Sunday, February 28, 2010

Biology and Economics

This essay will endeavour to explore the question: “What is the relationship between human biological evolution and economics, and what can investigations into the former tell us about the latter?” I will explore the way that human preferences are modelled by various economic theories, explain what current theories of human evolution can tell us about the veracity of such models, and why such attaining such veracity is important. 

According to the Darwinian theory of evolution by natural selection, the presence of three mechanisms can be used to explain the complexity of existing biological forms: heredity (e.g. genetic reproduction), diversity (e.g. competing alleles within the same gene-pool) and selection pressures (e.g. natural and sexual selection) (Hodgson 1993). Human beings, needless to say, are a product of these very mechanisms and this has important consequences for the study of economics. Human beings are, after all, the foundation of all economic activity and the primary (or, indeed, only?) actors within any economy. Therefore if we want to understand patterns of economic activity with any accuracy then we need to understand human beings. If we want to understand human begins, then we need to turn to biology.

As a brief (but necessary) aside, there is a long-standing and - at times - passionate debate in the scientific community about the extent to which human behaviour is primarily a consequence of genetic inheritance (Pinker 2002, Dawkins 1976), primarily a consequence of learning and environment (Gould 1981) or some combination of the two, and it is certainly beyond the purview of this essay to take a definitive stand on this issue. It will, however, be necessary for the purposes of this essay to assume that human behaviour is, in a very strong sense, both “adaptive” (in the sense that human beings are capable of adapting behaviour to exogenous circumstances) and “fixed” (in the sense that our evolutionary history is ‘path-dependent’) and this point will be elucidated as the essay progresses.   

A difficulty with many economic models of human behaviour (particularly more ‘classical’ models, as we shall see) is that they treat human behaviour as being “fixed from the outset” (i.e. incapable of being adapted depending on external circumstances), and fail to take into account the “cumulative and irreversible nature of economic change” or, indeed, the sheer varieties of “human agency” (Reijnders 1997, pp. 1-2). That is, the (neo-)classical models presume themselves to hold universally (that is, that they are equally applicable across all populations at all times), when the story of human evolution would seem to imply a different conclusion. If evolution is ‘path-dependent’ and human behaviour inherently ‘adaptive’, then any model that exhibits such inflexibility must be rendered immediately suspect – if economic models are dependent on human proclivities, then the model itself (not merely its variables) should be adapted in recognition of this fact. “The physical properties of the materials accessible to man are constants,” as Veblen (1898) put it, but “the human agent changes”.  Evolutionary economics therefore enjoins us to recognise that human proclivities cannot be modelled in the same way that human materials (such as capital etc.) can, but rather that economic models should be flexible enough to encompass the wide range of possible human behaviours and preferences. 

For instance, in many classical economic models, man is often depicted as a “rational actor”; that is, an agent who is congenitally destined to “maximise his material utility” according to his own rational self-interest, whether he is consciously aware of doing so or not. As Adam Smith writes: “Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention” (Smith 1776). That is, by this conception, economic activity is entirely the consequence of actions by individuals motivated solely by a ‘natural’ inclination to pursue their own rational self-interest.

However, such a model of human motivation and behaviour is starkly challenged by findings in the field of human biology. Political psychologist Drew Westen, for instance, notes that far from being driven by “individualistic assumptions” in which they “weigh the pros and cons of various options and draw conclusions designed to maximise their expected utility”, human beings actually “all start out with strong emotional commitments to communities, tribes, sects [and] nations” which are just as likely to influence economic behaviour as more selfish material concerns (Westen 2007, p. 29-30). This can perhaps be explained with deference to “group selection” (Wilson & Sober 1994) or “kin selection” (Hamilton 1964) theories of evolution, where human beings – like other animals – have been fashioned by evolutionary concerns to consider not merely our own immediate welfare, but the welfare of those around us as well. As Becker (1976) put it: “Altruistic behaviour can be selected as a consequence of individual rationality”.

But there are other, more immediate biological impediments to the “rational actor” theory of classical economics. Quattrone and Tversky (2004) point out that “human rationality is bounded by limitations on memory and [neural] computational abilities” (p. 245) – i.e. that the capacity of human beings to “weigh the pros and cons of various options and draw conclusions designed to maximise their expected utility”, as Westen put it, is compromised by our capacity to take into account only a small amount of considerations at once. “Human judgement,” they conclude, “is often inconsistent with the maxims of rationality” (ibid.). But if biologically determined rational self-interest is not the foundation of human economic behaviour, then what is? Why do human economic systems seem to be propelled by maxims of rational utility when human decision-making – on the level of the individual, at least – apparently is not?

As Hayek writes: “The individual with a particular structure and behaviour owes its existence in this form to a society of a particular structure, because only within such a society has it been advantageous to develop some of its peculiar characteristics” (Hayek 1967: p. 76). In other words, human economic behaviour cannot be treated as fixed and timeless as in (neo-)classical economic theory, but rather must be treated as adaptive and contingent on the “structure” of the society (and economy) in which humans find themselves. That is not to say, however, that human behaviour is collectively formless or impervious to economic modelling, because the adaptive spontaneity of human behaviour gives rise to what Hayek calls “social order” (Hayek 1978), an order neither planned nor necessitated, but rather an ‘emergent property’ (see below) of the complex set of interactions made between human beings. Vromen (1995: p. 165-166) suggests that “social order” emerges from a state in which “the actions of the individual group members are compatible with each other” and is therefore an “unintended result of individual actions”. In other words, social order “may be the result of human action, but not human design” (ibid.).

