The Darwinian Perspective on Economic Behavior (Ulrich Witt)


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The Darwinian Perspective on Economic Behavior (Ulrich Witt)

  1. 1. The Darwinian Perspective on Economic Behavior Ulrich Witt Max Planck Institute of Economics, Jena, Germany
  2. 2. • "Darwinian perspective" means: to see homo sapiens as a product of natural selection • natural selection - shaped morphology and physical apparatus - does it also shape the human behavioral repertoire ? - if so, in which way and to what extent? • in general, human behavior hinges (i) on genetic dispositions and motivations (ii) on what is acquired through the innate mechanism of instrumental conditioning and conditioning learning (iii) on cognition (insight, understanding, intentionality)
  3. 3. → human genetic endowment affects economic behavior (with usual inter-personal genetic variance) through (i) instincts and drives or needs (→ "preferences") (ii) capacity of conditioned adaptation (→ "preference learning") (iii) "hardwired" modules of the human cognitive system
  4. 4. → human genetic endowment affects economic behavior (with usual inter-personal genetic variance) through (i) instincts and drives or needs (→ "preferences") (ii) capacity of conditioned adaptation (→ "preference learning") (iii) "hardwired modules" of the human cognitive system ... ... the particular area of interest of evolutionary psychology • explains observable anomalies and biases of human decision making • argument: slackened selection pressure → basically unchanged genetic endowment, viz. the one adapted to early living conditions • hardwired cognition modules are adapted to that environment, but lead to anomalies/biases in decision situations today
  5. 5. • adaptation argument holds for entire genetic endowment i.e. also for - innate preferences and dispositions - the preference learning mechanism → also explicable by the adaptive value they once had • but, unlike evolutionary psychology for which the genetic (cognitive) endowment is part of the explanandum (i.e. of what is to be explained) in evolutionary economics ... ... the genetic endowment is part of the explanans (of what explains) ... and the explanandum is the cultural evolution that this endowment enables
  6. 6. • indeed, genetic endowment only a basic layer ("nature") • on top of this, cognitive and non-cognitive learning activities shape specific cultural & idiosyncratic behavior ("nurture") from which a new form of evolution emerges ... ... and it is the non-genetic adaptations of behavior that make the economy change! (genetic adaptation require some18 generations = 450 years -- much too slow to explain intra-generational economic changes) • to grasp the new, cultural form of evolution let's put ourselves in Darwin's shoes and visit to the Galapagos Islands ....
  7. 7. on his visit, Darwin found this as evidence for his theory of evolution: what you can find today….
  8. 8. • this own, cultural form of evolution - emerged from the basis generated by evolution in nature - is still constrained by evolution in nature - but unfolds by its own, different rules (→ continuity hypothesis, Witt 2003) • to understand it we need to explore in more detail how our genetic endowment influences economic behavior • I choose consumption behavior for this exploration, because - many motives to consume obviously genetically coded - everybody knows about these motives from own experience - consumption evolution is a particularly visible case of cultural evolution
  9. 9. • characteristic of cultural evolution: tremendous increase in variety of goods that can be consumed see the living room of a rich household ca 1400…
  10. 10. … and the living room of a rich household ca 2000 • the factor enabling this evolution is ... ... a historically unprecedented rise of per capita income
  11. 11. U.S. Income per Capita in $ of 2002 (increase by factor 6) U.S. Expenditure per Capita in $ of 2002 (increase factor 4.7) 25000 20121 20000 16299 15000 10000 5000 3462 3392 0 1901 1918 1935 1950 1960 1972 1984 1996 2002 11 Source: Bureau of Labor Statistics Report 991, 2006
  12. 12. • the significant evolutionary feature at the aggregate level: dramatic changes in the composition of consumption
  13. 13. Expenditure Share of Food (% of per capita spending in the U.S.) Expenditure Share of Clothing (% of per capita spending) Source: Bureau of Labor Statistics % Report 991, 2006 50 42.5 14.0 13.1 4.2 1901 1918 1935 1950 1960 1972 1984 1996 2002 Absolute Amount & Increase of Spending (in $ of 2002) YEAR 1901 2002 % Increase Food 1472 2143 146 Clothing 486 678 140
