We have an ingrained anti-profit bias that blinds us to the social benefits of free markets

GettyImages-1538307.jpgBy Christian Jarrett

“Harnessing the ‘base’ motive of material self-interest to promote the common good is perhaps the most important social invention mankind has yet achieved,” said the American economist Charles Schultz. And you can see why. While acknowledging its problems, many credit free market capitalism for the dramatic reduction over recent decades in the proportion of people in the world living in extreme poverty, not to mention rising health standards and technological advances. Conversely, according to some commentators, one only has to look to modern-day Venezuela to see the dangers of extreme anti-profit socialism.

And yet, according to a new paper in Journal of Personality and Social Psychology, most of us have an instinctual anti-profit bias. We view for-profit companies and industries – upon which capitalism is based – with inherent distrust, assuming that the more profitable they are, the more harm they do to society. In fact, research shows the opposite is true: companies that make greater profits actually tend to contribute more value to society, for example in terms of their environmental responsibility and corporate philanthropy.

The authors of the new paper, led by Amit Bhattacharjee at Erasmus University, believe this anti-profit bias leads many voters and politicians to endorse anti-profit policies that are likely to lead to the very opposite outcomes for society that they want to achieve. “Erroneous anti-profit beliefs may lead to systematically worse economic policies for society, even as they help people satisfy their social and expressive needs on an individual level” they said.

Through seven separate studies involving hundreds of online participants, the researchers present evidence that the anti-profit bias arises because we think about for-profit motives in a somewhat superficial, ego-centric fashion. Because the desire for profit is seen as based on selfish intent, we extrapolate to assume that the activities of for-profit companies and industries must be bad for society, disregarding the reality that selfish intents can have positive consequences.

We also refer to our own mundane “zero sum” experiences, such as buying a car, in which the seller’s profitable gain inevitable comes at our loss. We fail to consider how market forces operate on a massive scale, in which for-profit companies (competing in a free market with informed customers) need to innovate, behave fairly and develop a good reputation in order to be profitable over the long term.

For instance, in the first study, participants rated Fortune 500 companies in terms of how profitable they thought they were and how much they thought they engaged in bad business practices, such as operating at the expense of others with no concern for society. There was a clear pattern: the more profitable participants thought a company was, the more they assumed that it engaged in more bad business practices. In fact expert assessments of the firms shows the opposite pattern.

In another study, participants were presented with vignettes of different companies and either told they operated for-profit or not-for-profit. Participants rated the exact same companies, engaging in the same business activities, as more likely to cause social harm, and less likely to bring social benefit, if they were described as for-profit rather than not-for-profit.

Bhattacharjee and his team found that they could attenuate their participants’ anti-profit bias if they prompted them to think about how a long-term profit motive could encourage greater product innovation and quality, better treatment of staff, and more concern for reputation. However, thinking this way doesn’t seem to come naturally. Participants’ baseline judgments about for-profit companies were the same as when they were actively encouraged to assume that customers face few choices and have no information about firms’ reputations (which isn’t the case in a free market, profit-driven economy).

The findings of an ingrained anti-profit bias generally held regardless of participants’ economic knowledge or political leanings. This was a US study so it remains to be seen if the same anti-profit bias will be found in other cultures. However, as the researchers point out, their participants “live in one of the most market-oriented societies in human history”, and yet “even as they experience the benefits of market exchange, people express little faith in the power of markets to create and reward value for society.”

Anti-Profit Beliefs: How People Neglect the Societal Benefits of Profit

Image: A British anti-capitalist protester carries a banner in front of riot police at a May Day demonstration May 1, 2002 in London. By Sion Touhig/Getty Images.

Christian Jarrett (@Psych_Writer) is Editor of BPS Research Digest

16 thoughts on “We have an ingrained anti-profit bias that blinds us to the social benefits of free markets”

  1. “credit free market capitalism for the dramatic reduction over recent decades in the proportion of people in the world living in extreme poverty” This is a bias because there is no evidence that free market reduce poverty.

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    1. Market based economies are almost always better for the average citizen than non-market or anti-market societies. For one example among many, compare the average citizen in the US to the average citizen in Venezuela. Of course correlation isn’t the same as causation, but almost no evidence points in the direction that free markets don’t reduce poverty.

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    2. Of course the reduction in poverty only comes as a consequence of participating in the free market economy. In most advanced economies that implies that your participation is in the form of getting a job. Poverty will continue in the case of not being involved in the system. It will, however, be minimised to a greater extent than it would in any other economic system.

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    3. “companies that make greater profits actually tend to contribute more value to society, for example in terms of their environmental responsibility and corporate philanthropy.”

      Even if this is true, the author is implying that companies behave this way due to their inherent goodness. This is nonsense of course. They do it because of laws that were put in place, many after the defilement of our water, land and air by these same companies.

