Repugnance and Money

In late September and early October, my son was with his grandmother, and I had more of a chance to spend evenings reading books that I didn't think were related to my dissertation. In particular, I read books on human evolution, and to various extents related prehistoric anthropology and the like, and gain a new appreciation of the importance of in-group/out-group distinctions.

I have been aware for some time of an idea among monetary theorists that money is in some ways a substitute for what game-theorists call "monitoring" — in particular, a 1998 JET article by Kocherlakota (who is now president of the Minneapolis Fed) shows that a particular class of models has the same sets of equilibrium outcomes if you put money into the models, but agents are essentially ignorant of the history of play, as if there is no money in the models, but agents are perfectly informed at each stage as to what everyone did at every previous stage. More recently Randall Wright at Penn State (though I have no academic publications to cite here) has emphasized this substitutability, and in particular has emphasized that tight groups (a fortiori families) tend not to use money to intermediate favor exchange, but with some informal sense of whether members are shirking or being especially pro-social and various social sanctions to respond to them.  In fact, it seems likely that, in richer environments than Kocherlakota's, perfect monitoring is likely to work better than money, and it seems plausible that monitoring works well-enough in tight groups (but poorly enough outside of them) that money is less useful than monitoring in those groups (but better than (almost) nothing outside of them).

My synthesis and slight extension of these ideas is to suggest that we use money with our outgroup; further just-so stories follow.  For example, there is a social psychology a literature about money triggering an anti-social mindset, which I can tie to the idea that we associate "money" with "out-group".  Perhaps more interesting for purposes closer to my dissertation, though, is "repugnance", the only major threat to market function in the list that Roth (2008) provides that my dissertation proposal did not discuss.  While I would certainly not claim to explain all repugnances — as Roth notes, they vary too much in space and time for one to expect a particularly simple universal deep theory — at least some of them can be explained as situations in which in-group and out-group constructs are being conflated or boundaries are being breached. It has been customary, for example, for gifts of cash to be viewed as at least somewhat uncouth in contexts that call for gifts; perhaps giving cash signifies that you consider the recipient to be out-group. Similarly, this goes to one of Roth's examples, that it is okay to bring wine to a dinner party but not to offer the hosts an equivalent amount of cash. Prostitution may constitute an exchange of something that should be in-group for something that should be out-group, and indeed if one accepts for the moment that there is or was an accepted practice of men paying for a woman's dinner and expecting sex in return in a "dating" situation, one may be able to draw the line between this and prostitution in the same way — that it is okay for me to acquire a bottle of wine or a meal from someone in our out-group, and then give that to a member of my in-group (with the expectation that, at some point in some context, I will be the recipient of a gift, and the recipient will be a giver), but that giving money, whether explicitly or implicitly in "exchange" for something, is inappropriate.

There are some caveats to note.  In a modern large society, the in-groups and out-groups are blurred in a way that they largely are not in bands of 50 people in the savannah.  There are people who are somewhat in-between, but there is also a non-transitivity; my good friend might have a good friend whom I don't particularly know, such that it might be reasonably clear that my friend conceptualizes each of us as clearly "in-group" and we consider him the same, but consider each other clearly "out-group".  Also, to clarify, my mental model of in-group "gift-exchange" involves less obvious direct quid-pro-quo than the buy-a-meal-for-sex transaction noted above; I imagine contributions being less bi-lateral and more multi-lateral, but also that when a contribution is made, even if a single recipient receives most or all of the benefit, that it is not known when or in what form any anticipated reciprocity would be made, even if it did come back directly to me.  It may even be that direct quid-pro-quo transactions themselves have a bit of an out-group feel to them, even if they don't involve abstract money.