Deep Rationality: The Evolutionary Economics of Decision Making

22 April 2013 by 2 Comments

Even though I consider that I am across the literature at the boundary of economics and evolutionary biology, now and then an article pops up that I somehow missed. The latest article of this type is a 2009 article by Douglas Kenrick and colleagues, titled (as is this post) Deep Rationality: The Evolutionary Economics of Decision Making (ungated version here). I found it through Dan Ariely’s reading list for his Coursera course A Beginner’s Guide to Irrational Behaviour. Kenrick has also posted on the article over at his blog

I don’t feel overly guilty about not seeing this article earlier, as the authors have not referenced a lot of the literature in economics that I would consider relevant. Regardless, there is a lot to like about this article, particularly the way that it looks to incorporate an evolutionary approach into behavioural economics. I have often posted my criticism that much behavioural economics lacks a framework, without which it is just a list of biases and heuristics. It is good to see someone trying to offer that framework.

The authors’ basic argument is that people have evolved domain specific decision rules. Decisions depend on the current environment, plus the decision maker’s sex, mating strategy and stage in the life cycle. As a result, many decisions that are called inconsistent or irrational in behavioural economics are actually “deeply rational” to the domain in which the decision is being made.

In making their case, the authors start out with a brief kick at economics by noting that most economic theorists “have remained relatively agnostic about the roots of utility.” They do note the work of Gandolfi, Gandolfi and Barash, but otherwise do not mention the wealth of articles on the evolution of preferences by the likes of Arthur Robson, Larry Samuelson and others (my economics and evolutionary biology reading list gives a taste). Thus, when they suggest that we need to go deeper than Gandolfi, Gandolfi and Barash’s approach of equating utility to fitness, they miss some literature which does just that.

Regardless, the need to go beyond “fitness equals utility” by considering factors such as life history or differences in mating strategy is important. The authors suggest that we should consider human decision making as being geared to solve recurring adaptive problems in different domains, whereby successful solutions in each are associated with increased fitness. The body of their article focuses on some examples of this approach.

In one section, they address attitudes to risk. Humans are normally risk averse, which Kenrick and colleagues suggest is consistent with empirical observations of loss aversion. Although this short-hand equating of risk aversion and loss aversion works some of the time, it sells these concepts short, along with the way that they are incorporated into Kahneman and Tversky’s prospect theory. Under prospect theory, people evaluate choices from a reference point, they show loss aversion (losses hurt more than gains) and they are risk averse when faced with two potential gains. However, in the domain of losses, they are actually risk seeking. When you combine these features with the human tendency to overweight small probabilities, you obtain the fourfold pattern of risk attitudes. When an agent faces a moderate probability of a gain or a small probability of a loss, they will be risk averse. However, when faced with a low probability of a gain or a moderate probability of a loss, they will be risk seeking.

Kenrick and colleagues do make the important point that the attitudes to risk as predicted by prospect theory will vary with evolutionarily relevant factors. Men with mating motives will be more likely to take financial risks.  Women would not respond in the same way to mating primes as women know that men give a lower value to the resources possessed by a mate. In the social domain, such as networks of friends, there tends to be loss aversion in both sexes, although this may reverse for men with mating motives.

This is a point of the article where a hat tip to the existing literature might have been most useful, as some economists have spent a lot of time considering the evolutionary foundations of attitudes to risk. For example, Rubin and Paul examined the effect of mating motives on risk preferences in 1979. They developed a model where male fitness depended on attracting a mate, which was in turn a function of their resources (income). Rubin and Paul suggested that young men who do not have a mate are likely to be risk seeking in obtaining income as they have no mate to lose. Older men who already have a mate will tend to be risk averse, particularly given the huge level of income required to attract a second mate.

In another section, Kenrick and colleagues look at the economic approach to choosing a basket of goods within a budget constraint. In this case, the weighting of various goods will depend upon the domain in which an agent is making a mate choice. For example, promotion of a colleague at work may influence status motives and accordingly, the worker’s preferences between more time in the office and leisure will shift.

