EvoPsych and Markets

Very slightly confused here:

Market economic theory and simple models of evolution suggest individuals (or their genes) act to maximise their own benefit. But altruism is common, as apparently witnessed by festive gift-giving. The standard evolutionary explanation is "reciprocal altruism" (give me a gift and I\’ll give you one just as nice). One of the most widely used experimental setups to investigate the origins of altruism is the "ultimatum game". Two subjects are asked to share a cash sum of say £100. One of them (the proposer) decides the cut – who gets what. The other (the responder) can either accept the share offered or toss the money back in the proposer\’s face, in which case, neither of them takes any of it away.

They play the game only once, so there\’s no opportunity to develop reciprocal altruism. If the responder behaves entirely and rationally selfishly, he or she should accept whatever the proposer is prepared to give. But if the proposer offers less than £25, the other player tends to refuse the share and both leave empty handed. Most people are prepared to forsake personal benefit to punish selfishness. In the language of evolutionary psychologists, we are spiteful.

Now that\’s a reasonable description of the ultimatum game and yes it is true that humans seem to play it a different way from other animals. We are indeed spiteful when we don\’t get a fair deal. But there\’s an error there in the idea that market economic theory is based on the maximisation of our own benefit.

In one sense, it\’s true. In another not. It\’s commonly believed that each individual acts to maximise their own immediate self-interest: that is, that the economy depends upon a series of one time ultimatum games. Thus that one or oher party gets screwed in every transaction.

But actually, market economic theory is based, at least in part, upon Adam Smith\’s "enlightened" self interest. I take that "enlightened" to be a synonym for a recognition that it\’s actually a series of the ultimatum game: not a one off in each transaction, but a series of them with the same (or nearly the same) players over time. Thus the existence of behaviour such as spite, the idea of a "fair deal" which we will accept and an unfair one which we won\’t. No, Smith didn\’t couch it in the same language, of game theory and so on, but I do take the two explanations to be the same.

I thus end up with this piece of evopsych telling me not that there\’s something wrong with market economics, rather, that it\’s confirming one of the things that make such work. Precisely because we do have spite, precisely because we do look to enlightened self interest, not purely to short term self interest, that\’s why the whole structure works.

4 thoughts on “EvoPsych and Markets”

  1. So Much For Subtlety

    The only comment I’d make is that spite has been found in at least some monkey species as well. In even less fair trades than this, a monkey given the power to nullify the deal will take nothing rather than take significantly less.

    So humans are not unique in this respect.

  2. The analogy falls down in that market transactions are not one offs. As you say, there a series, and in this everyone learns through experience what will and what won’t be accepted. Although we may never transact with a specific individual more than onece, there is a community of experience which we all tap into and which modifies our behaviour.

  3. The marketplace isn’t like the Ultimatum game as interactions do not occur in a vacuum. The Prisoner’s dilemma (for two players, the defection of one benefits one at the other’s cost but mutual defection does worse than mutual cooperation) with image-scoring (i.e. you form reputations that affect others responses to you and yours to them) is a better description. That said, the ultimatum game does show us interesting things, including the possibility that humans are not effective at treating interactions as one-shot.

    Strong reciprocity seems a better explanation than reciprocal altruism for most human strategies. Here, cooperation is rewarded and defection is punished at cost to the punisher and thus is itself a cooperative behaviour.

  4. The participants in the described game-experiment are not engaged in market transactions nor is the set-up in any way illustrative of what is “going on” in everyday-life transactions. The best that can be said of it (the “game”) is that it’s an illustration of the fact that different ends engage mens’ minds at different times and that desire to benefit financially is not always the highest “valuee” in a given man’s mind.

    Nobody needs such an illustration to observe that men are concerned sometimes merely with increasing their wealth and, at other times, with pursuing other objectives. Nor even that every man may be said to engage sometimes in one and at other times in another pursuit.

    Nor does it make sense to call one of these behaviors “rational,” implying that behavior of another sort is less worthy; all ordinary behavior is essentially rational–the outcome of a deliberative process taking seconds or much longer. Behavior which is not rational is properly called “reflexive”; the plain fact is that reason, deliberation, the weighing of ends and means, etc. are not only the characterisitic of the processes determining the behavior of those we deem “normal” but play exactly the same role with respect to (at least near-) cretins and lunatics. We call that man a lunatic whose behavior (or pronouncement) is sufficiently outrageous or alarming , not because his reasoning powers are insufficiently able or because, even frequently, he reaches conclusions at variance with our own, with that of others, or even with that we perceive to be most in accordance with the “evidence” of experience. And such understanding must even be expanded to recognize that everyone, to one extent or another, will make choices, even with the utmost in (so-called) rational deliberation which will prove incapable or insufficient in achieving the desired outcome (not to mention the times that the “desired” outcome, technically successful, may prove–in hindsight–to be different–in satisfaction –than expected.

    If any kernel of truth is to be extracted from the charade, it is that people are often influenced in their behavior by notions of equity, symmetry, and “fairness.” The world is chock-full of charlatans fully cognizant of that reality and well prepared to exploit such tendencies for their own particular–usually political–benefit.
    Most of the “left” portion of the political spectrum and a fair portion of the ‘right” exist primarily to exploit this ever-present weakness and are, therefore, strenuous in their polemic appeals for “fairness” and “social justice,” while resisting powerfully any efforts to acquaint the broad masses with their socioeconomic interests and how they may be best realized.

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