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Paul J. Zak, a fellow at the Gruter Institute and director of Claremont Graduate University's Center for Neuroeconomics Studies, is editor of Moral Markets: The Critical Role of Values in the Economy.

by Paul J. Zak

Recent revelations that many corporate executives have backdated their stock options, ensuring excessive compensation even when their companies perform poorly, are merely the latest in a stream of examples of bad business behavior. In an era of evaporated pensions and benefits for the rank and file, piggish pay packets for CEO’s have led a cynical public to wonder where big business has gone wrong.

The answer may be quite simple: too many bosses have abandoned basic human values and embraced the credo famously uttered by Gordon Gekko in the movie Wall Street: "Greed is good."

But a growing body of research concludes that greed is not always good, and that moral values are a necessary element in the conduct of business. The Gordon Gekkos are predators who take the quick payoff. Although they do serve a useful purpose by keeping other players on their toes and raising efficiency through competition, market participants for the most part avoid them, preferring to do business with the Warren Buffetts – hard-driving businessmen, but known for fair play and creating long-term value.

Consider the trip to the mall, where shoppers buy goods produced and shipped from around the world. This decentralized delivery of goods relies on employees working for two weeks before receiving a paycheck, companies offering each other lines of credit, and banks offering bridge loans. Even though humans have engaged in exchange since before the birth of civilization, the impersonal system of trading is only around 1,000 years old. While legal remedies exist should this system break down, impersonal trading cannot occur unless most people share the values of fair play and reciprocal cooperation.

Even in impersonal market exchange, we cannot help but personalize transactions, say, with the grocery store cashier who smiles and thanks us, or the store greeter whose only purpose is to make us feel cared for. This personalization draws upon regions of the brain that evolved when our trading partners were members of small kin-based groups where moral violations were immediately identified and remedied.

Research by primatologists Sarah Brosnan and Frans de Waal at Emory University has shown that monkeys also have what look like moral values. When two monkeys work for food, a fair split is expected. If a fair division is not received, it elicits cries of outrage and hurled food by the wronged partner.

Moral values have powerful physiological representations in humans, too, and we feel them strongly when they are violated. The philosopher Josh Greene and his colleagues at Princeton University have shown that personal moral dilemmas (for example, whether you would directly kill one person to save seven others) use our emotions rather than higher cognition – to the chagrin of many philosophers who claimed otherwise. The personal aspect of such decisions makes our hearts speed up and our palms sweat.

In neuroeconomics experiments that my lab has conducted, we have found that when a stranger places trust in another by making a considered monetary investment that can either be returned or stolen, our brains release an ancient mammalian hormone called oxytocin. Oxytocin is what bonds mammals to their offspring, and in humans makes spouses care about and love each other. We have found that trust causes a spike in oxytocin and begets reciprocation – the sharing of money. We are "wired" to cooperate, and we find it rewarding in the same way that our brains identify eating a good meal or sex as rewarding.

Oxytocin is active in evolutionarily old areas of our brain, outside of our conscious awareness. We simply have a sense that sharing with someone who has trusted us is the right thing to do.

We have also found that about 2% of undergraduates we studied are pure non-cooperators. When they have an opportunity to share money with a stranger who has trusted him or her, non-cooperators keep all the money rather than share the largess. The technical term in my lab for these people is "bastards."

Our evidence suggests that bastards’ brains work differently. Their character traits are similar to those of sociopaths. They simply do not care about others the way most people do, and the dysfunctional processing of oxytocin in their brains appears to be one reason for this. Because bastards are out there, we still need government and personal enforcement of economic exchange.

Nevertheless, too much government regulation may "crowd out" moral behavior. When every offense has an associated penalty, transgressions cease to be moral violations, but are simply a way for wrongdoers to effectively "use the system" while facing some risk of getting caught and paying a fine.

These external penalties can displace the internal sanctions we feel when we do wrong. At Enron, this was accomplished by breaking down tasks into small chunks so that no one person was ultimately responsible for a decision and could claim ignorance when caught. Former Enron chief executive Jeffrey K. Skilling excused his behavior at his trial by saying, "I’m not an accountant."

Many people have been convinced that market exchange diminishes our humanity. Think of Charlie Chaplin’s film Modern Times, in which the little tramp is literally a cog in the capitalist machine. That view, a residue of Marxist thinking, is wrong. On the contrary, working together, and trading with each other in markets, is morality in action.

Copyright: Project Syndicate, 2006.
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