They also make the interesting distinction between traits in a potential mate being necessities or luxuries. Consider a female who needs a male to have a minimal level of resources to make sure her offspring survive. Due to diminishing marginal utility (another economic concept) as the male’s resources increase, she may start to look at other traits if there are plenty of males with enough resources. The pattern of consumption will be that resources are a necessity, while other traits are luxuries. A similar pattern might emerge for male preferences, initially prioritising fertility related traits, but then considering other traits if there are plentiful fertile females. Thus, when the necessity traits are scarce, we might expect large sex differences in mate preferences as each sex focuses on obtaining their different necessities. As these traits become more plentiful, traits that are luxuries are sought. If there is overlap between the luxuries of one sex with the necessities of the other sex, we would see smaller differences between the sexes in the traits sought in mates.

One issue Kenrick and colleagues do not spend much time on is why evolution has shaped domain specific decision rules. The foundation of modular decision making is addressed in the evolutionary psychology literature, but to sell this concept to economists, you need to sell them the constrained rationality that is inherent in the modular approach. Most evolutionary analysis of economic preferences struggles to incorporate “irrationality” through constraints, often due to a view that evolution is the ultimate rationality machine (and most economists fixation, conscious or not, with rationality). Selling to economists the picture of constrained, path dependent evolution that leads to modular decision making and “deep rationality” could improve the economic endeavour considerably.

Kenrick, D., Griskevicius, V., Sundie, J., Li, N., Li, Y., & Neuberg, S. (2009). Deep Rationality: The Evolutionary Economics of Decision Making Social Cognition, 27 (5), 764-785 DOI: 10.1521/soco.2009.27.5.764

Filed Under: Economics, Evolution Tagged With: , , , ,

A unified behavioural theory of economic activity

15 April 2013 by 3 Comments

John Brockman has wheeled out another good bunch of experts for the newest Edge question “What’s the question about your field that you dread being asked?”

One response by Richard Thaler is particularly interesting, who fears being asked “When will there be a single unified ‘behavioral’ theory of economic activity?” For those who know Thaler’s work in behavioural economics, his reason might be surprising:

If you want a single, unified theory of economic behavior we already have the best one available, the selfish, rational agent model. For simplicity and elegance this cannot be beat. Expected utility theory is a great example of such a theory. von Neumann was no dummy! And if you want to teach someone how to make good decisions under uncertainty, you should teach them to maximize expected utility.

Obviously, Thaler knows that this model is not perfect:

The problem comes if, instead of trying to advise them how to make decisions, you are trying to predict what they will actually do. Expected utility theory is not as good for this task.

However, Thaler is not convinced that alternatives such as prospect theory are up for the task, and he suggests that there will ultimately be a multitude of theories:

Just as psychology has no unified theory but rather a multitude of findings and theories, so behavioral economics will have a multitude of theories and variations on those theories. You need to know both physics and engineering to be able to build a structurally sound bridge, and as far as I know there is no general theory of structural engineering. But (most) bridges are still standing. As economics becomes more like engineering, it will become more useful, but it will not have a unified theory.

Thaler is being overly pessimistic – and I’m not sure that there are many theories of bridge building that can ignore the unifying framework of physics. He is right that the rational agent model is simple, elegant and powerful. The problem is that while behavioural economics can pick holes in the model on the basis of predicting how people make decisions, there has been limited attempt to generate a unified theory. Prospect theory is a useful tool for predicting behaviour, but the question that is rarely asked is why people act in that way.

I am optimistic about the role that evolutionary biology will play in filling this gap. Evolution is the ultimate rationality machine, and any actions that are not rational will be ruthlessly eliminated. This is what lies behind the power of the rational agent model. But evolution can only work with the material at hand, leading to a constrained rationality. Heuristics that use less energy and time can be favoured. Many adaptations are path dependent (Robert Frank’s Passions Within Reason gives one excellent account of how path dependence might have shaped human emotions). A changed environment can result in decisions that were once rational no longer being optimal.

