Human Nature and Economics

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Human Nature and Economics
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Good and Bad

• Write a list of 5 behaviors characteristic of a
  good person
• Write list of 5 behaviors characteristic of a bad
  person

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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 animalsis fairness a desirable end? Do we
  care about others for their sake, not our own?
• Discounting

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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?

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Will Competition or Cooperation Solve Societys
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?

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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?

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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?

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How do we test these assumptions?

• Study history
• Game theory and games
• Experimental economics
• Neuro-economics
• Psychology and economics
• Evolutionary biology

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Are People Insatiable?

• Insatiable!

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Evidence from history, evolution and behavioral
economics

• Hunter-gatherer economies
• Absolute vs. relative wealth
• Widow birds
• Status treadmill
• Alternative forms of status

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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

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Are People Rational?
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Split into two groups. Group 2 leave room
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Group 1

• Serious flu will kill 6000 people
• Choice A Conventional vaccine will save 2000
  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

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Group 2

• Serious flu will kill 6000 people
• Choice A Conventional vaccine will result in
  death of 4000 people
• Choice B Experimental vaccine has 1/3 chance of
  saving everyone, 2/3 chance of saving no one
• Mark your choice

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Are People Rational or Emotional?

• Out of control trolley
• Losses vs. gains
• WTP vs. WTA
• Is perfect rationality possible in a complex
  world?

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Do people care about the future?
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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
• ?(Bt-Ct)(1r)-t
• What happens in your brain when you discount?
• Who discounts the most?

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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?

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Are we Purely Self-interested?

• Game theory and experimental economics
• Ultimatum game
• Dictatorship game
• Public goods game

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Or do we care about others?

• H. comunicus, concern for fairness and
  community preferences
• H. naturalis, concern for sustainability and
  whole system preferences

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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

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Evidence From Evolution

• Kin selection Altruism, empathy, reciprocity
  evolve ifRB/C gt 1
• C cost of empathic behavior to individual
• Bbenefit 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)
• In humans, genetic and cultural evolution
  interact

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Are People the Same Everywhere?

• Ultimatum game across cultures

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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