As already alluded to, this theory is redolent of the nascent science of “Emergence Theory”, a theory  devoted to the understanding of “the arising of novel and coherent structures, patterns and properties during the process of self-organization in complex systems” (Corning 2002). The idea of emergent complexity – of simple, unguided processes producing systems of great complexity – is important in biology for explaining how something simple as self-replicating genomes in competition with one another, can account for the complex variety of life seen on our planet. Hayek is proposing a similar mechanism, where complex social and economic systems that appear to exhibit features of rational design, can actually emerge quite by accident. While patterns of individual human behaviour are far too complex to lend themselves to detailed economic modelling, the emergence of a social order allows for the possibility of “pattern predictions” (Hayek 1978) – i.e. abstract and flexible economic models based on the “regular, recurrent pattern of behaviour at an aggregate industry level” (ibid.). But what does it mean to talk of an “industry level”?

In biology, distinctions are often made between different ‘levels’ of selection: for instance, selection pressures have been suggested as applying on the level of groups (or species), the level of individuals and the level of genes (see Dawkins 1982). Similar taxonomical distinctions can therefore be made between different levels of ‘selection’ (and therefore adaptation) in economies as well. Much of the focus of evolutionary economics exists on the level of the firm (the potential comparison between the competitive pressures that exist between biological forms and the competitive pressures that exist between firms has long been recognised), and while the focus of this essay will remain on human beings rather than any “higher” level organisational level, it is important to briefly explore what links – if any – can be made between human biology and the evolutionary pressures that have been suggested to affect firms or any other economic entity.

Ghiselin, for his part, speculates, “in economics, firms are analogous to species, employees to organisms” (1978: p. 237). Vromen goes one step further, suggesting three levels of organisation more directly analogous to the three biological levels, namely: “individuals, firms (and households) and industries” (1995: p. 151). While one must be careful not to overextend the biological analogies, by suggesting – as Ghislein did – direct equivalences between levels of biological organisation and levels of economic organisation, the similarities are too important to ignore. For instance, just as genes are driven by purely mechanical and apparently “selfish” behaviour (Dawkins 1976) into competition with competing alleles within a given gene pool, human beings too may be driven by purely selfish concerns into competition with other human beings (as I have already said, I believe the concept of the “rationally self-interested actor” to be – at best – an over-simplified account of human motivation, but that is not to say that human beings do not possess conflicting goals, such that we can be described as being in “competition” with one another).

At a higher organisational level, however, genes are (without design or foresight) brought into a coalition with other genes to form an “organism” which serves to “maximise the fitness” (i.e. enhance the chances of reproduction) of all the individual genes in within that coalition. Human beings – although they may be competitive, or hostile at the level of individuals – are still capable of organising as a “firm” to the benefit of all. Similarly, just as organisms are in competition with other like organisms for limited resources but still manage to form a “species” that is in competition with other species, so to do firms in competition with one another form “industries” that find themselves in competition with other industries.  

However, despite the fact the different selection pressures exist at different organisational levels with within biological systems and economic systems, the contention of this essay remains that evolutionary theory can better inform economic theory at the level of the human being. Just as genes are recognised as the driving force of evolution (in the sense that genes are the ultimate unit of evolutionary selection – see, again, Dawkins 1976) so to must human beings be recognised as the driving force of economics. As Hirshleifer (1977) put it, “genetic inheritance is not easily found at the level of the firm, better to look, therefore, at human individuals”. Any economic theory, particularly – but not limited to – those in the field of evolutionary economics, must recognise the full complexity of the human species as a biological entity with a nature that is – in some sense – both fixed and spontaneous.

That, in conclusion, is what economics can learn from investigations into human biological evolution.

References and Bibliography:

Becker, G.S. (1976) Altruism , Egoism and Genetic Fitness: Economics and Social Biology Journal of Economic Literature 14: 817-826.

Corning, Peter A. (2002), The Re-Emergence of "Emergence": A Venerable Concept in Search of a Theory Complexity 7(6): 18-30

Dawkins, Richard (1976) The Selfish Gene Oxford: Oxford University Press.

Dawkins, Richard (1982) The Extended Phenotype Oxford: Oxford University Press.

Ghiselin, M.T. (1978) The Economy of the Body American Economic Review 68: 233-7

Gould, Steven J. (1981) The Mismeasure of Man New York: Norton

Hamilton, W. D. (1964). The Genetical Evolution of Social Behaviour Journal of Theoretical Biology 7(1): 1–52

Hayek, F.A. (1967) Studies in Philosophy, Politics and Economics London: Routledge & Keegan Paul.

Hayek, F.A. (1978) New Studies in Philosophy, Politics, Economics and the History of Ideas London: Routledge & Keegan Paul

Hirshleifer, J. (1977) Economics from a Biological Viewpoint Journal of Law and Economics 20: 1-52

Hodgson, Geoffrey M. (1993) Economics and Evolution: Bringing Life Back into Economics Oxford: Blackwell Publishers

Pinker, Steven (2002) The Blank Slate London: Penguin Books Ltd.

Quattrone, George A. & Tversky, Amos Contrasting Rational and Psychological Analysis of Political Choice. In Political Psychology: Key Readings (Key Readings in Social Psychology), ed. John T. Jost & Jim Sidanius. East Sussex: Taylor & Francis Books, Inc.

Reijnders, Jan (1997) Economics and Evolution Cheltenham: Edward Elgar Publishing Ltd.

Smith, Adam (1776) The Wealth of Nations London: W. Strahan and T. Cadell

Veblen, Thorstein (1898) Why is Economics Not an Evolutionary Science? The Quarterly Journal of Economics 12.

Vromen, Jack J. (1995) Economic Evolution: An Enquiry into the Foundations of New Institutional Economics London: Routledge

Wilson, D.S. & Sober, E. (1994) Reintroducing group selection to the human behavioral sciences. Behavioral and Brain Sciences  17(4): 585–654

No comments:

Post a Comment