Economic Behavior and Moral Sentiments -Amartrya Sen

Prepared By: Amar Charul Mrinamya Siddartha Rajat

The Poem
Adam, Adam, Adam Smith Listen what I charge you with Didn t you say.. In the class one day.. That selfishness was bound to pay? Of all doctrines that was the pith, Wasn t it, wasn t it, wasn t it Smith?

Two Origins ..
The first is related to ethics and ethical view of politics. The other origin is economics of engineering approach this approach is characterized by primary logistics rather than ultimate ends and hence it raises two questions What may foster the good of man or how should one live. Ethical questions are based on the supposition of Should . The engineering approach connects with those study of economics which developed from Kautilya Arthashastra. (Instructions on Material Prosperity) which included mainly : Metaphysics Knowledge of right and wrong Science of government Science of wealth

The Million Dollar Question

The importance of the ethical approach has rather substantially weakened as modern economics has evolved.

Achievement and Weaknesses

The practical bread and butter problem The real problem of hunger and famine in modern world. The famines can be caused even in situations of high and increasing availability of food and better be understood by bringing the patterns of interdependence which general equilibrium theory has emphasized. Famines often have little to do with food supplies, and instead have causal antecedent elsewhere in the economy related through general economic interdependence.

So what we argued?
The economics can be more productive by paying greater and more explicit attention to the ethical considerations that shape human behavior and judgment.

Economic Behavior and Rationality

The assumptions of rational behavior plays a major part in modern economics. Human beings are assumed to behave rationally. The characterization of rational behavior in standard economics were accepted as just right but the world has certainly its share of Hamlets, Macbeths, Lears and Othelos. The coolly rational types may fill our textbooks but the world is richer. Two points before moving forward : 1 it is possible that a view of rationality may admit alternative behavior pattern and when that is the case, the assumption of rational behavior alone would not be adequate. 2 Issue of identifying actual behavior with rational behavior.

Self Interest and Rational Behavior

It would be extraordinary if self interest were not to play any part in great many decisions, and indeed normal economic transactions would break down if self interest played no substantial part in our choices. The real issue is whether there is a plurality of motivations or self interest alone drives human beings. If people behaved in an exclusively self interested way, would they achieve certain specified successes? It is not from the benevolence from the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interests.

Pareto Optimality
Pareto Principle: 80-20 rule
 80% of your complaints come from 20% of your customers  80% of your profits come from 20% of the customers  80% of your profits come from 20% of your time

Application to Economics
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Pareto Improvement Pareto optimal

Pareto Optimality and Ethics

Two Point of Views  Deals exclusively with efficiency in the space of utilities  Whole focus remains on the utility with no attention to the distributional considerations regarding utility. Does not judge the inclusive growth of the society. Food For Thought  If some people are in extreme misery and others are rolling in luxury and as long as the miserable cannot be made better off without cutting into the luxury of the rich, the society is Pareto Optimal.  Dr. Amartya Sen (1970) notes: An economy can be Paretooptimal, yet still "perfectly disgusting" by any ethical standards

Another Concept: Altruism

Motives for altruism and altruistic giving:

Structures of altruism From motives to forms Contradiction and possibilities in the logic of motives Altruism and democracy: Altruistic joint giving and its public implementation The special games of reciprocity