Homo Corporaticus: Hormones and Institutions

Abstract: Business tragedies, such as what happened at ENRON, have frequently been explored from the moral and ethical perspectives of the firms’ top executives but less often from the incentives-perspective of the employees. What drove ENRON employees to cheer for energy price increases that resulted from forest fires? Such behavior appears unethical, irrational, and even criminal to some extent. Yet this behavior can be explained with economic theories that analyze decision-making in the context of the environment. There are two types of environments we must consider: external, such as cultural norms, a subset of which is the culture within the firm, and internal environment, by which we mean the physical and chemical state of human brain. The state of the brain is largely established by the types and amounts of hormones released in response to the external environment. Though researchers artificially induce hormones to stimulate specific decision-making in human volunteers (Paul J. Zak et al. 2007; Michael Kosfeld et al. 2005; Angela A Stanton 2007), there is no need to carry bottles of hormones to stimulate a desired decision-making; changing environment will induce hormonal changes. This paper reviews human and animal research of the hormones that affect economic decision-making, how they affect it, and provides suggestions on how institutions may influence the hormones of the brain by stimulating the environment in which people live, work, and make decisions.