Testing the role of trust and values in financial decisions

Times Staff Writer

Paul Zak scanned the UCLA computer lab where 18 young men were tapping away at keyboards.

Some of the students had been administered a dose of testosterone the evening before. Now, Zak was monitoring their behavior as they played an experimental game designed to measure trust. He was curious about how these hormonally fueled “alpha” males would behave. Would they be more selfish or generous? Helpful or aggressive?

The Claremont Graduate University researcher was exploring new avenues not in psychology or behavioral studies but in economics. Along with like-minded scholars, he is trying to prove that good behavior, rather than self-interest, “is really what makes the economy work.”


In exploring the morality of economic behavior, they aim to put a more positive spin on Western-style capitalism. They want to demonstrate, in a post-Enron world, that markets are driven not by greed but by positive behavior.

To test their theories, researchers from economics and other disciplines are conducting a variety of studies, including experiments that look at how monkeys work together to get their favorite foods and the effect of business school teachings on values in the boardroom.

With their findings, they hope to persuade political and business leaders to rethink the way they manage corporations and the marketplace. One goal is to reduce government regulation, which they believe has led people to rely too heavily on legal penalties and has discouraged them from adhering to their own sense of right and wrong.

“Free enterprise has been badly described and badly sold,” said Monika Gruter Cheney, executive director of the Gruter Institute for Law and Behavioral Research. The think tank in Portola Valley, Calif., is sponsoring a project dubbed Free Enterprise: Values in Action, which supports research by Zak and others.

A book containing the institute’s findings is due out this spring from Princeton University Press.

Its main financial backer is John Templeton, a British billionaire who founded one of the world’s most profitable investment funds. He is a devout Christian whose foundation funds research on the science of spirituality, including the power of forgiveness, love and trust. The organization, based in West Conshohocken, Pa., has drawn criticism for its early support of intelligent design, which posits that human beings are too complex to have evolved through natural selection.


The Templeton foundation, which boasts $1.1 billion in assets, has become a powerful force in the science world. Last year, it distributed about $55 million in grants, nearly $7 million of which was devoted to projects focusing on free enterprise, open markets and values.

Barnaby Marsh, director of venture philanthropy strategy for the Templeton foundation, denies that his group is pursuing a religious agenda. He said Templeton himself was interested in how science could be used to explain the forces that drive competition, innovation and wealth creation.

“Is free enterprise driven by greed only, or are there other factors as well?” asked Marsh, an evolutionary biologist whose foundation provided a $730,000 grant to the Gruter Institute values project. Additional support came from the UCLA-Alfred P. Sloan Foundation Research Program on Business Organizations.

Some prominent academics have lent their support to the Gruter Institute’s work. They include Nobel Prize-winning economist Vernon L. Smith and primatologist Frans de Waal of Emory University in Atlanta, who coined the phrase “primate economics” to describe the cooperative behavior he had observed in capuchins and chimpanzees.

To others, regulation remains the solution, not the problem.

In a world where more than 1 billion people scrape by on less than $1 a day, there are a growing number of people, such as economist Robert Scott, who believe that the free-market system needs more government intervention to ensure that the benefits are distributed more fairly.

“I find it hard to believe we’re hard-wired to operate in the markets in certain ways,” said Scott, who works for the Economic Policy Institute in Washington, which is closely allied with labor unions. “I think we do things in our own personal interest. If you change the rules of the game, you change behavior.”

Academics including Zak acknowledge that bad things happen in the marketplace. Lies are told, promises broken and, on occasion, economic crimes of enormous magnitude are committed.

But their point is that people are “nicer, we’re more decent, we’re more moral and we’re more law-abiding than we give ourselves credit for,” said Lynn A. Stout, a professor at UCLA Law School, who called the emerging discipline the science of moral behavior.

One area of interest to the Templeton foundation and the Gruter project participants is neuroeconomics, which uses tools such as magnetic resonance imaging, blood sampling and experimental economics to study how a person’s brain works when he or she is making financial decisions.

Tyler Cowen, an economics professor at George Mason University in Fairfax, Va., said some economists might be wary of this new discipline because it was “threatening to make traditional economics a little less important, a little less exalted.”

Ariel Rubinstein, a specialist in game theory at Tel Aviv University in Israel, had not seen the research done for the Gruter project. But in general, he said, he harbors serious concerns about the “very quick linkage of very premature, very, very basic findings from brain research and combining it with very high-level conclusions about the politics, about trust, about the organization of the market.”

For his part, Zak said he expected, and even welcomed, criticism of his work, which was why he had focused on delivering scientifically provable evidence to explain economic behavior.

“I really want to shake up the economists,” he said.

Zak, director of Claremont’s Center for Neuroeconomics Studies, believes humans are hard-wired to trust and cooperate. By linking brain chemistry to financial decision making, he believes he can prove it.

In earlier research, Zak found that people who inhaled oxytocin, a brain chemical associated with breastfeeding and sex, were twice as likely to risk their money with strangers while participating in a trust game. In his UCLA experiment, he is trying to determine what role testosterone might play in driving people’s financial decisions.

The night before the UCLA research was conducted in the fall of 2005, half of the male participants received a patch containing the male sex hormone. The others were given a placebo.

The next morning, after having their blood drawn, the students were herded into a computer room and assigned to machines.

The young men then were matched anonymously with partners and given $10 to spend. Half of them were told they could send any of their money, or nothing, to their partners. Whatever they sent would be tripled, and then their partners could send any amount back.

In previous studies, three-quarters of the people gave up some of their money, and an even higher proportion of the recipients sent some of their earnings back, Zak said. His explanation: People generally believe that when someone does something nice to them, they should reciprocate.

Although the testosterone study has not been completed, Zak said, the early findings might surprise some people. The alpha males, those who were given a dose of the hormone, were found to be more generous.

What about individuals who seem to operate without a moral barometer? Zak said he was still trying to unlock the brain secrets of the 2% of his research population that consistently acted without regard for others.

“Remember what your mom said, ‘Follow your conscience,’ ” he said. “Why didn’t that happen at Enron?”