Wednesday, September 16, 2009

Economic Ape

In the past year, so many things went wrong with the economy at once that economic theory itself has been shaken. After all, most leading economists were caught completely off-guard by the scale of the melt-down. True, there were a few doomsayers here and there who had predicted a collapse of asset values, but nearly all of them were habitual doomsayers from way back. They were bound to be right eventually. The mainstream theorists were astonished.

Are the very foundations of modern economic theory flawed? Well, yes, in spots. One of the weak spots is the notion of Economic Man, the economist’s ideal person who always seeks out maximum economic gain. As an approximation of human behavior, it is close enough to the truth to make economic models possible that are broadly valid most of the time, but “close enough” isn’t terribly close. For the purpose of predicting the behavior of individuals rather than groups, it isn’t close at all. Many individuals forgo profits and accept losses because of non-economic values. He or she may turn down a better-paying job, for example, for a more enjoyable one, or may make the extremely non-economic decision to raise children. Another deviation from Economic Man – one with obvious political consequences – derives from the human sense of fairness. What is "fair" is open to interpretation, of course.

A study in the Proceedings of the National Academy of Sciences USA reported results on a variation of what is sometimes called an Ultimatum Game. The game allowed one player to choose how to split $15 with a second player. The second person was free to reject the offer, but in that case neither party got anything – no further negotiations allowed. The economically rational act for the second person in this case is always to accept any offer, even $1, since something is always better than nothing. Instead, in this study as in others, lopsided offers typically were rejected. Offers under $3 always were rejected, despite the personal cost, in order to punish the first player’s greed.

Is a “fairness” sense just a human thing? Apparently not. Other animals sometimes are visibly annoyed by lopsided rewards. However, they don’t necessarily resort to the same sort of self-harmful retribution. Dr. Hauser, in a study published in Current Biology, describes an Ultimatum Game played by chimpanzees. Hauser devised an elaborate mechanism with trays, ropes, and treats. A pair of chimpanzees had to co-operate to work the mechanism in order to retrieve treats, but the first chimp could choose how to split the loot. If the second didn’t like the split, he could stop co-operating, in which case the first chimp wouldn’t get anything. Oddly, this never happened. The first chimp always took the biggest share of treats for himself that the mechanism allowed, and the second always co-operated rather than punish the other ape’s greed at the cost of forgoing a meager treat for himself. In other words, the apes behaved with pure economic rationality, perfectly in synch with the Economic Man model. Something about this is unsettling.

1 comment:

  1. LOL - A planet where apes evolved into men and kept up with the economic model!?!!?