Western Behavioral Economics and Andean Reciprocity
The El Panecillo hill overlooking Quito (Image: Valerie Lundeen)
Ecuadorian economics defies more traditional attributes of market and trade. It is a category-defying hodgepodge, capitalistic and dollarized, and yet it remains under strong influences of socialism and monopolies. The capital city of Quito, itself a collision of worlds, is flooded with marketplaces that are simultaneously formal and inseparable from traditional Andean notions and practices of reciprocity.
Most economists are not thrilled with category-defying hodgepodge economies. But behavioral economist and Nobel laureate Richard Thaler is world-renowned for embracing the outliers.
Thaler studies decisions made by the “Human,” not the “Econ” — the latter, his nickname for the classically rational homo economicus.
His most recent book, Misbehaving: The Making of Behavioral Economics, presents a phenomenon he refers to as the “endowment effect.”
Thaler’s evidence shows that people react more strongly to giving something up than to receiving something extra. An “Econ” would consider these two situations equal because the accounting is unchanged — the Econ ends up with the same amount.
The Human, on the contrary, is more responsive to punishments than to gifts. Thaler explains that it is more painful to give up something which one considers an “endowment,” or something previously owned.
Gifts and punishments, however, are not just economic transactions, as Thaler suggests. Both are also historically and culturally charged.
According to Hofstede Insights, Ecuador has the second-most collectivist culture in the world. The country is recovering from several waves of colonialism, the latest of which has manifested through extractive international policies, such as those permeating the oil industry.
Produce at an open-air market in Quito (Image: Valerie Lundeen)
In Quito, fruit is available for fixed or bartered prices in U.S. dollars at the city’s markets. Depending on the vendor, the shopper might receive a yapa — a small gift, such as a few pears, in addition to the formal purchase.
The yapa marks the transaction as social and ensures that the shopper will return to that vendor in the future. Andean reciprocity is complex; the yapa is one demonstration of reciprocity in simple, economic form.
Even more than in the literal markets, the spirit of reciprocity is most evident on public buses. The majority of urban Ecuadorians regularly commute by bus. The public transportation system, therefore, is a fascinating field for studying human behavior.
The theatrics of public buses in the majority of the world — where informal economies thrive — often includes vendors who ride buses illegally (but under an understood contract with the bus driver). They pitch their products to jaded commuters, often spending the entire day switching buses and repeating their spiels. In Ecuador, many of these vendors are Venezuelan or Colombian refugees who cannot find other work.
Bus vendors demonstrate a new dimension to the endowment effect.
After boarding, the vendor will stand at the front of the bus and give a speech, often their life story. These speeches are not like the succinct cardboard signs you might see by an interstate highway ramp held by people experiencing homelessness. Vendors in Ecuador often spend twenty minutes pitching their products.
Once the commuters have been well informed on the nutritional qualities of the chocolate candies offered, or on the sharpness of the kitchen knives available, or on the brightness of the colored markers for sale, the vendor begins to walk the aisle and offer products to the commuters.
Much unlike what one would see on a subway ride in New York City, almost everyone riding the bus obliges to hold whatever the vendor is selling — a piece of candy, for example — while the vendor continues their pitch.
A market in Otavalo, an hour’s drive from the capital of Quito (Image: Valerie Lundeen)
When the vendor walks the aisle again to collect payment, the vast majority of bus riders don’t make a purchase. They don’t attempt to steal or eat the candy either — they simply return it. This behavior is routine; it occurs almost mechanically. Commuters play their part, obliging to hold the candy, but they never seem interested in it. They don’t appear tempted, despite what the endowment effect would suggest.
The endowment effect explains the vendors’ behavior: their tactic to encourage purchases was to give potential customers a “taste” of ownership. This approach assumes that consumers will find it so difficult to return the candy once they have possession of it that they will choose to purchase it.
But everyone else? To a Western mindset, it is puzzling. Why would frenzied commuters waste time “playing along” with the vendor if they never had any intention of purchasing the product?
Common politeness doesn’t seem to be the answer, because public transportation is not a polite environment. Commuters don’t break rush hour norms for any other reason. Just the chocolate candies.
The psychology-based approach of behavioral economics may not go far enough. It replaces the Econ with the Human, but doesn’t extrapolate the model to Humans as a collective.
Economics — even behavioral — is an individualistic field, more or less neglecting the community. It doesn’t address the unspoken rules of politeness that play into transactions.
Thaler argues that we do not behave based on our ability to perfectly maximize our utility, but he more or less stops there. I would argue a step further, that our economic behavior is deeply informed by culture, if not always by rationality.
Behavioral economics has become successful by using psychology to inform the study of humans and their transactions. Perhaps, now, it is time to allow the broader study of societies — anthropology and sociology — to do the same.