The Economics of Vice and Virtue
Suppose I am strong, fierce, and known to have a short temper with people who do not do what I want. I benefit from that reputation; people are careful not to do things that offend me. Beating someone up is expensive; he might fight back, and I might get arrested. But if my reputation is bad enough, I may not have to beat anyone up.
Most of the time I get my own way; once in a while I have to pay for it. I have no monopoly on my strategy; there are other short-tempered people in the world.
I get into a conversation in a bar. The other guy fails to show adequate deference to my opinions. I start pushing. He pushes back. When it is over, one of us is standing there with a broken beer bottle in his hand and a surprised expression on his face. The other is lying dead on the floor.
If almost nobody follows this strategy, such confrontations are unlikely, so on average the strategy pays. Since it pays, other people adopt it. As the number increases, the risk of lethal brawls rises and the payoff to being a bully falls. Equilibrium is reached when the risk from opponents who do not back down just balances the gain from opponents who do, making the alternative strategies–bully and wimp in my story, hawk and dove in the version told by evolutionary biologists–equally profitable.
So far I have assumed an involuntary association between the bully and his victims; he is simply an unpleasant part of their environment. As long as that is the case, there is a payoff to an aggressive personality–provided that there are not too many of them. That is not true for voluntary associations; someone who can choose whether or not to associate with the bully will choose not to. Informing a potential employer that if, having hired you, he fails to treat you right you will beat him up is not likely to get you the job.
In voluntary associations, there is a payoff to a different commitment strategy. Someone known to be considerate, courteous, the sort of person who never takes advantage of other people, who would never steal even if nobody was watching, is a desirable employer, employee, partner, or spouse. To the extent that other people can correctly read your personality, it is in your selfish interest to train yourself to be a nice guy. Hiring honest people saves not only the cost of theft but also the cost of guarding against theft–and that saving will show up in the difference between what honest and dishonest people get paid.
Here again, we would expect something like a hawk-dove equilibrium, although for a different reason. If almost everyone is honest, it is not worth paying much attention to how honest any particular person is, so a strategy of hypocrisy–appearing to be honest but cheating when you think you can get away with it–is profitable. As the number of hypocrites increases, so does the care other people take to identify them. The equilibrium ratio of hypocrites to honest men is reached when the two strategies have the same payoff.
This approach to understanding why people are–or are not–nice has an interesting implication. Being a bad person, an aggressive personality, is profitable in involuntary interactions. Being a good person is profitable in voluntary interactions. We would expect to see nicer people–more honesty and fewer bullies–in a society where most interactions are voluntary than in one where most are involuntary.
Another implication is that crimes of passion, such as the barroom brawl described above, are deterrable. I will leave the argument as an exercise for my readers.