Robert H. Frank

The evolution of one-shot cooperation: An experiment

Abstract Can people rationally advance their own material interests by cooperating in one-shot prisoners dilemmas, even when there is no possibility of being punished for defection? We outline a model that describes how such cooperation could evolve if the presence of a cooperative disposition can be discerned by others. We test the models key assumption with an experiment in which we find that subjects who interacted for thirty minutes before playing one-shot prisoners dilemmas with two others were substantially more accurate than chance in predicting their partners decisions.

Positional Externalities Cause Large and Preventable Welfare Losses

In traditional economic models, individual utility depends only on absolute consumption. These models lie at the heart of claims that pursuit of individual self-interest promotes aggregate welfare. Recent years have seen renewed interest in economic models in which individual utility depends not only on absolute consumption, but also on relative consumption. In contrast to traditional models, these models identify a fundamental conflict between individual and social welfare. The conflict stems from the fact that concerns about relative consumption are stronger in some domains than in others. The disparity gives rise to expenditure arms races focused on positional goods—those for which relative position matters most. The result is to divert resources from nonpositional goods, causing welfare losses. Compelling theoretical and empirical evidence confirms the importance of relative consumption in individual valuations. In light of this evidence, we must question the wisdom of economic policy recommendations stemming from models that ignore relative consumption.

The winner-take-all society : how more and more Americans compete for ever fewer and bigger prizes, encouraging economic waste, income inequality, and an impoverished cultural life

The emergence of winner-take-all-markets, with few winners and many losers, has transformed the US economy. The authors of this book conclude that this has resulted in income inequality, overcrowding in some areas and increased cultural conformity, and suggest policies for reversing this trend.

Interdependent Preferences and the Competitive Wage Structure

This article shows by example that when workers care about relative income and are free to choose their coworkers, the equilibrium distribution of wages within firms must be less dispersed than the corresponding distribution of marginal products. An implicit market for within-firm status is shown to produce welfare gains by sorting workers among firms in accordance with how much they are willing to pay for high rank. The resulting equilibrium Pareto dominates allocations in which each worker is paid his marginal product.

Preferences for Status: Evidence and Economic Implications

This chapter was prepared for Elseviers Handbook of Social Economics (edited by Jess Benhabib, Alberto Bisin, and Matthew Jackson). It brings together some of the recent empirical and experimental evidence regarding preferences for social status. While briefly reviewing evidence from different literatures that is consistent with the existence of preferences for status, we pay special attention to experimental work that attempts to study status directly by inducing it in the lab. Finally, we discuss some economic implications.This chapter brings together some of the recent empirical and experimental evidence regarding preferences for social status. While briefly reviewing evidence from different literatures that is consistent with the existence of preferences for status, we pay special attention to experimental work that attempts to study status directly by inducing it in the lab. Finally, we discuss some economic implications. JEL Codes: C90, D01, D1, D62, Z10, Z13

The Strategic Role of the Emotions: Reconciling Over-And Undersocialized Accounts of Behavior

Rational choice theorists have often criticized the modern sociologists tendency to view people as mere pawns of social forces. For their part, many sociologists regard rational choice theories as profoundly undersocialized accounts of human behavior. In this article, an attempt is made to move these two groups a step closer together by means of a theory of the strategic role of the emotions. In methodological terms, it is an individualistic theory, yet its conclusions help explain why sociologists are often correct to insist that the interests of individuals are often subordinated to the interests of groups.

Detecting the Trustworthiness of Novel Partners in Economic Exchange

Because trusting strangers can entail high risk, an ability to infer a potential partner’s trustworthiness would be highly advantageous. To date, however, little evidence indicates that humans are able to accurately assess the cooperative intentions of novel partners by using nonverbal signals. In two studies involving human-human and human-robot interactions, we found that accuracy in judging the trustworthiness of novel partners is heightened through exposure to nonverbal cues and identified a specific set of cues that are predictive of economic behavior. Employing the precision offered by robotics technology to model and control humanlike movements, we demonstrated not only that experimental manipulation of the identified cues directly affects perceptions of trustworthiness and subsequent exchange behavior, but also that the human mind will utilize such cues to ascribe social intentions to technological entities.

Why Is Cost-Benefit Analysis So Controversial?

The cost‐benefit principle says we should take those actions, and only those actions, whose benefits exceed their costs. For many, this principles commonsensical ring makes it hard to imagine how anyone could disagree. Yet critics of cost‐benefit analysis are both numerous and outspoken. Many of them argue that cost‐benefit analysis is unacceptable as a matter of principle. I begin by noting why many find this argument largely unpersuasive. I then examine several conventions adopted by cost‐benefit analysts that do appear to yield misleading prescriptions. Finally, I consider the possibility that the cost‐benefit principle may itself suggest why we might not always want to employ cost‐benefit analysis as the explicit rationale for our actions.

How not to buy happiness

on human happiness is that although the rich are signi1⁄2cantly happier than the poor within any country at any moment, average happiness levels change very little as people’s incomes rise in tandem over time.1 Richard Easterlin and others have interpreted these observations to mean that happiness depends on relative rather than absolute income.2 In this essay I offer a slightly different interpretation of the evidence–namely, that gains in happiness that might have been expected to result from growth in absolute income have not materialized because of the ways in which people in affluent societies have generally spent their incomes. In effect, I wish to propose two different answers to the question “Does money buy happiness?” Considerable evidence suggests that if we use an increase in our incomes, as many of us do, simply to buy bigger houses and more expensive cars, then we do not end up any happier than before. But if we use an increase in our incomes to buy more of certain inconspicuous goods–such as freedom from a long commute or a stressful job–then the evidence paints a very different picture. The less we spend on conspicuous consumption goods, the better we can afford to alleviate congestion; and the more time we can devote to family and friends, to exercise, sleep, travel, and other restorative activities. On the best available evidence, reallocating our time and money in these and similar ways would result in healthier, longer– and happier–lives.

Family Location Constraints and the Geographic Distribution of Female Professionals

A much smaller fraction of professional men live in two-career families than do professional women. The restriction that couples accept jobs in the same geographic location thus weighs more heavily against professional women than against professional men. A probabilistic model of the placement process is developed that predicts the geographic distribution of female professionals that would be observed in the absence of employer discrimination. This distribution is much more than proportionally concentrated in large urban markets. It is concluded that the proportional guidelines employed in the Affirmative Action program discriminate against employers located in small labor markets.