  14. 14. Expenditure Shares of Housing, Transportation, Health Care, Entertainment (% of per capita spending in the U.S.) % 32.8 23.3 19.1 8.3 5.9 5.2 5.1 1.6 Source: Bureau of Labor Statistics 1901 1918 1935 1950 1960 1972 1984 1996 2002 Report 991, 2006 Absolute Amount and Increase of Spending (in $ of 2002) YEAR 1901 2002 % Increase Housing 806 5344 663 Transportation n.a. 3108 n.a. Health Care 180 954 530 Entertainment 54 828 1533
  15. 15. • how do these findings connect with the genetic underpinnings of consumption behavior? • consumption, as all action, is driven by motives • motives can be (Witt 2001) (1) innate, physiological & mental needs, drives (2) wants that are acquired through conditioning learning (3) cognitive motives ("self-image, identity") • motives often cognitively controlled/constructed (means-ends) → contingent on consumption knowledge & info processing
  16. 16. • let's turn to the innate needs = "human universals" = shared with usual genetic variance → influence should be visible - beyond all individual variance - on average & in the long run in (changes of) consumption • more specifically we know about them from behavioral science:
  17. 17. An organism deprived of an innate need - humans not excepted - it is motivated (has a drive) to remove deprivation By appropriate action, deprivation (& action motivation) vanishes the closer to the satiation level of a need one gets Reducing deprivation of an innate need is felt as rewarding experience -- instance of "primary reinforcement" • only a very limited number of innate needs (primary reinforcements) have experimentally been identified: air, water, sleep, food, arousal, achievement, body heat, pain relief, consistency, affection, physical activity, sex ... social recognition, care...
  18. 18. • crucial for the evolution of consumption is the fact that innate needs differ regarding how easily they can be satiated working hypothesis: differences between innate needs in their satiation patterns translate into differences in how consumption motivation vanishes if real per capita income allows to spend ever more → examples for expected differences : air, water (-), sleep, food (-), arousal (+), social status body heat, pain r./health (+), recognition (+), affection, physical activity, sex ... achievement, consistency...
  19. 19. → once income is sufficiently rising, we should expect - saturated markets for food, clothing... - further growth of consumption in products serving needs like status recognition, sensory arousal, pain relief/health that are inherently difficult to satiate • this is indeed what we observe to a large extent! (compare the long-term trends in US consumer expenditures) but even food and clothing still grow in absolute spending → for a full understanding of the evolution of consumption necessary to also account for the producers' innovative response to satiation in their products • a simple example: the case of sugar consumption
  20. 20. • sugar = carbohydrate with high caloric density comes as ‘natural’ sweetener fructose (honey, fruits), lactose (milk), glucose (honey), sucrose (cane, beet) • all carbohydrates remove deprivation in innate need for calorie intake (i.e. are reinforcers for hungry organisms) • sugar in particular: sweet taste a genetically coded signal for calories, thus preference for sugar a human universal • technical progress in sugar production by transition cane → beet (after discovering chemical identity of sucrose) • effect: dramatic historical decrease of sugar price
  21. 21. Price for a pound of sugar in England in prices of 1960 converted into EUR (1400-1960) EUR 14 12 10 8 6 4 2 • in parallel, per 0 capita real income 1400 1600 1800 1900 1960 multiplies Years • consequence: by the 1960s, in DCs average ability to spend on carbohydrates at level of satiating need for calorie intake.
  22. 22. • average calorie intake (incl. sugar) still rising, but much slower • obesity and health problems (diabetes II) emerging • cognitive conflict with self-perception (inconsistent self-perception a strongly negative reinforcer) • triggers changes in social model → ‘fitness’, health, body shape e.g. changing ideal of female body – from Rubens to Twiggy • the food industry's innovative response, given that sweetness still a signal promising reinforcement: see what the Coca Cola Company came up with:
  23. 23. same innovation strategy also in case of other goods: reduce content of satiating characteristic(s) of the products!
