Human Nature and Economics

Articles● Are We Ready for a ‘Morality Pill’?

It seems plausible that humans, like rats, are spread along a continuum of readiness to help others.

● How Money Affects Morality students who had been primed to think of money

consistently exhibited weaker ethics. More interestingly, perhaps, they also framed their choices as products of cost-benefit analysis. In other words, they stepped out of morality

For instance, they were more likely to answer that they would filch a ream of paper from the university’s copying room. They were more likely to lie for a financial gain and explain it to themselves as “primarily a business decision.”

● Bursting the Neuro-Utopian Bubble

Why Study Human Nature?● To what extent are desirable ends constrained by

human nature? Insatiability, biophilia, fairness and other-interest,

discounting● To what extent are allocative mechanisms

constrained by human nature? Are we inherently competitive, cooperative, or both? Are we rational, emotional, or both?

● Are people the same everywhere?

Good vs. Bad People

Split into two groups. Group 2 leave room

Group 1

● A serious flu will kill 6000 people this year if you do nothing Choice A: 2000 people will be saved if you administer

a conventional vaccine Choice B: There is a one-third probability that 6000

people will be saved, and a two-thirds probability that no people will be saved if you administer an experimental vaccine

● Mark your choice and leave room

Group 2

● A serious flu will kill 6000 people this year if you do nothing Choice A: 4000 people will die if you administer a

conventional vaccine Choice B: There is a one-third probability that nobody

will die, and a two-third probability that 600 people will die if you administer an experimental vaccine

● Mark your choice

Will Competition or Cooperation Solve Society’s Current Crises?

● Global Climate Change (finite waste sinks, Global Climate Change (finite waste sinks, finite services)finite services)

● Natural resource depletion/biodiversity loss Natural resource depletion/biodiversity loss (finite raw material sources, finite services)(finite raw material sources, finite services)

● Peak Oil (finite energy sources)Peak Oil (finite energy sources)● Threat of global pandemicsThreat of global pandemics● Benefits non-rival and/or non-excludableBenefits non-rival and/or non-excludable● Solutions demand cooperationSolutions demand cooperation● Counter examples?Counter examples?

What is the conventional economic model of human nature?

● Homo-economicus Self-interested (self-regarding) Insatiable Rational

● “Becker's research on human social interactions has had many implications for the family such as for marriage, divorce, fertility, and social security. Becker argued that such decisions are made in a marginal-cost and marginal-benefit framework. For example, he concluded that wealthier couples have higher cost to divorce and thus a lower divorce rate.”

● “…parents often act altruistically towards selfish children by highly investing in a child in an effort to indirectly save for old age... social security can cause families to be less interdependent by removing the motivation of parents to use altruistic behaviors in motivating their children to care for them.”

Competitive● Good person or a bad person?

Market Economics Driven by Competition

Assumes humans insatiable, always act in rational self interest, do not care what happens to othersMust design a system that leads to greatest good for

greatest number Rewards greed and selfish behavior

Invisible hand“Virtue of Selfishness”

“The great merit of the capitalist system, it has been said, is that it succeeds in using the nastiest motives of nasty people for the ultimate benefit of society”

Economics, Money and Cooperation● Studying economics makes people more selfish, less

cooperative Bauman Y, Rose E. Selection or indoctrination: Why do economics students donate less

than the rest? Journal of Economic Behavior & Organization. 2011;79(3):318-327 Frank RH, Gilovich T, Regan DT. Does Studying Economics Inhibit Cooperation?

Journal of Economic Perspectives. 1993;7(2):159-171 Kirchgässner G. (Why) are economists different? European Journal of Political

Economy. 2005;21(3):543-562● Thinking about money makes people more selfish, less

cooperative Vohs KD, Mead NL, Goode MR. The Psychological Consequences of Money. Science.

2006 November 17, 2006;314(5802):1154-1156● Caruso, Eugene M.; Vohs, Kathleen D.; Baxter, Brittani; Waytz, Adam. Mere exposure to

money increases endorsement of free-market systems and social inequality. Journal of Experimental Psychology: General, Vol 142(2), May 2013, 301-306

● Rich people are less empathic, more selfish, less ethical Piff, P.K., Stancato, D.M., Cote, S., Mendoza-Denton, R., Keltner, D., 2012. Higher

social class predicts increased unethical behavior. Proceedings of the National Academy of Sciences of the United States of America 109, 4086-4091.

● Monetary payments ‘crowd out’ cooperative behavior Gneezy, U., Rustichini, A., 2000. Pay Enough Or Don't Pay At All. The Quarterly

Journal of Economics 115, 791-810.

How do we test assumptions?

● Study history● Game theory and games● Experimental economics● Neuro-economics● Psychology and economics● Evolutionary biology

Are People Insatiable?

Evidence from history, evolution and behavioral economics

● Hunter-gatherer economies● Absolute vs. relative wealth

Widow birds Status treadmill Alternative forms of status

Human Needs

● Market goods only one of many human needs

● Needs consistent across time and cultures

● How we satisfy them differs

● Satiation occurs● Pseudo-satisfiers

Are People Rational?

Are People Rational or Emotional?

● Losses vs. gains WTP vs. WTA

● Is perfect rationality possible in a complex world?

Do people care about the future?

What are our attitudes towards the future? Discounting

● The discount rate Opportunity costs and investments Pure time preference Uncertainty Richer future

● ∑(Bt-C

t)(1+r)-t

● What happens in your brain when you discount? ● Who discounts the most?● How do we discount? ● Should we discount?

Are we Purely Self-interested?

● Game theory and experimental economics Ultimatum game Dictatorship game Public goods game

Or do we care about others?

• H. comunicus, concern for fairness and community preferences

• H. naturalis, concern for sustainability and whole system preferences

• http://www.youtube.com/watch?feature=player_embedded&v=g8mynrRd7Ak

Are we Competitive or Cooperative? Evidence from Neuroscience and behavioral econ

● Oxytocin● Neuroeconomics and prisoner's dilemma● Investment game● Altruistic punishment

Punishing non-punishers● Tit for tat

Evidence from Mathematical Biology and Anthropology

● 5 sources of cooperation: Reciprocity Indirect reciprocity Spatial proximity Kin selection Group selection

● The game of life● Chaldeans

Evidence From Evolution

Kin selection: Altruism, empathy, reciprocity evolve if RB/C > 1C= cost of empathic behavior to individual B=benefit to othersR= degree of relatedness

Group selection vs. individual selectionPseudomonas speciesEncompasses kin selection

Cooperation and energy abundanceDictyostelium discoideum (amoeba)Myxococcus xanthus (self-organized, predatory,

saprotrophic, single-species biofilm called a swarm) In humans, genetic and cultural evolution interact

Are People the Same Everywhere?

● Ultimatum game across cultures

Why Does this Matter?

● Desirable ends Humans are satiable We have a broad range of needs Desired ends are in relationship to what others have

● Allocative mechanisms Non-rival resources are best provided through

cooperation, and we are highly adapted to cooperate Rival resources may be effectively allocated through

competition Modeling humans as solely cooperative or solely

competitive is entirely inappropriate