Human Nature and Economics

1. Human Nature and Economics

2. 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

3. 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?

4. Good vs. Bad People

5. Split into two groups. Group 2 leave room

6. 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

7. 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

8. Will Competition or Cooperation Solve Society’s Current Crises? • Global Climate Change (finite waste sinks, finite services) • Natural resource depletion/biodiversity loss (finite raw material sources, finite services) • Peak Oil (finite energy sources) • Threat of global pandemics • Benefits non-rival and/or non-excludable • Solutions demand cooperation • Counter examples?

9. 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?

10. Market Economics Driven by Competition • Assumes humans insatiable, always act in rational self interest, do not care what happens to others • Must 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”

11. 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.

12. How do we test assumptions? • Study history • Game theory and games • Experimental economics • Neuro-economics • Psychology and economics • Evolutionary biology

13. Are People Insatiable?

14. Evidence from history, evolution and behavioral economics • Hunter-gatherer economies • Absolute vs. relative wealth • Widow birds • Status treadmill • Alternative forms of status

15. 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

16. Are People Rational?

17. Are People Rational or Emotional? • Losses vs. gains • WTP vs. WTA • Is perfect rationality possible in a complex world?

18. Do people care about the future?

19. What are our attitudes towards the future? Discounting • The discount rate • Opportunity costs and investments • Pure time preference • Uncertainty • Richer future • ∑(Bt-Ct)(1+r)-t • What happens in your brain when you discount? • Who discounts the most? • How do we discount? • Should we discount?

20. Are we Purely Self-interested? • Game theory and experimental economics • Ultimatum game • Dictatorship game • Public goods game

21. 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

22. 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

23. Evidence from Mathematical Biology and Anthropology • 5 sources of cooperation: • Reciprocity • Indirect reciprocity • Spatial proximity • Kin selection • Group selection • The game of life • Chaldeans

24. Evidence From Evolution • Kin selection: Altruism, empathy, reciprocity evolve if RB/C > 1 • C= cost of empathic behavior to individual • B=benefit to others • R= degree of relatedness • Group selection vs. individual selection • Pseudomonas species • Encompasses kin selection • Cooperation and energy abundance • Dictyostelium discoideum (amoeba) • Myxococcus xanthus (self-organized, predatory, saprotrophic, single-species biofilm called a swarm) • In humans, genetic and cultural evolution interact

25. Are People the Same Everywhere? • Ultimatum game across cultures

26. 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