stop every wide spread famine but we are not willing to send in soldiers to impose law and order to allow the effective distribution of food aid.

    The constraints may be such that it is impossible to impose law and order. Saddam Hussein was willing and able to impose order in Iraq, the United States was not willing to do what would have been necessary.

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  26. Which is better? Seeing individual interests as convergent or as unrelated?

    If you're sitting around feeling depressed because you carry the weight of the world on your shoulders, you might want to pick up a copy of Atlas Shrugged. But if you're spending your life engaged in zero-sum competition with coworkers or political opponents, it might behoove you to pick up Adam Smith's The Theory of Moral Sentiments instead.

    Yikes. What a choice!

    How about this instead?

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  27. Anonymous3:21 PM

    The parties in this conflict are not merely altruistic progressives vs greedy conservatives— they are atheists, socialists, communists, red republicans, jacobins, on one side, and the friends of order and regulated freedom on the other. In one word, the world is the battleground—Christianity and Atheism the combatants; and the progress of humanity at stake. ( James Henley Worstovall , 1850 )

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  28. Anonymous9:36 PM

    "... you might want to pick up a copy of Atlas Shrugged."

    Matt, I'm sorry to tell you that this is perhaps your worst post ever. The fact that you even consider telling someone to read Rand should have been a danger sign.

    I was going to analyze but just don't have the heart. Normally I very much like your stuff and trust you'll be feeling better soon.

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  29. Imagine a road system where everyone drove with no courtesy like a NYC cab driver. We would have traffic jams everywhere. Traffic signals increase the capacity of road intersections by at least 2x; altruism outcompetes greed in that domain.

    On the other hand virtually nobody gets rewarded when a government agency cuts wasteful spending. Greed goes unrewarded in the public sector.

    Greed and altruism work in the domains in which they work best. There is no single winner.

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  30. A very curious example, what if Eli nurtures his carrot patch so that he and the other bunnies may eat well. Sort of like what happens with tomatoes if you have a home garden.

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  32. A challenger appears: Envy

    Proposing a relative utility framework, Falkenstein introduces something that is neither altruism nor greed. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1420356

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  33. Phil Koop1:02 PM

    So does "log" mean "hit yourself in the face with a log, upload the video, and send [Noah] the link"? And does that qualify as abuse of notation?

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  34. Noah, your discussion of utility functions is deeply flawed. A utility function is a representation of a preference ordering and different utility functions cannot be directly compared. By the logic of your argument, I become better off if my utility function changes from U=ln(x) to U=2*ln(x) and x>1. Utility doesn't measure felicity; it represents potential choices. The only way altruism can change "welfare" is by changing choices.

    "The first part of this utility function is the selfish (greedy) part and the second part is the altruistic part. Both terms are positive, so my utility is strictly higher than the purely selfish utility function U = sqrt(C_me).

    But what if my utility function is this?

    U = log(C_me) + log(C_other people)

    I'm still altruistic, since my utility is still increasing in both my own and other people's consumption. But now the form of the utility function has been changed, so it can go infinitely negative. In fact, since there is always someone out there starving to death, in this case, altruism will make everyone worse off."

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  35. Nathanael10:50 PM

    Neither greed nor altruism is better.

    Look at some experimental game theory.

    The best behavior is "fairness" -- I scratch your back, you scratch mine; also known as "tit for tat" in the less pleasant case.

    The importance of fairness has been found in a gazillion studies from a gazillion social science subjects. Greed is anti-fairness; so is pure altruism. Altruism can be balanced out by "counter-gifting", which results in fairness.

    Greed can only be balanced out by "stealing it back", so greed is worse.

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