Thaler points to the multitude of theories in psychology as an example, but psychology is now being reconstructed by evolutionary psychology, with many of the available theories unable to withstand the light of evolutionary theory. Economics, and more particularly behavioural economics, is slowly being examined using evolutionary theory and the unifying basis of human decision-making as an evolved trait. Those theories inconsistent with our evolved past will be discarded, and the commonality between those that remain will provide considerable unification across the field.

Filed Under: Economics, Evolution Tagged With: , , ,

A week of links

13 April 2013 by 2 Comments

Links this week:

  1. E.O. Wilson’s argument that great scientists don’t need math has already received plenty of responses. Wilson’s argument reminded me of one of Paul Krugman’s critiques of Stephen Jay Gould’s popular work, which were “literary confection” as they lacked math.
  2. A free webinar with Geoffrey Miller and others on What Every Marketer Should Know About the Nonconscious.
  3. Diane Coyle posts on a paper by Sergio Da Silva in which he argues that “economics fails to ground itself in the underlying knowledge provided by biology”.
  4. While researching a paper, I came across this 20 year-old piece by Jared Diamond on the isolation and technological regress of the Tasmanian aboriginals.
Filed Under: Economics, Evolution Tagged With: , ,

Economics from a biological viewpoint

1 April 2013 by 2 Comments

One of the earlier advocates of using evolutionary biology in economics was Jack Hirshleifer, a professor of economics at the University of California, Los Angeles. Hirshleifer was author of The Dark Side of the Force: Economic Foundations of Conflict Theory, which includes evolutionary analysis of cooperation and conflict, and some discussion of the unification of law, economics and evolutionary biology. The subject of this post is his 1997 article Economics from a Biological Viewpoint from the Journal of Law and Economics. Coming on the heels of E.O. Wilson’s Sociobiology, Hirshleifer states that there is no argument about the utility of using sociobiology in economics. The only open question is how much utility can be gained.

Unlike Becker’s 1976 article linking economics and sociobiology, Hirshleifer does not draw the parallels and then imperialistically march economics into evolutionary biology. Hirshleifer focuses on the message that sociobiology has for economics, not on “how we can set the biologists straight”.

Hirshleifer is scathing of the disinterest of economists in understanding the foundation of tastes and preferences. Hirshleifer asks if economists are waiting for someone in another field to do the work, and suggests that since it is not being done, economists will need to take on this role. Hirshleifer considers that preferences are governed by how they affect fitness, and adopts a strong version of this approach. He prefers to explain the apparently fitness-reducing actions of modern humans on the basis that the fitness benefits are simply not apparent to us, and not that they might be maladaptive.

Most of Hirshleifer’s discussion of preferences focuses on altruism, where he is critical of Becker’s approach. Hirshleifer points out that Becker gives the agents arbitrary levels of altruism, with altruistic behaviour emerging as long as there is one altruist. Becker is not using evolutionary biology to look at what the tastes might be, but is trying to supplant an evolutionary explanation of why altruism emerges.

Hirshleifer does note a benefit of Becker’s approach in his discussion of cheating, as Becker’s rotten kid theorem shows that altruism on only one side of the transaction may be enough to prevent it. Hirshleifer also discusses how honest signals can evolve to reduce cheating, but the absence of the handicap principle (only just proposed in 1975) from the discussion highlights why the principle is so important in understanding how signals work.

Hirshleifer is sympathetic to group selection arguments and covers some of the classic group selection models, although he does not subject them to serious analysis as to whether they might be the right explanation. He also relies on what appears to be a version of multilevel selection theory to argue that mixed levels of altruism and free riding can exist in a population, whereby reassortment allows altruists to continue to survive despite their fitness disadvantage relative to free-riders in the same group.

The most novel part of the paper (to me) was Hirshleifer’s discussion of specialisation. Specialisation limits competition, but there is a dichotomy between the competitive and cooperative division of labour. In competitive specialisation, species try to avoid direct competition by choosing a narrow niche, while cooperative specialisation allows for gains from trade. Hirshleifer argues that biologists have more subtle understanding of specialisation as they recognise the variety of dimensions across which it occurs.

