The Darwinian Perspective

on Economic Behavior

Ulrich Witt

Max Planck Institute of Economics, Jena, Germany

• "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)

→ 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

→ 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

• 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 psychologyfor 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

• 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 ....

on his visit, Darwin found this as evidence for

his theory of evolution: what you can find today….

• 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

• characteristic of cultural evolution:

tremendous increase in variety of goods that can be consumed

see the

living room of a rich

household ca 1400…

… 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

3462

3392

20121

16299

U.S. Income per Capita in $ of 2002 (increase by factor 6)

U.S. Expenditure per Capita in $ of 2002 (increase factor 4.7)

0

5000

10000

15000

20000

25000

1901 1918 1935 1950 1960 1972 1984 1996 2002

Source: Bureau of Labor Statistics

Report 991, 2006

• the significant evolutionary feature at the aggregate level:

dramatic changes in the composition of consumption

14.0

1901 1918 1935 1950 1960 1972 1984 1996 2002

%

50

42.5

13.1

4.2

Source: Bureau of Labor Statistics

Report 991, 2006

Absolute Amount & Increase of Spending (in $ of 2002)

YEAR 1901 2002 % Increase

Food 1472 2143 146

Clothing 486 678 140

Expenditure Share of Food (% of per capita spending in the U.S.)

Expenditure Share of Clothing (% of per capita spending)

Expenditure Shares of Housing, Transportation, Health Care,

Entertainment (% of per capita spending in the U.S.)

Source:

Bureau of Labor Statistics

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

23.3

1901 1918 1935 1950 1960 1972 1984 1996 2002

%

5.2

1.6

32.8

19.1

5.95.1

8.3

• 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

• 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:

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"

air, water, sleep, food,

body heat, pain relief,

physical activity, sex ...

arousal, achievement,

consistency, affection,

social recognition, care...

• only a very limited number of innate needs (primary

reinforcements) have experimentally been identified:

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

air, water (-), sleep, food (-),

body heat, pain r./health (+),

physical activity, sex ...

arousal (+), social status

recognition (+), affection,

achievement, consistency...

• crucial for the evolution of consumption is the fact that

innate needs differ regarding how easily they can be satiated

→ examples for expected differences :

→ 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

• 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

Price for a pound of sugar in England

in prices of 1960 converted into EUR

(1400-1960)

0

2

4

6

8

10

12

14

1400 1600 1800 1900 1960

Years

EUR

• in parallel, per

capita real income

multiplies

• consequence: by the 1960s, in DCs average ability to spend

on carbohydrates at level of satiating need for calorie intake.

• 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:

same innovation strategy also in case of other goods:

reduce content of satiating characteristic(s) of the products!

• 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)

Structural Change in the US Market for Sweeteners 1960 - 2005.

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

1960 1965 1970 1971 1972 1973 1974 1975 1976 1980 1985 1990 1995 2000 2005

Year

Kg S

ugar

Equiv

ale

nts

High Intensity Sweeteners Sugar (saccarose) Corn sweeteners Total caloric sweeteners

• obviously, acceptance not due taste or availability, but to calorie satiation:

• 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...)

• 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?

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Some people call MBT "Masai shoes, MBT shoes or simply Masai barefoot shoes".

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"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

• 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"?

A selective genealogy of evolutionary thought

1776: Adam Smith, An Inquiry into the Nature and Causesof the Wealth of Nations, London.

1784: Johann Gottfried Herder, Ideen zur Philosophie derGeschichte der Menschheit, Leipzig.

1798: Robert Malthus, Essays on the Principles of Populationas it Affects the Future Improvement of Society, London

***

1859: Charles Darwin, On the Origin of the Species by Meansof Natural Selection, London

1864: Herbert Spencer, Principles of Biology, London.

• 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:

• 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:

• 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?

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.

• 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.