Altruism and Behavioural Economics

Behavioural economics is a branch of economics that seeks to understand the motivations and reasons behind individual decisions. In traditional economics there is a very basic assumption that individuals are rational utility maximisers. Therefore many economics models are based on the idea that people will choose the action / good which maximisers their utility (welfare)

However, this branch of economics leaves no room for irrational decision making. This can include decisions based on fear on decisions based on altruism.

Economics and Charity.

Assuming rational self interest, it is hard to understand why somebody would make a large anonymous donation to a charity. It could be explained by the utility (satisfaction) someone may feel from consuming the good feeling that giving to charity gives. Nevertheless, it makes it harder to base economics solely on a monetary self-interest basis.

Altrusim and Firms

Similarly we can see many examples of altruism within firms. For example, some firms will employ workers, even if they are not necessary. This is because they don’t want to create unemployment. Also, firms may not seek to maximise profits. Firms may have many other objectives such as environmental objectives, charitable objectives and social responsibility. At one level environmental concerns can be a clever marketing ploy, but, at another level they can be made independently of financial considerations.