One dimension of specialisation is the distinction between “K-strategies” that make superior use of resources in constrained environments and “r-strategies” that pioneer and settle unfilled environments. Hirshleifer sees selection between these strategies as having had an effect in American history:

[H]uman individuals, families, races etc. are biological entities which may be regarded as choosing competitive strategies. Martial races may concentrate on success through politics, conflict, or violence (“interference strategy”); others may have proliferated and extended their sway through high birth rates; others through lower birth rates but superior efficiency in utilizing resources (“exploitation strategy”). The r-strategist pioneering human type was presumably selected for in the early period of American history – a period long enough for genetic evolution, though cultural adaptation may have been more important. This type was not entirely antisocial; altruist “pioneer” virtues such as mutual defense and sharing in adversity can emerge under r-selection. In the present more crowded conditions the preferred forms of altruism represent “urban” virtues of a negative rather than positive sort: tolerance, nonaggressiveness, and reproductive restraint. Even today it seems likely that a suitable comparison of populations in environments like Alaska on the one hand and New York City on the other would reveal differential genetic (over and beyond merely cultural) adaptations.

One other interesting point that Hirshleifer covers is teleology. Biologists generally consider evolution to be directionless, in contrast to the economic story of the invisible hand leading to positive outcomes. Hirshleifer argues that the imperfections in nature are largely due to a lack of property rights founded on law and government. As a result, there is more chance of an optimal outcome in human economies than in nature. However, Hirshleifer is not naive, and he notes that the institutions that provide the rule of law and government may also be used to steer outcomes away from optimality.

There is plenty of other material in the article worth reading, although some of it feels dated. This includes a section of the article on the evolutionary economics of Alchian, Nelson and Winter, which Hirshleifer terms “quasi-biological” and is worth reading for the discussion of whether businesses actually maximise.

Hirshleifer, J. (1977). Economics from a Biological Viewpoint The Journal of Law and Economics, 20 (1) DOI: 10.1086/466891

Filed Under: Economics, Evolution Tagged With: , ,

The success of the productive

25 March 2013 by Leave a Comment

In another great section from the The Genetical Theory of Natural Selection, R.A. Fisher argues that the free exchange of goods and private property rights are triumphs of human organisation:

R._A._Fischer[F]rom the earliest times of which we have knowledge, the hereditary proclivities, which undoubtedly form the basis of man’s fitness for social life, are found to be supplemented by an economic system, which, diverse as are the opinions which different writers have formed about it, appears to the writer to be one of the unconscious triumphs of early human organization. The basis of the economic system consists in the free interchange of goods or services between different individuals whenever such interchange appears to both parties to be advantageous. It is essential to the freedom of such agreements that the arbitrary coercion of one individual by another shall be prohibited, while, on the other hand, the coercive enforcement of obligations freely undertaken shall be supported by the public power. It is equally essential that the private possession of property, representing, as in this system it must do, the accumulation of services already performed to other members of the society, and the effective means of calling upon equivalent return services in the future, shall be rigorously protected.

In this system, success is rewarded and those who do not perform socially advantageous actions may perish.

In the theory of this system each individual is induced, by enlightened self-interest, to exert himself actively in whatever ways may be serviceable to others, and to discover by his ingenuity new ways or improved methods of making himself valuable to the commonwealth. Such individuals as succeed best in performing valuable services will receive the highest rewards, including, in an important degree, the power to direct the services of others in whatever ways seem to them most advantageous. Those, on the contrary, who fail most completely to perform socially advantageous actions have the least claim upon the wealth and amenities of the community. In theory they may perish of starvation, or may become indebted up to the amount of the entire potential services of the remainder of their lives, or of the lives of their children.

Fisher notes that while this economic system is not the sole basis by which we operate, it provides protection against the proliferation of the unproductive.

