Evolving economics

I know, I haven’t been blogging lately. I’ve been traveling, in the States for the first time since moving to Berlin (more on that later, but it was only in going back that I finally felt like an expat). Also reading, evolutionary theory and sociobiology.

Which leads to this point. Reading this article on the growing branch of “neuroeconomics” (economists that actually look inside the brain, with MRIs and such, to see what’s happening in the course of an economic decision). It strikes me that a pretty simple evolutionary argument exposes a serious flaw in much of classical liberal (or conservative, in modern parlance) economics.

There’s an exercise called the “ultimatum game,” which behavioral economists use to study people’s preferences. Two people. A set sum of money, say $100, to be split between the two. Person A is given the right to set the distribution split, without any limits. She can say 50-50, for example, or 90-10. The only limit is that B has to agree. If B in fact agrees, they both get whatever cash A has doled out. If B disagrees, both get nothing.

A perfectly rational B, (classical economics’ rational actor) should in theory accept even a radically uneven (90-10) split, because he is getting a free $10. The fact that A is getting $90 shouldn’t matter, all other things being even (another big assumption, but skip that for a little while). In fact, studies show that B rejects a very large proportion of uneven splits, apparently because they seem unfair.

Irrational by “rational actor” standards, sure. But it strikes me that an evolutionary analysis shows why this is perfectly rational, even inevitable, from a genetic perspective. As Richard Dawkins (“The Selfish Gene“) describe, genes themselves clearly don’t have conscious preferences. However, behavior can evolve, as in the case of genetic-driven behavior which successfully allows an individual to accumulate more resources, which translates into greater ability to reproduce (more nuts gathered, for example, means that a larger number of offspring can be supported), and thus a wider propagation of that particular gene or genetic pattern.

Clearly, in a world of limited resources, there is competition for resources. Every individual would be best served by being in the position of the game’s A, getting more resources than her rival. In a strictly economic perspective, B’s getting a free $10 is a good thing, and should be accepted regardless of the unfair split. But in an evolutionary perspective, a gene (or gene-driven behavior) which happily accepted the 10 percent split while a rival took 90 percent, wouldn’t last. The A group, with more resources, would propagate at a much higher rate, and ultimately drive the B’s out.

It’s a bit more complicated than that, of course. A rise in the proportion of As probably wouldn’t be stable itself. But what might be stable is the rise of B’s who had evolved a sense of being cheated — who would reject the 90-10 split, leaving both parties with nothing, leaving them both poor but equal. From B’s perspective of evolutionary survival, equal at zero is better than being a little bit better off absolutely, but having less resources than A.

I’m sure evolutionary-minded economists have puzzled this all out before. But it has interesting consequences for thinking about our consumption decisionns, and our preferences for a fair vs. unequal society. The conservative argument that it is OK if the rich get very rich, as long as the poor get a little better off in absolute terms, probably violates a kind of internal fairness system we’ve developed over the years in order to keep ourselves alive. So much for “rational actor.”

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