Ernst Fehr: How I found what’s wrong with economics

Austrian economist Ernst Fehr tells Mark Buchanan why global economics could benefit from a touch of compassion and why a good wrestler never gives up

FROM outside economist Ernst Fehr’s office at the University of Zurich in Switzerland you would have no idea that he had been tipped to win a Nobel economics prize. For one thing, the name on the door looks as if it has been dashed off on the cheapest of departmental printers.

But Fehr himself seems to fit the bill. Smiling broadly, he extends a hand, eager to talk about his experiences, whether favourable, amusing or confounding. Ironically, he says, it was one of the latter that led to his current success. In reality, it all started with failure.

Twenty years ago, Fehr had a seemingly sensible idea – that a deep-seated human preference for fairness might play an important role in economics. He thought it might explain why companies – even in countries without a minimum wage – don’t offer jobs paying wages far below the standard, despite research showing plenty of unemployed people would willingly take the work. It doesn’t happen, he suggested, because companies know that workers hired at a lower wage feel they are being cheated, causing them to grow disgruntled and work less hard.

Fehr wrote a paper on the idea that fairness matters, which was promptly rejected by every prestigious economic journal he sent it to on the grounds that people only care about how much they get for themselves, not how that compares to what others might receive. “Most economists would be deeply unhappy if paid less than what they consider to be fair, so I thought I had a convincing answer,” Fehr says. “But I found out that in theoretical economics, fairness just doesn’t count.”

However, as a former Austrian national wrestling champion, Fehr doesn’t give up easily. Over the past decade, he has pursued his ideas on human fairness far past their relevance to employment, and he is now experiencing something of a reversal of fortune. His work is overturning 50 years of economic wisdom about motivation, showing that most economists have overlooked one of the most important factors determining economic outcomes: our values about fairness. “We’ve moved past the doubt stage,” he says. “There are now fewer serious critics.”

At the University of Zurich, …

http://leisureguy.wordpress.com/2010/05/04/ernst-fehr-how-i-found-whats-wrong-with-economics/

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