The law of reciprocity: why altruism pays off in business.

Reading time: 5 min

by Alice Alessandri and Alberto Aleo

For a long time, we’ve been used to thinking that in business, and in the economy in general, it’s always the bad guys who win. Newspapers are full of stories of entrepreneurs who became wealthy at their clients’ expense, through frauds, tax evasion, or scams that, while impoverishing society, allowed a few people to become millionaires or even billionaires. Especially in Italy, the idea that you need to be unfair to make money is so ingrained that whenever we see someone doing well, our first thought is, “they must be fooling someone.” But is that really true?

Mainstream news seems to confirm this idea, but we all know that bad news sells better than good news, and honest citizens don’t get much attention. On top of that, envy, guilt, and the “excuse theory” make us believe that if we haven’t “made it big,” it’s only because we have chosen to be honest. So, can an altruistic person, i.e., someone who is aware and thinks about the impact of their actions on others, ever be successful? This is where the law of reciprocity comes in.

A lesson from classical economics: from Smith to Nash.

Anyone who’s studied economics, or even just watched A Beautiful Mind, will remember Adam Smith’s famous line: “Individual ambition serves the common good.” It sounds like the father of capitalism gave anyone operating on the market permission to act selfishly. If we take that literally, then in the “give and take” equation (governed by the law of reciprocity), we should focus on taking if we want to get rich. We’ve actually dedicated an entire article to set the record straight about Smith’s ideas, but here we just want to focus on the fact that individual actions serve the common good, and not the other way around.

That said, whether right or wrong, Smith’s ideas were later surpassed by the studies of the mathematician and economist John Nash and by the subsequent theories on strategic games with cooperative outcomes. Thanks to his work, we now know that only thinking about personal gain is bad for business because it triggers dynamics such as bad reputation and dissatisfied partners or clients, which ultimately isolate us and shrink our market share. So why does selfishness still seem like the best strategy in business?

Measuring the results of altruism in more than one dimension.

Economists have always known that you can’t get before you give. One of the first things economics students are taught is that “money machines” don’t exist, i.e., you have to first invest, and then you profit, not the other way around. The reason we often don’t realise this is that we measure the results of our business in a short-sighted or mono-dimensional way, such as by just looking at short-term revenue. 

The law of reciprocity says you must give before you receive, and its benefits appear when you analyse them in the medium/long-term, which is a point of view that includes the social effects of your actions.

Here’s a simple example. Let’s say you are thinking of selling a defective product to an unsuspecting customer at a high price. Will this crafty move pay off? Not at all! Once that customer realizes they’ve been scammed, they’ll do two things that can wreck your business: damage your reputation and never buy from you again!

Statistics show that one unhappy customer can influence nine potential clients with their negative opinion, and that acquiring a new customer to replace a lost one costs about six times more.

And if you’re thinking, “I’ll just change identity and run off with the money,” you should also remember the high costs of rebranding and setting up a new business. If you’re a real entrepreneur, continuity matters to you. So let’s learn to measure the true results of market action and stop focusing only on what’s right under our noses!

Learning to apply the law of reciprocity through altruism.

At this point, some readers may be thinking: “Okay, maybe altruism really does pay off.” But how can we actually learn to be altruistic, and turn this behaviour into a strategy that brings real results?

The best way to train yourself in altruism is by learning to receive and be grateful. Many companies, for instance, don’t show enough appreciation when customers choose them to meet their needs. That lack of gratitude turns into carelessness, which prevents them from “giving” and from, therefore, being altruistic.

If we start welcoming every customer while being grateful, including of the challenges they bring, we’ll eventually see that good practices are contagious, and even a difficult client can become kind and loyal.

Of course, the same applies to internal clients, i.e., our employees, colleagues, and suppliers.

The art of giving

Once you’ve learned to accept and appreciate what you receive, the next step is knowing how to make the most of it. Do you know what’s worse than not getting anything or getting a bad gift? Getting a wonderful gift and not appreciating or using it. So, if you’re already altruistic or innately a “giver”, our advice is to not waste your gifts on those who don’t value them.

Knowing how and when to give means choosing who deserves to receive. This worthiness isn’t based on whether they can repay you directly, but rather on whether they are able to “pass on the favour” by enriching what they’ve received and handing it over to others. That’s the virtuous circle that allows markets, societies, and the world to improve.

Making use of altruism strategically is complex. It requires you to shift your mindset and overcome cultural barriers, biases, and the constant bombardment of bad news that, while useful to keep us on our guard, makes us cynical and disillusioned. Changing perspective means taking a new path, one opposite to selfishness, that reverses the give-take dynamic: a true conversion to altruism that can save both us and our businesses.

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