Thursday, January 17, 2008

The problem is, "greed is good" didn't die.

Scientific American Magazine - February, 2008
The Mind of the Market
Evolutionary economics explains why irrational financial choices were once rational
By Michael Shermer

...Without an evolutionary perspective, the assumptions of Homo economicus—that “Economic Man” is rational, self-maximizing and efficient in making choices—make no sense. Take economic profit versus psychological fairness as an example.

Behavioral economists employ an experimental procedure called the Ultimatum Game. It goes something like this. You are given $100 to split between yourself and your game partner. Whatever division of the money you propose, if your partner accepts it, you are both richer by that amount. How much should you offer? Why not suggest a $90–$10 split? If your game partner is a rational, self-interested money maximizer, he isn’t going to turn down a free 10 bucks, is he? He is. Research shows that proposals that deviate much beyond a $70–$30 split are usually rejected.

Why? Because they aren’t fair. Says who? Says the moral emotion of “reciprocal altruism,” which evolved over the Paleolithic eons to demand fairness on the part of our potential exchange partners. “I’ll scratch your back if you’ll scratch mine” only works if I know you will respond with something approaching parity. The moral sense of fairness is hardwired into our brains and is an emotion shared by most people and primates tested for it. Thousands of experimental trials with subjects from Western countries have consistently revealed a sense of injustice at low-ball offers. Further, we now have a sizable body of data from peoples in non-Western cultures around the world, including those living close to how our Paleolithic ancestors lived, and although their responses vary more than those of modern peoples living in market economies do, they still show a strong aversion to unfairness.

...Such results suggest that all primates (including us) evolved a sense of justice, a moral emotion that signals to the individual that an exchange was fair or unfair. Fairness evolved as a stable strategy for maintaining social harmony in our ancestors’ small bands, where cooperation was reinforced and became the rule while freeloading was punished and became the exception. What would appear to be irrational economic choices today—such as turning down a free $10 with a sense of righteous injustice—were, at one time, rational when seen through the lens of evolution.

Just as it is a myth that evolution is driven solely by “selfish genes” and that organisms are exclusively greedy, selfish and competitive, it is a myth that the economy is driven by people who are exclusively greedy, selfish and competitive. The fact is, we are equitably selfish and selfless, cooperative and competitive. There exists in both life and economies mutual struggle and mutual aid. In the main, however, the balance in our nature is heavily on the side of good over evil. Markets are moral, and modern economies are founded on our virtuous nature. The Gordon Gekko “Greed Is Good” model of business is the exception, and the Google Guys “Don’t Be Evil” model of business is the rule. If this were not the case, market capitalism would have imploded long ago. 


Of course, the market IS imploding precisely because the "greed is good" robber barons and fat cats have engineered this whole "globalization" scam to enrich themselves at the expense of their employees, the environment, and common decency. Take that, Lott.

The "leaders" - and I use that term loosely - of our communities have also subscribed to a false paradigm, which might be called "power is good, and absolute power is even better." Until we re-acquire the sense of unfairness that we should be feeling because of the scandals and crises and troubles that this paradigm has caused, we will not be able to tip the scales back to level.

Are you enjoying the 90/10 split? Or do you think it's time for something a bit more fair?

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