      “Because the desire for profit is seen as based on selfish intent, we extrapolate to assume that the activities of for-profit companies and industries must be bad for society”

      No. We extrapolate that the activities may only be in the company’s interest, and may conflict with society’s or individual’s interests. Negative externalities are a real phenomenon. Suspicion of a company’s motives is healthy and wise skepticism where self-interest is the driving force.

      “We also refer to our own mundane “zero sum” experiences, such as buying a car, in which the seller’s profitable gain inevitable comes at our loss. We fail to consider how market forces operate on a massive scale, in which for-profit companies (competing in a free market with informed customers) need to innovate, behave fairly and develop a good reputation in order to be profitable over the long term.”

      It’s a bizarre fantasy to imagine individual consumers should make choices in the marketplace based on an assessment of how market forces are playing out on a massive scale. That’s just plain nuts. Our “mundane” experiences are precisely what individual consumers should focus on. In fact, individual transactions are all that matter. Household resources are scarce and used car dealers rip people off, so do vacuum cleaner salesmen, dry cleaners, grocery stores, etc., etc.

      There’s no denying that for-profit companies produce a great deal of good, but it’s also well documented that if unchecked they can do plenty of harm to individuals, the environment, society, the economy, and democracy. Those are more than sufficient reasons for society, and individuals, to not trust them.

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      1. “Even if this is true, the author is implying that companies behave this way due to their inherent goodness. This is nonsense of course.”

        You have misunderstood: the whole point is that in a free market economy social good can come from selfish motives.

        “Suspicion of a company’s motives is healthy and wise skepticism where self-interest is the driving force.”

        The researchers’ argument is that the suspicion of company motives is unhealthy if it is indiscriminate and leads to the pursuit of anti-profit policies that harm society.

        “It’s a bizarre fantasy to imagine individual consumers should make choices in the marketplace based on an assessment of how market forces are playing out on a massive scale. That’s just plain nuts.”

        Again, you appear to have misunderstood. The researchers are not arguing that we should consider large-scale market forces when conducting our own personal commercial negotiations. Their point is that our judgments about for-profit companies in general are biased in unhelpful ways by our own individual zero-sum personal experiences.

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  2. The business that I used to work for required salaried personnel to play a coached game which required us to make decisions on investments, retained earnings, other real life business operations. The object was to continue in business without going bankrupt and not lose customers. The winners were the group that produced a situation where the company AND customers AND employees benefited from work. The intent of the game was to show the benefits of free markets.

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    1. I have seen such games before and they are very good. The intent I came across most often in these has been to show that there is a optimal balance between competitive and cooperative strategies. (Refer to Axelford’s work and use of ‘Prisoners dilemma’ as a paradigm.) To optimise results over the medium long term, win, win, win outcomes are required. These are not always evident in corporate strategies though nearly all companies understand the benefit of projecting this image (refer to all public relations and marketing). (The rest of this reply is general comment.) Further there are often market failures. And there is no such thing as a free market – except perhaps in organised crime and even then they have their own forms of regulation. All markets are and need to be regulated and markets are not the solution to everything. Beware all ‘free market’ discussion as promoting ideology … beware ideology! In it’s not obvious I prefer a largely market based economy while realising markets require regulatory vigilance. Governments will also need to do the hard lifting when markets fail or don’t have the capacity.

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  3. Jealousy is the biggest motivating factor in rejecting for profit businesses. This jealousy is carefully encouraged & harnessed by leftist organizations, our leftist school system, leftist billionaire owned media & of course leftist politicians to promote socialism/communism where they, the elites, live like rock stars off the backs of the very morons rejecting capitalism. By rejecting for profit businesses the LOSERS who are either too lazy or stupid to make it themselves can comfort themselves by declaring they are morally superior.

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    1. Cheryl, did you notice the title of this website? “Research Digest”. We do not have a pub’s chat right now. If you have any evidence about your “jealousy hypothesis” please feel free to share it with us.

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  4. Unfortunately this appears to have been hijacked by morons. It is clear what the purpose of the study was, however while it is correct that people in general mistrust profit motives, and that unintended consequences occur, there are several glaring flaws inherent – firstly there is no such thing as a free market (all markets, whether virtual or real) have some form of ground ownership, rules and/or regulations. Secondly, to impute a general conclusion of causation is unscientific. We can note that there are many cases where unintended good consequences occur (remember that business has a legal duty to shareholders to maximise their income above all) but we can equally indicate where bad consequences follow, especially at a temporal distance. Finally, there is no contradiction in operating a market system within a regulated economy – in fact that is the reality of the world in general. BTW the Venezualan example given is a massive US/UK right wing distortion of a very complex situation.

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    1. No, The Venezuelan example is a massive left wing failure of a very simple principle. Socialism contradicts economic principles and human nature. Also, a business does not have a legal duty to maximize their income above all. that is a common misconception/lie spewn by the left. They have a fiduciary duty to behave in the self interest of the owners. There is a difference. BTw you misused the term morons.

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