It need scarcely be said that this economic system has never formed the exclusive basis of social co-operation in man. It has at most been partially established in compromise with social instincts already in being, founded during the existence of less closely cooperative societies. Nevertheless, it bears a sufficient resemblance, both to the theory of rationalistic economists, and to the practice of various ancient civilizations, to indicate that we have presented, in an abstract and ideal form, a real and effective factor in human social organization. The biological importance of this factor lies in the safeguard which it appears to provide that intra-communal selection in human societies shall not favour the multiplication of unproductive or parasitic types, at the expense of those who exert themselves successfully for the common good. On the contrary, it seems to insure that those who produce the best goods or provide the most valuable services shall be continually augmented in each succeeding generation, while those who, by capacity or disposition are unable to produce goods equivalent to what they consume, shall be continually eliminated.

This selection extends to the way people consume and engage in trade.

Nor is this beneficial selection confined to individuals in their capacity of producers. In consumption and distribution an equally beneficial selection would seem to be in progress. The individual who, by reason of his imperfect instincts, is tempted to expend his resources in ways which are not to his biological advantage, the individual who from prejudice favours a bad market, or who is temperamentally incompetent in striking a bargain, is equally at an economic and, it would seem, at a selective, disadvantage. This selection of the consumer provides in an important respect the theoretical completion of the individualistic economic system, for it supplies a means by which the opportunities of gaining wealth by the provision of illusory benefits, shall become ever narrower, until all substantial sources of profit are confined to the provision of real public benefits. The population produced by such a system should become ingenious and energetic industrialists, shrewd and keen in the assessment of social value, and with standards of well-being perfectly attuned to their biological and reproductive interests.

The logical (thought not necessarily realised) outcome of this selection might be to evolve such that wealth accumulation is the ultimate moral pursuit.

To complete the picture, at the expense of anticipating a little a subsequent argument, our economic Utopians must be endowed with consciences which recognize the possession of wealth, at least as a means to reproduction, as the highest good, and its pursuit as the synthesis of all virtuous endeavour. To them the wealthy man would enjoy not only the rewards, but also the proofs of his own virtue, and that of his forbears; he would be in some sort a saint, to co-operate in whose virtuous proceedings would be a supreme felicity. Upon such men, no public honour could be bestowed more noble than a direct cash payment, and to purchase other honours for money would seem not so much corrupt as insane. Charity, in the sense of the uneconomic relief of poverty, would evidently be a vicious weakness, although there would be some virtue in shrewdly backing for mutual advantage the capable, but accidentally unfortunate.

However, we have not achieved this “utopia”.

[T]he instinctive feelings and prejudices of social man do not seem at all to have developed in the direction of a more strictly economic and less’ sentimental’ basis for social institutions.

Filed Under: Economics, Evolution Tagged With: , , ,

A week of links

8 March 2013 by Leave a Comment

Links this week:

  1. Andrew Berry guest blogs at Why Evolution is True on Alfred Russel Wallace’s unfortunate end to his Amazon expedition. The equivalent of accidentally erasing your PhD thesis the day before submission?
  2. I am enjoying some of the press coming out about Marlene Zuk’s new book Paleofantasy: What Evolution Really Tells Us about Sex, Diet, and How We Live (and the reactions to it); this week an interview in the Los Angeles Review of Books.
  3. An interview with Gary Becker on rationality, behavioural economics and the use of mathematics in economics.
  4. A profile of Ingela Alger, another economist looking to bring some evolutionary biology into the picture.
Filed Under: Economics, Evolution Tagged With: , ,

Evolution, the Human Sciences and Liberty meeting

16 January 2013 by 1 Comment

I had the following Mont Pelerin Society Special Meeting pointed out to me. It has a great bunch of speakers – Robert Boyd, Robin Dunbar, Leda Cosmides, Matt Ridley, Richard Wrangham, Pascal Boyer and Gary Becker among them. Not a bad location either, if you ignore the expense. Unfortunately, its for MPS members and their guests only.

Evolution, the Human Sciences and Liberty

What?

