Markets and Motives Trust and Egoism in Welfare Markets

Abstract

Enthusiasm for the expansion of markets in welfare reflects the currency of assumptions derived from rational choice theory among policy-makers. This article reviews recent evidence from the ESRC's Economic Beliefs and Behaviour programme that calls into question the basic tenet of the rational choice approach – that individual choices are driven by instrumental rationality – and argues that welfare markets require a normative framework in which trust plays an important role. Experimental evidence from recent work in economic psychology indicates that individuals often display a level of trust in market interactions that is hard to explain on the basis of simple rationality, but that such trust is fragile and easily undermined by egoistic action. Lack of attention to the normative issues which the rational choice approach fails to capture may lead to the design of markets which are inefficient in meeting the aims of policy-makers and which deplete the moral legacy on which many welfare markets in practice depend.