  24. 24. • as the Coca Cola Comp. many other producers started substituting synthetic, low calorie sweeteners for sugar (appealing to sweetness signal but take out the satiating calories = no regret)
  25. 25. Structural Change in the US Market for Sweeteners 1960 - 2005. 70.00 High Intensity Sweeteners Sugar (saccarose) Corn sweeteners Total caloric sweeteners 60.00 50.00 Kg Sugar Equivalents 40.00 30.00 20.00 10.00 0.00 1960 1965 1970 1971 1972 1973 1974 1975 1976 1980 1985 1990 1995 2000 2005 Year
  26. 26. • obviously, acceptance not due taste or availability, but to calorie satiation:
  27. 27. • further strategies of producers to escape satiation through innovations: (i) integration of characteristics serving less easily satiable needs, rationale: least satiated need determines motivation (e.g., adding characteristics helping signaling status) (ii) attempts to create positive associations with strong innate needs, i.e. creating an acquired want for a product or component (e.g. tobacco ↔ arousal, parfumes ↔ affection/sex ...) (iii) "up-grading" = substituting cheap ingredients for expensive/precious ones problem: consumers need to be conditioned on a refined taste first (e.g. "gourmet" food, sophisticated consumer electronics, cars...) (iv) appeal to cognition and create cognitive motives for multiple purchases (convenience, safety, collectibles...) (v) special case: multiple purchases in form of functionally specialized products (e.g. clothes, footwear, electronic equipment...)
  28. 28. • example for creating cognitive motives for multiple purchases in form of functionally specialized products: • long time one pair of shoes integrated all functions in one expensive pair now functions disintegrated into several (initially) cheaper pairs of shoes • Check for yourself: how many pairs do you have at home? MBT Sandale MBT (Masai Barefoot Technology) is a revolutionary footwear that changes the way we use our muscles, transforming flat, hard, artificial surfaces into natural, uneven ground. Some people call MBT "Masai shoes, MBT shoes or simply Masai barefoot shoes". The media call it "physiological footwear", and doctors use it for therapy and rehabilitation. They are all talking about Masai Barefoot Technology. "MBT shoes" are available in sporty, classic and elegant lines. MBT sandals are especially popular as slippers and work shoes. • effect: average utilization rate of each single pair of shoes goes down
  29. 29. • innovation strategies look like a list of "marketing tricks" • but are more than that: contribute to a process of cultural evolution in which human creativity is used to escape innate satiation tendencies • brings me to my final point of how, as conscious beings, we should assess what cultural evolution produces • in Darwin's view, evolution in nature follows no intentions, hence evades any sound criterion of "progress" • in contrast, the evolution of culture, particularly economic evolution, usually supposed to result in "progress" • progress in what sense: "better life", "greater happiness"?
  30. 30. • old philosophical questions on the normative position to take towards the evolution of human society • bring us back to the pre-Darwinian roots of evolutionary thought: A selective genealogy of evolutionary thought 1776: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, London. 1784: Johann Gottfried Herder, Ideen zur Philosophie der Geschichte der Menschheit, Leipzig. 1798: Robert Malthus, Essays on the Principles of Population as it Affects the Future Improvement of Society, London *** 1859: Charles Darwin, On the Origin of the Species by Means of Natural Selection, London 1864: Herbert Spencer, Principles of Biology, London.
  31. 31. • has been argued here that the evolution of consumption is substantially shaped by cognitive and non-cognitive learning • implies that notions of "better life", "greater happiness" themselves evolve – resulting in a peculiar asymmetry: Had we never come to learn the better life/greater happiness there would be no sacrifice, if it were taken away from us. Once learned, however, its loss becomes a sacrifice. • a Darwinian perspective on economic behavior thus raises, normatively important questions: - is this asymmetry relevant for our assessment of "progress"? - what does "better life" mean, if consumption evolves increasingly into an evasion from innate satiation tendencies?
  32. 32. • is there a problem of moral legitimacy, if in the rich countries the further evolution of consumption - comes at the price of a degrading environment? - takes place while elsewhere the most elementary needs are still deprived? • today such questions are taken to raise a different issue: - to what extent are our moral intuitions themselves innate, i.e. a result of adaptation in early human phylogeny? - to what extent are they a result of cultural evolution pretty much along the lines as discussed? • these questions are of explicative nature, not to be mixed up with the normative questions – our genetic endowment will not tell us what normative judgments to make.