This Mont Pelerin Society Special Meeting has the objective to link the concept of evolution to freedom, reinforce the debate that opposes classical liberal society and statism using biology and anthropology as theoretical foundations, and to understand cultural evolution of open societies as a mean to escape from the tribal order.

The Universidad San Francisco de Quito (USFQ), from Ecuador, will host this world summit on its Galapagos campus (GAIAS) located on the island of San Cristóbal.

Why?

Friedrich Hayek asserted that: “cultural evolution is not the result of human reason consciously building institutions, but of a process in which culture and reason developed concurrently…”. The co-evolution of human preferences and institutions poses serious problems to anyone who promotes policies that supposedly will alter only one of the two. It is the old problem of culture versus institutions. Freedom, property rights, rule of law, how is it that all these elements evolved to promote peace and prosperity? Why some are more prominent only in some societies while in others they are almost inexistent? During this world summit, scholars with training in the natural and social sciences will gather to discuss the evolution of and the current challenges to freedom. Galapagos provides a unique environment for this; it inspired Charles Darwin, more than one hundred fifty years ago, to make his groundbreaking contributions to the biological sciences.

Filed Under: Economics, Evolution Tagged With: ,

Who will invade economics?

6 January 2013 by 2 Comments

Justin Fox has asked whether the age of economic imperialism is coming to an end and whether economics may be vulnerable to imperialism itself:

Lately, though, I’ve found myself talking to and reading a little of the work of sociologists and political scientists, and coming away impressed with how adept they are in quantitative methods, how knowledgeable they are about economics, and how willing they are to challenge economic orthodoxy. …

Even anthropology, that most downtrodden of the social sciences, has been encroaching on economists’ turf. When a top executive at the world’s largest asset manager (Peter Fisher of BlackRock) lists Debt: The First 5,000 Years by anthropologist (and Occupy Wall Streeter) David Graeber as one of his top reads of 2012, you know something’s going on.

What’s going on is probably not the incipient overthrow of economics. As described by Lazear, its imperialistic power has in large part been the result of its uniformity of approach over the past half century. (That, and economists have actually been right about some things.) As best I can tell, there is no such methodological consensus in sociology, political science, anthropology, or history at the moment. But the economists’ consensus is wobblier than it’s been in a while (especially in macro), there is ample motive for insurrection, and the non-economists’ stores of intellectual ammunition are growing. Economics may well have reached the stage of imperial overstretch. Interesting times lie ahead.

As you might expect me to say, evolutionary biology will be part of the move into the economists’ turf. After forty years of evolutionary biology imperialism, starting in the sociobiology days of the 1970s, evolutionary biology is vital to much of psychology and anthropology. And the potential to reshape economics remains significant. My predictions of the areas of greatest effect are as follows:

  1. Evolutionary psychology will form the bedrock on which behavioural economics sits, and will provide the basis for reconciling rational choice and behavioural economics approaches to decision making.
  2. As economists become increasingly interested in the foundations of our economic preferences, such as risk or time preference, they will turn to the work already being done in the area (see my evolutionary biology and economics reading list for some examples).
  3. Many areas of economic imperialism, such as Becker’s work on the economics of the family and crime, will be updated from an evolutionary perspective. Economics added much to these fields, but the work was incomplete.
  4. Biology will be a source of the understanding of the economy as a complex system. This might include the study of the financial system as an ecosystem or broader consideration of when competition leads to positive outcomes.
  5. Economic policy debates will gain more of an evolutionary flavour. The Evolution Institute is a part of that movement.

In addition, many economists underestimate how many tools and ideas used in economics are from other fields. I continue to run into economists who label John Maynard Smith as an economist, and who don’t consider how many of their statistical and mathematical tools were developed and used outside of economics. This is reflected in Sveriges Riksbank Prizes in Economic Sciences in Memory of Alfred Nobel  going to psychologists, political scientists and mathematicians. If anything, the skill of economists is recognising good tools and using them, with much economic imperialism the adoption of tools developed by others and claiming them as their own. But is an economist’s use of game theoretic tools developed by John Maynard Smith classed as economics or evolutionary biology? If an economist uses a tool from a field outside of economics in another field outside of economics, is it economics simply because the user labels themselves as an economist? (I often ask this last question about some of my work.)

