Page - 10 - in options, Volume winter 2017/2018

www.iiasa.ac.atoptions ◼ winter 2017/1810 T he first attempts at setting up an internet platform for auctions on the web failed miserably. A secure exchange system between anonymous agents on a global scale seemed to present unsurmountable problems. Then a young programmer named Pierre Omidyar had an idea: he introduced a feedback forum where the rating of each user was displayed. In his simple words: “Give praise when it is due; make complaints when appropriate.” Thumbs up, thumbs down. The rest is history: a multi-billion market emerged almost overnight. In Omidyar’s words: “eBay, like your favorite grade-school teacher, recognizes and rewards good behavior. As your feedback grows, eBay posts stars next to your rating, each color signifying a feedback milestone.” Economists had a new object for their studies: online reputation mechanisms. Human behavior is largely influenced by praise and blame. Our eagerness for a good reputation is economically sound: our good name is a capital asset for each of us. It is to “our credit” to have acted honestly. But in addition to making economic good sense, the craving for a good reputation is deeply, subconsciously ingrained in our minds. Witness a famous experiment which took place in a British science department. There, in a corner of the cafeteria, people could get their milk and cookies during tea-time. They were supposed to pay into an “honesty box”—the sums were way too small to have anyone check them. Now it so happened that close to the honesty box, a calendar hung on the wall. Nobody paid any attention to it. For a period of two weeks, the calendar showed a picture of female eyes—friendly, smiling eyes. Then, for two weeks, it showed colorful flowers—bright lush flowers. Then eyes again. Then flowers. And so on. And at the end of the year, guess what? It was found that people had paid three times as much, during the “eye” weeks, than during the “flower” weeks. Most hadn’t even noticed the calendar, let alone felt its influence. But the subliminal effect of the eyes had been enough to make them more honest! Which shows that, as H.L. Mencken said, “Conscience is the nagging feeling of being watched.” Experimental game theory—a field which has been booming in recent years— has brought many findings which show that humans are not merely guided by beliefs and preferences, but react on cues and obey what John Maynard Keynes termed “animal spirits”. Economy and social sciences are deeply influenced by human behavior, by what David Hume termed “human nature” and Adam Smith “moral sentiments.” They underlie our individual actions and lead to collective actions having a huge impact on our planet. This is the reason why Lord May, the former president of the Royal Society, declared that “the only science still capable of saving us is the science of human behavior.” In old Rome, families kept shrines of their ancestors at home. Day and night they felt watched by their ancestors. Today, we must find ways to act, consciously and unconsciously, under the watchful eyes of the generations to come. ◼ Further info Sigmund shared these ideas at the European Forum Alpbach 2017 in a plenary address and as part of the Alpbach-Laxenburg Group retreat www.iiasa.ac.at/events/ALG-17 Karl Sigmund, senior research scholar in the IIASA Evolution and Ecology Program and professor emeritus of mathematics at the University of Vienna, is a leading expert in game theory. The watchful eyes of the future