is an Inquirer staff writer
Thomas Aquinas called greed a sin against God. Its profile rose briefly after the 1980s, when some people apparently took to heart the movie line "greed is good," but this deadly sin has again fallen from grace thanks to the real estate and financial meltdowns.
While it's widely seen as the poison that has sickened the world economy, researchers who've studied greed say it's intrinsic to human nature, stemming from our evolution as social animals, our instincts to compete and, some say, our fears of being left behind the pack.
"Everyone feels greed. . . . It's natural for people to want more than they need," said Keith Murnighan, an economist at Northwestern University.
In which case, saying greed sank the economy is a little like saying water sank the Titanic. Only under certain conditions can greed seep in and take us over.
When he first set out to study greed, Murnighan said, he found it hard to detangle from the natural and healthy desire we have to pursue our own interests. "It's really not an easy issue to define," he said. "Greed in my mind is self-interest run amok."
The trigger is almost always something akin to envy (also one of the seven deadly sins). Imagine, he said, that everyone you know drives a Honda and you're perfectly happy to drive a Honda, too. But now imagine a neighbor or coworker acquires a Jaguar or a BMW, and suddenly all your peers assume this person is more successful than you. Then how do you feel?
Being social animals, we gauge our own wealth and success in comparison with other people.
Think back to fifth grade, he said, when most children become acutely aware which of their peers are prettier or smarter than they are, which ones wear more expensive clothes and even whose parents drive more expensive cars.
George Loewenstein, a professor of economics and psychology at Carnegie Mellon University, agrees that greed is rooted in competitive drives, but he says greed goes beyond a healthy desire to fit in.
He said that, for years, economic theory ran on the notion that people act out of a rational self-interest, and many economists equated greed with a reasonable pursuit of happiness.
But for Loewenstein, the kind of greed that gets us into trouble pushes us to act against our long-term interests. "Greed is a situation where your desire for acquisition causes you to behave in a fashion that's either destructive to yourself or to others around you."
In fact, the greedy desire to keep up with the pack can trump our more rational desires for financial gain. "In almost every scandal - every disaster that's unfolded from the Latin American loan crisis to Enron and WorldCom - there's always the same pattern of intensified competition leading to greed," he said.
In the last few years, for example, financial institutions were making big profit by underwriting risky loans, he said, but rather than worry about whether the borrowers could pay them back, the leaders of those institutions were overcome by the fear that their competitors were making even bigger profit.
In booms and busts alike, he said, people are greedy because they're worried that others will win while they get left behind. "They're terrified about being the sucker," he said.
Behavioral finance professor Hersh Shefrin of Santa Clara University traces our economic woes back to greed, too, and he traces greed back to the workings of two regions of the brain known as nucleus accumbens and the anterior cingulate. Neuroscientists have associated those two centers with the emotions of fear and hope, which, to Shefrin, can lead people to act both irrational and greedy.
Shefrin, author of the book
Beyond Greed and Fear
, says greed connects to the well-known tendency toward unrealistic optimism. In various surveys and studies, "people think favorable events are more likely to happen to them," he said.
In real life, people may buy a house or a stock that's already overvalued, thinking they can always sell before the value plummets. Or they may think that prices will simply rise forever.
"In the mortgage market, we had excessive optimism in spades," he said. "People thought we were in a new regime where prices would always go up, even though there were signs that the bubble would collapse, for several years."
Optimism and greed work together to inflate economic bubbles, said Caltech professor Colin Camerer, who studies the way the human brain governs economic decision-making. Add a bit of dishonest conflict of interest on the part of analysts hyping stocks, he said, "and that lights up the rocket."
In experiments, Camerer says, people tend to optimistically inflate their own intelligence. "We call it the Lake Wobegon Effect," he said, after the town on Prairie Home Companion where all the children are above average.
People see a bubble inflating and have to decide whether to ride on it or sit on the sidelines, he said. Most assume they are smarter than nearly everyone else and will escape before the collapse.
While some of the experts see fear as a driver of greed, Santa Clara's Shefrin classifies fear as a separate problem. Fear underlies what he calls the dispositional effect - the tendency to hang onto bad investments too long and to sell good ones too soon.
People fear unloading bad investments because they can't admit they've made a mistake, he said, and so they tend to lose even more money in the hope the price will rise again and they can escape without a loss. People sell too soon because once they're ahead, they don't want to risk that sense of winning, even if further gains are likely.
"The tendency not to want to feel bad about yourself is at the heart of the problem," he said. Fear and greed connect when people become greedy about not wanting to accept responsibility and admit to screwing up. "The goals are to save your ego," he said.
The researchers all agree that while our instinct as social animals can drive our greed for a sports car or an SUV, it can also keep us in check. Regulations can temper the fear that others will get ahead, said Northwestern's Murnighan. In surveying hundreds of people about their experiences of greed and resistance, he found that the reward of social approval can counter greed, too.
As an example, one man surveyed reported feeling greedy at a buffet serving barbecue ribs. They were his favorite, but when he went back for seconds, there were only three left. So he resisted the temptation to take them all. (His temptation may have been more akin to gluttony - another of the seven deadly sins.)
Later, he was rewarded for his restraint when a woman thanked him for leaving one, as they were her favorite, too.