As an aside, Fox credits the success of economic imperialism on the scientific foundations of economics, and quotes a passage from Edward Lazear’s 2002 QJE article on economic imperialism:

Economics is scientific; it follows the scientific method of stating a formal refutable theory, testing theory, and revising the theory based on the evidence. Economics succeeds where other social scientists fail because economists are willing to abstract.

Lazear’s description is more normative than positive, particularly in macroeconomics. What was the last macroeconomic theory that was generally rejected through the economics profession on the basis of data? (Or to make it more personal, when was the last time data changed your mind about an economic theory?) Fox hints at this problem, noting the multiple perspectives on the one-off global financial crisis, but the issue is broader. Ask a group of economists what causes business cycles. The consensus will be weak. The lack of consensus is not universal in economics, but where a divide exists, particularly on ideological lines, it is  rarely resolved through the scientific method.

Filed Under: Economics, Evolution Tagged With: ,

Using neuroeconomics in economics

31 October 2012 by Leave a Comment

An article by Josh Fischman in the Chronicle suggests that economists have been slow to take up the insights of neuroeconomics.

Paul W. Glimcher, director of the Center for Neuroeconomics at New York University and author of the standard textbook in the field, wrote in a 2004 paper published in Science that “economics, psychology, and neuroscience are converging today into a single, unified discipline.” Today he is more measured. “We are a very young science,” he says, “and we’ve taken more from economics than we’ve given. I hope in the coming years you’ll start to see us give more back.”

And economics does need some help, according to a few practitioners like the eminent Yale University economist Robert J. Shiller, who has argued that the discipline isn’t doing just fine. Most economic models didn’t predict the 2008 housing crash, he pointed out in a speech at last year’s Society of Neuroscience meeting. Adding some understanding of how the brain reacts to particular kinds of uncertainties or ambiguities in supply and demand, he said, might avoid this and other costly misfires.

The slow take-up of neuroeconomics in the short-term by the broader economics profession is not a bad thing. Neuroeconomics is often seeking to build on and test findings from behavioural economics, but the findings from neuroeconomics are not yet fundamentally changing the understanding of human behaviour that behavioural economics gives us. Take the first example used Fischman:

One recent study, published this summer, searched for brain regions associated with altruism and selfishness. Ernst Fehr, a professor of economics at the University of Zurich, and one of the few economists working extensively with neuroscientists, asked a group of 30 men and women to split a sum of money with another person or keep more for themselves. While each person was making the decision, Fehr’s team took images of his or her brain in a functional-magnetic-resonance-imaging machine. The fMRI scanner reveals fine details of brain anatomy and, crucially, measures how active brain regions are. It has become a standard tool in this field.

Those people who were willing to split more money had more neurons in a region called the right temporo-parietal junction, an area toward the back of the brain that has been linked to empathy. Selfish people had a smaller junction. Moreover, the junction became more active as unselfish people decided to give more money away, Fehr and his colleagues found. It is almost as if the region worked hardest when people were trying to overcome what might be a natural—and rational—impulse toward selfishness.

The finding is interesting, but how would an economist incorporate this into their understanding of human action beyond that already provided by behavioural economics? The concept of competing brain structures in decision-making is common in psychology and evolutionary biology – or even economics. Pinning down a location in the brain (and trying to give it an interpretation) is not substantively changing this.

In some ways, neuroeconomics is in a similar state of development as genoeconomics, the use of molecular biology in economics (also referred to in Fischman’s article). Genoeconomics is seeking to build on the understanding of human behaviour that we can get from evolutionary biology. But genoeconomics is at such an early stage that it is not fundamentally changing this understanding. An economist seeking to incorporate evolutionary biology into their economic thinking can use evolutionary theory, twin studies and anthropological studies, after which they will gain limited additional understanding from genoeconomics.

