In chapter four of Dan Ariely’s book Predictably Irrational, he discusses the difference between social and market norms. Social and market norms guide much of our decision making, but they are not necessarily compatible. I have experienced the problems that arise when social and market norms come into conflict firsthand.
“Could you please come in here to help me out?” my mom said to me, “I’ll pay you $1.” Every good son should stop whatever they are doing when their mother is in need of help, right? Well, I did not. I was petting my dog in the living when my mother asked me to give her a hand fixing the shelves in our fridge. I thought about helping her, but that would require me leaving my adorable dog lying alone on the floor with no one to rub his belly. For all this trouble I would only receive $1, so I figured it was not worth getting up. My mother was hurt that I did not grant her a simple favor, but she did not understand how offering a financial incentive completely changed my thought process. Once she mentioned money, I was no longer thinking about helping my mother for her sake. I immediately thought “Do the benefits outweigh the costs?”
I argue that anytime we put a price on something, we make decisions by employing market norms. We become more self-interested and less thoughtful. This may be a bit of a stretch, but I think we can extrapolate this idea to partially explain why people are very bad about accounting for externalities.