Image: Matt Collins
Because 99 percent of our evolutionary history was spent as hunter-gatherers living in small bands of a few dozen to a few hundred people, we evolved a psychology not always well equipped to reason our way around the modern world. What may seem like irrational behavior today may have actually been rational 100,000 years ago. Without an evolutionary perspective, the assumptions of Homo economicus—that “Economic Man” is rational, self-maximizing and efficient in making choices—make no sense. Take economic profit versus psychological fairness as an example.
Behavioral economists employ an experimental procedure called the Ultimatum Game. It goes something like this. You are given $100 to split between yourself and your game partner. Whatever division of the money you propose, if your partner accepts it, you are both richer by that amount. How much should you offer? Why not suggest a $90–$10 split? If your game partner is a rational, self-interested money maximizer, he isn’t going to turn down a free 10 bucks, is he? He is. Research shows that proposals that deviate much beyond a $70–$30 split are usually rejected.
Why? Because they aren’t fair. Says who? Says the moral emotion of “reciprocal altruism,” which evolved over the Paleolithic eons to demand fairness on the part of our potential exchange partners. “I’ll scratch your back if you’ll scratch mine” only works if I know you will respond with something approaching parity. The moral sense of fairness is hardwired into our brains and is an emotion shared by most people and primates tested for it. Thousands of experimental trials with subjects from Western countries have consistently revealed a sense of injustice at low-ball offers. Further, we now have a sizable body of data from peoples in non-Western cultures around the world, including those living close to how our Paleolithic ancestors lived, and although their responses vary more than those of modern peoples living in market economies do, they still show a strong aversion to unfairness.
The deeper evolution of this phenomenon can be seen in the behavior of our primate cousins. In studies with both chimpanzees and capuchin monkeys, Emory University primatologists Frans de Waal and Sarah Brosnan found that when two individuals work together on a task for which only one is rewarded with a desired food, if the reward recipient does not share that food with his task partner, the partner will refuse to participate in future tasks and will express emotions that are clearly meant to convey displeasure at the injustice. In another experiment in which two capuchins were trained to exchange a granite stone for a cucumber slice, they made the trade 95 percent of the time. But if one monkey received a grape instead (a delicacy capuchins greatly prefer over cucumbers), the other monkey cooperated only 60 percent of the time, sometimes even refusing the cucumber slice altogether. In a third condition in which one monkey received a grape without even having to swap a granite stone for it, the other monkey cooperated only 20 percent of the time. And in several instances, they became so outraged at the inequity of the outcome they heaved the cucumber slice back at the human experimenters!
Such results suggest that all primates (including us) evolved a sense of justice, a moral emotion that signals to the individual that an exchange was fair or unfair. Fairness evolved as a stable strategy for maintaining social harmony in our ancestors’ small bands, where cooperation was reinforced and became the rule while freeloading was punished and became the exception. What would appear to be irrational economic choices today—such as turning down a free $10 with a sense of righteous injustice—were, at one time, rational when seen through the lens of evolution.
Just as it is a myth that evolution is driven solely by “selfish genes” and that organisms are exclusively greedy, selfish and competitive, it is a myth that the economy is driven by people who are exclusively greedy, selfish and competitive. The fact is, we are equitably selfish and selfless, cooperative and competitive. There exists in both life and economies mutual struggle and mutual aid. In the main, however, the balance in our nature is heavily on the side of good over evil. Markets are moral, and modern economies are founded on our virtuous nature. The Gordon Gekko “Greed Is Good” model of business is the exception, and the Google Guys “Don’t Be Evil” model of business is the rule. If this were not the case, market capitalism would have imploded long ago.
This article was originally published with the title The Mind of the Market.
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11 Comments
Add CommentI watched Shermer on cspan this evening. Interesting comment that conservatives distrust evolutionary theory but accept free markets while liberals accept evolutionary theory and distrust free markets. Shermer said both are examples of emergent behavior.
Reply | Report Abuse | Link to thisRe: “The Mind of the Marketâ€
Reply | Report Abuse | Link to thisUsing “fairness†studies conducted among chimpanzees and capuchin monkeys– that seemed to “prove†Michael Shermer's central premise of human sense of “justice†being a hardwired evolutionary hand-me-down – he concludes his article stating: “The Gordon Gekko ‘Greed Is Good’ model of business is the exception, and the Google Guys ‘Don’t Be Evil’ model of business is the rule. If this were not the case, market capitalism would have imploded long ago.â€
How on Earth could "The Skeptic" state such non sequitur when such facts as documented in “Global Capitalism: Its Fall and Rise in the Twentieth Century†by Jeffry A. Frieden, are as follows:
“By 2000 the richest 1 percent of the world’s population earned substantially more than the poorest half; indeed, the combined wealth of the world’s two hundred richest individuals – more than a trillion dollars – was greater than the combined annual income of the poorest half of the world’s population.†[3 billion]
“Experts estimated that eighty billion dollars a year would provide every inhabitant of the developing world with basic food needs, health care, education, water, and sewers…less than 8 percent of the combined wealth of world’s two hundred richest individuals. The price of ensuring that everyone in the world had basic nutrition and health was less than the amount Americans and Europeans spent on pet food in an average year.â€
Government assistance won’t allow such an implosion. Whenever “market capitalism†teeters at the brink of implosion, the United States government lets loose with Federal dollars. Tax avoidance legislation is passed anonymously (no author ever named in legislative minutes of proceedings) as are other tax law provisions (loss carry forward, substitution of annuities for fixed benefits, generous depreciation give backs, etc ) not to mention pure and simple bailouts.
