Bonus Backlash--the Behavioral Economics Explanation

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THE STASH MARCH 19, 2009

Bonus Backlash--the Behavioral Economics Explanation

James Surowiecki (via Andrew) makes a great point about the bonus backlash:

Myriad experiments in behavioral economics have found that people are willing to pay to punish members of a group whom they believe to be shirkers or free-riders. In other words, people are willing to make themselves worse off (they have to pay their own money) in order to ensure that others don’t get undeserved rewards. Economists call this “altruistic punishment” (because the punishers are putting the interests of the group ahead of their own interest), and argue that it played an important role in fostering cooperation. So even if people believed that getting the A.I.G. bonuses back would be a net loss for the economy, chances are they’d still want to do it.

I disagree with a point he makes further down about the costs of the clawback being trivial, but this sounds about right to me.

--Noam Scheiber

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