Are we rational?
An evolutionary perspective can provide deep insights to the study of economic behavior.
Despite being often criticized, economics is arguably the most successful social science when it comes to explain human behavior. Citation flows show that economic papers are cited more by other social sciences than they cite them.
Explaining human behavior is a challenging task. Imagine having to find reasons for phenomena as varied as buying an ice coffee or lying to a close friend. The number of factors that seem relevant to these behaviors is daunting. Explanations include biological reasons such as thirst, cultural reasons such as trends, social reasons such as reputational concerns, etc. In an attempt to explain behavior, we very quickly end up with an infinite list of parameters to take into account. Yet, in order to be useful, a science must provide simple models that produce testable predictions. Including too many factors would simply make a model too complicated to be useful. Conversely, a model that is too simple such as “people do things because they like doing them” is not specific enough to be useful.
The success of economics comes from its ability to explain many patterns of human behavior with a minimal set of assumptions, namely that individuals act as rational agents. The rationality of “homo economicus” is characterized by the following: individuals have preferences in all situations (completeness of preferences), they do not have conflicting preferences (transitivity), and their objective is to maximize wealth. Economists sometimes add more assumptions such as bayesian updating (individuals update their beliefs according to information available), or the stability of individual preferences over time.
Although studies have demonstrated that these assumptions are often violated, they approximate individual behavior well enough to make sense of many behaviors. Economic theory has not only been successful in predicting consumption patterns or investment decisions and price fluctuations, it has also explained preferences over the number of children or political candidates. As such, the not-so-dismal-after-all science of economics has made invaluable contributions in our understanding of human behavior.
However, many very interesting phenomena cannot be explained by economics. For example, a study published in Science showed that contrary to economists’ expectations, individuals around the world were more likely to bring back a lost wallet to its owner when it contained larger amounts of money. According to economic theory, a rational agent would keep the wallet with a lot of money, so why doesn’t that happen? Experiments have also shown that individuals give more value to objects they own than to exactly the same object which is not theirs, that individuals differ in the amount of risk they are willing to take, that individual care as much about their absolute than their relative amount of wealth, etc. The list goes on.
In an effort to address this problem, economists partnered with psychologists and introduced new assumptions in their models. Perhaps the most famous example is the Cumulative Prospect Theory proposed by Tversky and Kahneman in 1992. This model assumes that individuals compare a possible outcome to a certain reference point when making decisions and that gains and losses are not symmetric in terms of welfare, which explains why individuals dislike losing 5 euros more than they enjoy gaining 5 euros.
As the discipline continues to grow, behavioral economics is looking increasingly like a laundry list of rules of thumb rather than a coherent science. Grouped together under the term “cognitive bias” these rules include the availability bias, confirmation bias, the illusion of control or the money illusion. (A quick search of the term “cognitive biases” will convince you that there are indeed too many of them.)
As such, economists are caught between a rock and a hard place: accepting the simple homo economicus framework and its many limitations, or diving into the world of infinite “irrational” behavior. I was myself pondering this dilemma only a few years ago during my research masters in economics.
On the other side of the academic world, natural scientists also study human behavior. In particular, evolutionary psychologists and biologists have sought to address very similar questions to those asked by social scientists. Why do people buy expensive watches? Why are individuals risk averse? Why do people believe in god?
Just like traditional economics, evolutionary psychology relies on a simple set of assumptions to explain human behavior. Evolutionary psychology starts from the simple assumption that humans evolved specific cognitive mechanisms that on average allowed them to survive better and produce more offspring — what we call fitness in evolutionary jargon.
The resemblance continues further. In traditional economics, individuals decide how to optimally allocate their resources to maximize welfare. In evolutionary psychology, natural selection has shaped individuals to optimally allocate resources to maximize fitness. The optimization logic is the same in both cases, what differs is the target of maximization. Economists assume that we maximize our welfare (which is often approximated by wealth), whereas evolutionary psychologists assume we maximize our fitness. In addition, economists assume that the optimization process takes place in the brain of homo economicus, while evolutionary psychologists argue that the optimization process takes place over generations of individuals who will differ in their ability to survive and reproduce. Evolution is a slow and imperfect process that leads to gains only on average, not in every single situation.