However, this points to the real problem. The areas that neuroeconomics and genoeconomics are building on, behavioural economics and evolutionary biology, could and should be used to a greater extent in economics. Economists don’t need to wait for more information on which region of the brain or which gene underlies a behaviour before incorporating it into a model. Behavioural economics is a mature field (albeit one lacking a framework – that evolutionary biology will one day offer) and our knowledge of human evolution and the heritability of traits gives great scope for evolutionary biology to be used.

Having said this, we should not ignore neuroeconomics and genoeconomics. The findings being developed today have value. I wish more research was being conducted in these areas and that economists were more involved. Colin Camerer notes the lack of economists involved in this research:

“I would say that neuroeconomics is about 90 percent neuroscience and 10 percent economists,” says Colin F. Camerer, a professor of behavioral finance and economics at the California Institute of Technology and one of the prime movers in the new field. “We’ve taken a lot of mathematical models from economics to help describe what we see happening in the brain. But economists have been a lot slower to use any of our ideas.” …

Camerer, who was trained in economics—he got an M.B.A. and a Ph.D. from the University of Chicago and “didn’t know anything about neuroscience until 2000″—says that assuming that economics can’t be improved by knowing how the brain computes value might be the most unsound prediction of all. “That’s really kind of a crazy bet,” he says.

It is just this research is not at a point where it can revolutionise economic theory in the way its more developed relations can. Of course, this will change over the next decade as neuroeconomics and genoeconomics mature and researchers develop causative explanations that add to our knowledge of human behaviour. At that point, the complaints about the failure to adopt neuroeconomics and genoeconomics will have substance. Until then, the lack of evolutionary biology and behavioural economics in the practice of most economics is the bigger issue.

Filed Under: Economics, Evolution Tagged With: , , ,

Deriving the demand for children

29 October 2012 by Leave a Comment

I’ve been working through Gary Becker’s A Treatise on the Family: Enlarged Edition over the last couple of weeks. One interesting section included Becker’s thoughts on why people demand their own children, as opposed to being satisfied with the children of others.

[T]he demand for own children, the distinguishing characteristic of families, need not be postulated but can be derived.

Women producing children can use their own milk as food and can more readily take care of young children while pregnant than while working in the marketplace. Moreover, most women have been reluctant to commit so much time, effort, emotion, and risk to producing children without considerable control over rearing. Presumably the genetic similarity between parents and children further increases the demand for own children.

Own children are preferred also because of the value of information about children when investing in them. Information is more readily available about the intrinsic characteristics of own than adopted children, because parents and own children have half their genes in common and the health and some other characteristics of own children at birth and during infancy are directly observed. … This may also explain why orphaned children of siblings and other close relatives are more frequently adopted than are orphaned children of strangers (Goody, 1976), and even why adopted children are less valued as marriage partners.

Becker introduces biological considerations at several points of the book, but this explanation of the demand for children is one of the more awkward. It’s not hard to see what would happen to those who overcome this information asymmetry to allow them to efficiently raise children that are not their own.

Filed Under: Economics, Evolution Tagged With: ,

Videos for the Biological Basis of Preferences and Behavior Conference

21 September 2012 by Leave a Comment

Videos of the presentations at the Biological Basis of Preferences and Behaviour conference have been put online. Many are worth watching. I hope to write more detailed posts about a few of the presentations soon, but the three presentations I got the most out of were:

1. “Social Networks and Cooperation in Hunter-Gatherers” by Coren Apicella. Presentations such as this always remind me that I should be reading far more work by anthropologists.
2. “The Genetic Architecture of Economic and Political Preferences” by David Cesarini. A good introduction to the growing field of genoeconomics.
3. “Cognitive Trade-Offs in Chimpanzee Versus Human Mixed Strategy Play” by Colin Camerer. Don’t play poker against chimpanzees. I’ve posted on these chimps before.

My earlier posts on the conference include my general impressions and some comments on the presentation by Balazs Szentes.

Filed Under: Economics, Evolution Tagged With: , ,
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