Market Capitalism is bound by the bottom-line which precludes fairness as a determinant of policy and praxis. Profitability and duty to shareholders (qua Capitalists) is the operative directive.
It seems the "Skeptic" has sipped too much of Market Capitalism's "whine."
If I were you, Mr. Shermer, I’d duck. The cucumber slices are sailing your way in waves. Three billion of them at the very least!
Steven L. Fornal
Accord, NY
slfornal@hvi.net
I think Michael misses half the implications of our fairness developing because it works for small groups. Small groups is hardly the stuff of modern capitalism and I feel it shows. Additionally, economic choices are much more complex than cucumber or grape. Often the choices consumers are faced with a puposefully made confusing to evaluate. People tend to be fair with people they know or feel they identify with, beyond that you might as well be a monkey from another group out of his territory.
Reply | Report Abuse | Link to this"Fairness evolved as a stable strategy for maintaining social harmony in our ancestors small bands, where cooperation was reinforced and became the rule while freeloading was punished and became the exception."
Reply | Report Abuse | Link to thisPerhaps. Yet perhaps not. I disapprove of this being stated as fact in a scientific forum. These are merely guesses.
And these next guesses, presented as fact, really got my stomach churning:"The fact is, we are equitably selfish and selfless, cooperative and competitive. There exists in both life and economies mutual struggle and mutual aid. In the main, however, the balance in our nature is heavily on the side of good over evil. Markets are moral, and modern economies are founded on our virtuous nature. The Gordon Gekko Greed Is Good model of business is the exception, and the Google Guys Dont Be Evil model of business is the rule. If this were not the case, market capitalism would have imploded long ago. "
You're quite sloppy Mr Shermer, confusing opinion and fact.
I'm sorry, I don't understand why refusing $10 is irrational. The goal is to "punish" the experimenter such that the subject gets a fair part. It is very rational in the long run. Clearly the conclusion of your article.
Reply | Report Abuse | Link to thisThe irrational part occurs when the experiment is set up as a 'once only' event. Even when there is no possible way that the 'deal' will be repeated and that this is your one and only opportunity to walk away with a free $10, people will reject the 'unfair' offer.
Reply | Report Abuse | Link to thisAs SciAm readers you would be among the more astute I would think. I easily distinguished the 'facts' (empirical citations) and Mr. Shermer's opinions. I don't think Mr. Shermer was trying to pass off his interpretation of evidence as fact as some have complained. When speaking scientific circles, we should all, automatically, determine what is fact and what is interpretation without being told which is which.
Reply | Report Abuse | Link to thisWhat I really enjoyed in this article were the citations that demonstrate the ancient origins of reciprocal altruism that fly in the face of the deeply religious. Many theists necessarily think that without [their] god, the non-theists (I bet a lot of you here) morality cannot exist. Clearly proto-morality long predated the human species.
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Edited by FVThinker at 02/07/2008 9:03 AM
I think the definition of 'Rationality' changes over time
Reply | Report Abuse | Link to thisWhat this would prove to me is that denying an earning to the player who low-balls in the offer generates greater satisfaction than the reward from the game. If you balance this adding one more dimension to the game, then it's totally possible to use Game Theory to predict this result, being that the outcome for the player who receives the offer increases in value according to the proportions. "Fairness" blah.
Reply | Report Abuse | Link to thisIn this Hobson's Choice, refusal appears irrational. However, I think the experimenter did not account for the relative value between $0 and $10 to the partner (offeree). Nor does the game consider the opportunity cost to the offerer.
Reply | Report Abuse | Link to thisIf it were me, I may turn it down an offer on principle and feel secure in the fact that I can earn more that $10 in an hour at work. Or I may feel obliged to offer a more even split if $60 is a lot of money to me.
I suggest that they repeat the Ultimatum Game experiment. Use me as the offerer and, as my partner, a hungry Zimbabwean who lives on less that $1 a day. I feel certain that he would gladly take $10.
What I'm saying is that the experiment fails to take into account the value of the offer to the partner.
Flip the idea around:
Bill Gates is given $100Million (which is less than 0.2percent of his net worth) to divide between you. Let's say he offers you $10Million, which could ensure your financial security for a lifetime. Would you refuse the deal because he's splitting 90/10? Not me.
I would tink that the evolutionary argument is superfluous. Canguilheim in his book titled The normal and Pathological has established the phenomenon of biological value as a constitutive aspect of life. According to Canguilheim, this is what enables life to distinguish between what is food and what is feaces, though what is food for one can be feaces for another.
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