Arnold Kling

Economics and Evolution

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David Friedman uses evolutionary psychology to solve some puzzles in economics.


Human beings have a functional module in their minds that deals with exchanges with other human beings. One feature of that module, hard-wired in by evolution, is that human beings regard the usual terms of exchange as right and any deviation from those terms that makes them worse off as a presumptively wicked act by the other party. This feature resulted in human beings that possessed it getting better terms in bilateral monopoly bargains in the environment in which we evolved, so having more resources and achieving greater reproductive success.

Actually, the essay is difficult to capture in an excerpt. Read the whole thing, as we say in the blogosphere.

My own views continue to influenced by the anthropology of Alan Fiske, which I came across in reading Steven Pinker's The Blank Slate. Fiske talks about authority-ranking, community sharing, equality matching, and market pricing. In my view, the hunter-gatherer period used the first three, but not the fourth. In the hunter-gatherer period, you never traded with strangers, so you never needed market pricing. You just needed the other three. Actually, Pinker thinks that what makes market pricing post-hunter-gatherer is that it requires mathematical reasoning.

I believe that common mistakes people make involve trying to apply lessons learned from one of the other modes of interaction to market pricing. For example, I have written that Marxism is the belief that market pricing is really authority ranking, and it ought to be replaced by community sharing. Also, perhaps people are hard-wired to disbelieve in Ricardian comparative advantage. That is, they cannot understand the theory of trade with strangers, so they keep trying to interpret it in terms of one of the three modes of interacting, and those interpretations lead them to think that outsourcing to India is going to lower our incomes. Maybe their gut feeling is that trade with India is really communal sharing with India, in which case it *would* lower our incomes.

Based on my reading of Fiske, I prefer thinking of the hunter-gatherer society as not having any awareness of the market-pricing approach. So, from an evolutionary psychology perspective try to imagine a world in which there are no market transactions at all, in the sense that there are no transactions between strangers that are mediated only by price. In that scenario, the reason that people develop a hard-wired belief in a just price is that they see exchange in terms of equality matching. Equality matching requires a convention about what constitutes "equal," which means that it is not something that varies with market conditions.

Overall, I agree with Friedman that evolutionary psychology can provide insights into the factors that lead people to behave "irrationally" in markets and in their beliefs about markets. I just take a slightly different slant on the issue.

For Discussion. What evidence is there that people are "hard-wired" to believe in a "just price?"



COMMENTS (16 to date)
Lawrance George Lux writes:

Arnold,
People are more hard-wired to a personal price, that is, one in which they believe they have gained advantage. Prices can be just, but do not convey a desired profit, so sale will not be allowed.

Per your comments about trade: It has been proven Hunter/Gatherer societies did trade, and quite successfully. Omaha Indians sold grain over much of the United States, while the Puma made arrowheads found in Quebec. Mayan goods were found as far north as Alaska. Marco Polo visited China because Italy wanted more formal trade with the Far East than dealing with the Steppe tribes. lgl

back40 writes:

'What evidence is there that people are "hard-wired" to believe in a "just price?"'

Probably the work of Bowles and Gintis et. al. that uses game theortic methods to evaluate extensive data gathered in HG societies which show evolutionarily stable possibility for such "hard wired" traits. It's not proof but it's evidence.

Neel Krishnaswami writes:

I think the evolution of intermediary trade is likely to be contemporary with the evolution of language. Humans differ from other animals in three key ways: we are secondary tool-users (we make tools to make tools), our vocalizations are language with generative structure (we have a grammar of vocalizations that let us make sentences from smaller pieces), and we practice intermediary trade (humans are capable of trading with another person in order to get a good to trade with a third party). All of these features, in a nonrecursive form, are found in other animals.

Zookeepers know that chimpanzees are smart enough to understand the concept of exchange -- if you leave a broom in a chimpanzee enclosure, you can show a chimp an apple and point at the broom, and it will go get it for you and take the apple. However, chimps don't engage in the sort of intermediary exchange people do. Likewise chimps make tools, but don't make tools to make tools, and they have a fixed set of vocalizations rather than a combinatory language.

From a computational perspective, it seems likely that the distinguishing feature here is the evolution of some kind of ability to do recursive thinking. And given the enormous potential gains from trade, it seems extremely implausible that human beings would have refrained from engaging in it as soon as they were able to conceptualize it. (And typical human troop sizes were probably in the neighborhood of 150 individuals, which is plenty large enough for specialization and division of labor to start showing up.)

Arnold Kling writes:

Neel writes, "typical human troop sizes were probably in the neighborhood of 150 individuals, which is plenty large enough for specialization and division of labor to start showing up."

But 150 is plenty small enough for everyone to know everyone else. That means that you can organize society without using markets and market prices. The other three modes--authority ranking, communal sharing, and equality matching, all work well at small scale.

Neel Krishnaswami writes:

True. But there would be multiple troops of humans in the same region, and it seems likely that they would trade with each other. I find the idea that hunter-gatherers didn't make extensive use of intermediary trade to be suspect. Trade is neurocognitively "easy" for humans, and it offers big advantages to engage in it -- what reason is there for it not to happen?

Also, a fair number of anthropologists offer the following scenario for how agriculture might have been invented: hunter-gatherers traded with each other, and permanent settlements naturally formed at the intersection of major trade routes. The inhabitants of the permanent settlements then invented agriculture. Notice that the necessary precondition for agriculture: year-round habitation of the same area, is driven by trade.

dsquared writes:

There is no proof at all, and it adds nothing analytically to assume it. Also worth noting that there is, in general, very little evidence worth speaking of for the existence of these "modules" related to specific behaviours (as opposed to general abilities like sense-perception). The developmental psychologists have been screaming about this for years, but the likes of Pinker et al haven't taken any notice, mainly because that would be the end of the Chomskyan programme in linguistics.

