Evolutionary economics explains why irrational
financial choices were once rational
Since 99 percent 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 a hundred thousand 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 ten 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 modern peoples living in market economies do, they still show a strong aversion to unfairness.
The deeper evolution of this can be seen in the behavior of our primate cousins. In studies with both chimpanzees and capuchin monkeys, the Emory University primatologists Frans deWaal 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 expresses emotions that are clearly meant to convey displeasure at the injustice. In another experiment in which two capuchin monkeys 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 became so outraged at the inequity of the outcome that 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. Apparently 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 both 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.