Did you think about Wall Street? Of course you did. You can't stop yourself from thinking about something you're told not to think about. But I didn't just conjure images of stocks, suits, and a bronze bull. I primed you to be more selfish. It's science.
If you've ever watched Law and Order, you're well-acquainted with the Prisoner's Dilemma. Many episodes end with the detectives questioning two suspected partners-in-crime in two separate rooms. The cops tell each that the other is about to give them up, and that the first one to talk gets a deal. The other gets a full prison sentence.
This is the dilemma. Each suspect would (1) get off if they both cooperate, (2) get some time if he betrays without getting betrayed, or (3) get more time if he gets betrayed or they both betray. The dilemma, then, is whether to trust their partner to do what's best for both, or to rat their partner out and at least not be a patsy. So, will people work together or not?
Well, it depends on what you call it. At least that's what a 2004 paper by Varda Liberman, Steven Samuels, and Lee Ross found when they tested Stanford undergraduates. These researchers set up a simple Prisoner's Dilemma with money prizes, but added a wrinkle. They told half the students it was called "Community Game" and the other half that it was called "Wall Street Game." And that was all it took to turn these undergrads from team players into Gordon Gekkos. Fully 67 percent of the students cooperated when they were told they were playing "Community Game," but only 33 percent cooperated when they were told they were playing "Wall Street Game."
In other words, just hearing the words "Wall Street" made students twice as selfish.
But it was a weird kind of selfishness. The students knew they'd get less money if they betrayed their partner. The researchers made sure they understood that. But some students didn't seem to care about maximizing absolute returns. They cared about maximizing relative returns. Sure, they could get more money overall if they didn't betray their partner, but they could get more money than their partner if they betrayed them. The question is whether hearing the words "Wall Street Game" or not hearing the words "Community Game" mattered more here. It's hard to say for sure, but it's probably the former. Paper after paper has found that taking economics, or even just thinking about it, tends to make people more selfish and less caring. It turns out teaching people that everyone is a rational self-maximizer primes them to act that way.
There's a limit, of course, to priming. It's not like we could make the financial system safer just by renaming Wall Street. (Not that most banks are located there anymore). But priming does still matter, because how we think of ourselves matters. It changes how we act. Bankers who think of themselves as kind-of-vanilla lenders, and not as traders, will do their jobs differently. It won't be about finding the greater fool, and ripping his face off. It'll be about finding a safe borrower, and earning a nice, easy spread. Now, it's entirely possible to blow up your balance sheet with vanilla lending—hello, Washington Mutual—but that's particularly true when the vanilla lenders are trying to keep up with the traders.
In other words, culture matters. And Wall Street's trading culture matters, because it's spread everywhere else with the rise of the mega-banks. That's made the financial system writ large a more cutthroat place where you'll be gone and I'll be gone once things go bad—and everyone else gets stuck with the check.
Maybe Wall Street needs to stop thinking about Wall Street too.