Greg Hill writes:

What evidence is there that people are "hard-wired" to believe in a "just price?"

One piece of evidence is the existence of similar "hard-wiring" in our evolutionary cousins.

Apparently, monkeys believe in a concept of fairness (in exchanging labour at least).

Ray writes:

Let me be the only one brave enough to jump off of the pseudo-intellectual cliff here and call this evolutionary theorizing just what it is; garbage.

Developmental neurology is a favorite topic and how we develop and refine mental skills over time is indeed a valid field but the idea that cave men were wandering around at any given time in history without the basic concept of what is "fair" to themselves is ridiculous.

Relative to a species' intellectual capacity, realizing what is, on the surface, fair is part of survival. I've had dogs that displayed the ability to choose the better toy or the larger amount of food, even when the smaller amount was something tastier.

The flip side of this "hardwired" concept of what is fair is what happens when a previously oppressed or cheated person or group of people find themselves in charge.

Because the emotional need of taking care of "self" most often times over rides the more objective principles of what is truly fair to everyone, it is this exact same need for "a good deal" that causes still others to receive the short end of the stick.

I'm not even talking about obvious fraud or cheating but the simple notion that union labor, trade guilds and subsidies are "fair" or "right" for the economy as a whole.

Kahn writes:

There is no proof at all, and it adds nothing analytically to assume it.

Really?

The general outlines of how genes build the brain are finally becoming clear, and we are also starting to see how, in forming the brain, genes make room for the environment's essential role. While vast amounts of work remain to be done, it is becoming equally clear that understanding the coordination of nature and nurture will require letting go of some long-held beliefs.
Blank-slatists, like dsquared appears to be, are in denial of the evolving "nurture via nature" paradigm and are this century's new creationists -- atavistic curmudgeons pining for the golden era when they could stand in the way of progress, but now bereft are left only with bitter complaint.

Bernard Yomtov writes:


For Discussion. What evidence is there that people are "hard-wired" to believe in a "just price?"

None. Isn't the whole problem with evolutionary psychology the absence of any reasonable amount of empirical evidence? Friedman's article is just conjecture.

What evidence would refute it?

Arnold Kling writes:

Good comment, Bernard. Some of the "selfish gene" theory tends to be circular: we have a trait because it helps us survive, and we survive because we have this trait.

For example, the peacock's tail. Supposedly the great thing about the tail is that it has no value, so as a result other peacocks think--it must be a real stud to be able to handle a big, superfluous tail. I always thought that the justification for a peacock's tail was a case of not accepting any evidence as falsifying the theory.

But most branches of science need some maintained assumptions that are treated as nonfalsifiable. I am willing to accept the general methodology, as long as particular empirical predictions are falsifiable.

dsquared writes:

Blank-slatists, like dsquared appears to be, are in denial of the evolving "nurture via nature" paradigm

Well, you appear to have "assumed" quite a lot there. In fact, the nurture via nature view (the actual one, not Matt Ridley's last-ditch defence of sociobiology) is one that I've held myself for years, and as a result I'm quite acutely aware that it doesn't have any room in it at all for such socially "thick" concepts as a fair price being the result of brain modules. You get a sex drive, some basic body language, disgust at rotting food and that's about it. Even such behaviours as "walking on two legs", which we also share with some monkeys, are learnt (feral children scamper on all fours).

Ironically, this means that Eddie Murphy's nightclub act ("see, white guys walk like this, black guys walk like this ...") has more sense about developmental psychology in it than Pinker's dreadful book.

Abiola Lapite writes:

"I find the idea that hunter-gatherers didn't make extensive use of intermediary trade to be suspect."

Your suspicions are well-founded, as there is abundant archeological evidence indicating that intermediary trade was actually surprisingly widespread during the Upper Paleolithic; for instance, there were Pan-European trade networks for all sorts of baubles.

Abiola Lapite writes:

"that would be the end of the Chomskyan programme in linguistics."

Huh? Are you trying to say that you think language isn't hardwired? It's one thing to say that the sort of armchair theorizing Kling gives credence to here is unjustified - which it is - and something else altogether to attribute our linguistic abilities to mere "general intelligence"; in fact, I'd say that puts you rather closer to the likes of Spearman and his "g" factor than most people who aren't Murray and Herrnstein admirers.

Bernard Yomtov writes:

"But most branches of science need some maintained assumptions that are treated as nonfalsifiable. I am willing to accept the general methodology, as long as particular empirical predictions are falsifiable."

I wasn't referring to genetics and evolution in general. There is surely ample evidence to support the "selfish gene" idea. The ideas I question are those which have been often characterized as "Just So Stories." This is the category in which I place Friedman's suggestions.

It might be interesting as speculation, or as a logical puzzle: imagine a possible survival value for some human trait. But just because you can think up such a thing as a sort of parlor game does not mean it's true. And if you can't come up with a refutable hypothesis, which Friedman doesn't, then it all really just is a parlor game.

dsquared writes:

I'm saying it's "hardwired" in the sense that walking is hardwired; that there's a general ability to learn and think abstractly, but nothing that would go so far as a Chomskyan "deep grammar". I understand this view to be more or less orthodox in linguistics these days.

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