The step to make from being a traditional economist to an evolutionary scientist is therefore quite small. So small that I decided to pursue a PhD in evolutionary psychology after my masters in economics.
You might ask: What are the advantages of evolutionary theory over economic theory to explain human behavior?
Let’s go back to cognitive biases. Behavioral scientists argue that humans are “predictably irrational.” Yet this explanation is not entirely satisfying, it would be like saying that black holes are predictably defying the rules of gravity. The role of science is to uncover rules that make sense of the world, not list exceptions to those rules. Yet, if we look at these problems from an evolutionary perspective, we can start to understand the logic behind these seemingly irrational behaviors.
Imagine you have to decide which wine to order in a restaurant. As all other human beings, you have limited cognitive resources (this simply means that your brain is not a supercomputer). While thinking about which wine to order, you might also be thinking about the next smart thing to tell your date, about the fact that you will have to find an alternative to the subway because there is a strike, about the fact that you are slightly annoyed at your sister for stealing the blouse you wanted to wear tonight, etc. As a result, your brain may decide to simply order the wine whose name you recognize in the list, ignoring the fact that it may be overpriced or that you could ask the waiter for a recommendation.
Behavioral economists would call this type of behavior the “anchoring bias,” which is our tendency to rely on a single piece of information when making decisions. Evolutionary psychologists on the other hand would argue that given our limited cognitive resources, we tend to rely on simple heuristics for matters that are not of vital importance. These heuristics exist because on average they allowed us to avoid costly mistakes. Spending all of your cognitive resources on choosing wine may not be optimal from an evolutionary standpoint as other issues may be more deserving of your attention.
Evolutionary psychology provides the framework to understand how cognitive biases evolved and in which situations they are likely to apply (for example, you probably would not rely on the anchoring bias when deciding what city you should move to after graduating from college). Individual behavior evolved to maximize chances of survival and reproduction in a particular environment. Evolution also tells us that when an environment changes rapidly, what used to be an optimal behavior may no longer be adaptive, what we call an environmental mismatch.
Consider the case of sea turtles. Mothers lay their eggs on sandy beaches by the ocean. When eggs hatch at night, the tiny sea turtles must find a way to rapidly make their way back to the water. The solution provided by natural selection is quite simple: baby turtles walk towards any bright light. In the environment in which sea turtles evolved, the brightest source of light was the reflection of the moon on the water. This strategy therefore provided a reliable way for turtles to get to the ocean. However, in our modern environment, bright sources of light such as cities or highways are frequently located next to beaches. As a result, the turtles head in the opposite direction of the sea, leading to many losses. This example illustrates how evolution can lead to suboptimal outcomes when the environment changes rapidly.
As economists learn more about evolutionary sciences, and as evolutionary psychologists study economic questions, more explanations for cognitive biases will be uncovered in the coming years. Yet the contribution of evolutionary sciences goes beyond rationalizing biases.
One of the major questions that economics tries to address is how did some countries become richer while others didn’t? Theories in this domain abound, from the classical stages of economic growth proposed by Rostow to the more recent institutionalist economics put forward by Acemoglu and Robinson in their book “Why Nations Fail”. These theories provide in depth descriptions of what is necessary to become a developed country, but they do not tell us why countries start developing. Why did England adopt inclusive institutions before all other European countries? Why did innovation explode in Europe during the industrial revolution?
Again, evolutionary psychology and in particular Life History Theory (LHT) provide compelling answers. LHT studies how optimal behavior changes according to the environment and how this will in turn be reflected in individual psychology. Humans do not randomly start being cooperative with each other, become interested in creating new tools, or start writing letters to their friends about their new discoveries. Humans adopt these behaviors because of specific environmental conditions that make these behaviors optimal. The more favorable the environment, the more an individual will invest in cognitive capabilities, which in turn will allow him or her to invest in innovation and in new relationships.
Evolutionary thinking applied to economic history is still in its very early days. Yet there is hope that one day we will understand why some societies became more prosperous than others and have a glimpse at where we might be heading.