Human Nature and Economics

Good and Bad ● Write a list of 5 behaviors characteristic of a good person ● Write list of 5 behaviors characteristic of a bad person

Why Study Human Nature? ● To what extent are desirable ends constrained by human nature?  Is insatiability a human characteristic?  Biophilia: have humans evolved to value nature?  Social animals—is fairness a desirable end? Do we care about others for their sake, not our own?  Discounting

Why Study Human Nature? ● 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?

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?

What is the conventional economic model of human nature? ● Homo-economicus  Self-interested  Insatiable  Rational  Competitive ● Is this closer to your depiction of a 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 others Must design a system that leads to greatest good for greatest number Rewards greed and selfish behavior Invisible hand “Virtue of Selfishness” How do we test market theory?

How do we test these assumptions? ● Study history ● Game theory and games ● Experimental economics ● Neuro-economics ● Psychology and economics ● Evolutionary biology

Are People Insatiable? ● Insatiable! 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?

Split into two groups. Group 2 leave room

Group 1 ● Serious flu will kill 600 people  Choice A: Conventional vaccine will save 200 people  Choice B: Experimental vaccine has 1/3 chance of saving everyone, 2/3 chance of saving no one ● Mark your choice and leave room

Group 2 ● Serious flu will kill 600 people  Choice A: Conventional vaccine will result in death of 400 people  Choice B: Experimental vaccine has 1/3 chance of saving everyone, 2/3 chance of saving no one ● Mark your choice

Are People Rational or Emotional? ● Out of control trolley ● 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 ● Would you rather have $10 today, or $12 in one month? ● The discount rate  Opportunity costs and investments  Pure time preference  Uncertainty  Richer future ● ∑(B t -C t )(1+r) -t ● What happens in your brain when you discount? ● Who discounts the most?

How do we Discount? ● Hyperbolic discounting  Would you prefer $10 in 5 years, or $12 in 5 years and one month? ● Social discount rates ● Discounting the distant future ● What happens in our brains when 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

Are we Competitive or Cooperative? Evidence from Neuroscience and behavioral econ ● Neurotransmitters  Dopamine  Oxytocin ● Neuroeconomics and prisoner's dilemma ● Investment game ● Oxytocin and trust ● Altruistic punishment ● Tit for tat

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)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