By Thomas Grund, Christian Waloszek, and Dirk Helbing
The body of economic literature will have to change, suggests new research. In their computer simulations of human evolution, scientists at ETH Zurich find the emergence of the “homo socialis” with “other-regarding” preferences. The results explain some intriguing findings in experimental economics and they call for a new economic theory of “networked minds”.
Economics has a beautiful body of theory. But does it describe real markets? Doubts have come up not only in the wake of the financial crisis, since financial crashes should not occur according to what were established theories. For a long time, economic theory is based on concepts like efficient markets and “homo economicus”, i.e. the assumption of competitively optimizing individuals and firms. It was believed that any behavior deviating from this would create disadvantages and, hence, be eliminated by natural selection. But experimental evidence from behavioral economics show that, on average, people behave more fairness-oriented and other-regarding than expected. A new theory by scientists from ETH Zurich explains why.
“We have simulated interactions of individuals facing social dilemma situations, where it would be favorable for everyone to cooperate, but non-cooperative behavior is tempting,” explains Dr. Thomas Grund, one of the authors of the study. “Hence, cooperation tends to erode, which is bad for everyone.” This may create tragedies of the commons such as over-fishing, environmental pollution, or tax evasion.
Evolution of “friendliness”
Prof. Helbing of ETH Zurich, who coordinated the study, adds: “Compared to conventional models for the evolution of social cooperation, we have distinguished between the actual behavior – cooperation or not – and an inherited character trait, describing the degree of other-regarding preferences, which we call the friendliness.” The actual behavior considers not only the own advantage (“payoff”), but also gives a weight to the payoff of the interaction partners depending on the individual friendliness. For the “homo economicus”, the weight is zero. The friendliness spreads from one generation to the next according to natural selection. This is merely based on the own payoff, but mutations happen.
For most parameter combinations, the model predicts the evolution of a payoff-maximizing “homo economicus” with selfish preferences, as assumed by a great share of the economic literature. Very surprisingly, however, biological selection may create a “homo socialis” with other-regarding preferences, namely if offspring tend to stay close to their parents. In such a case, clusters of friendly people, who are “conditionally cooperative”, may evolve over time. That is, they prefer to be cooperative, but they do not cooperate if their interaction partners in the neighborhood are non-cooperative. In this way, they can protect themselves from being exploited. “But if by chance an unconditionally cooperative individual is born in the neighborhood one day, someone like ‘Mother Theresa’, the conditional cooperators may turn to cooperative behavior”, explains Christian Waloszek, one of the coauthors of this study. As a consequence, cooperation may spread in a cascade-like way and earn higher paysoffs, such that many friendly offspring are born. The “homo socialis” is established and begins to outnumber the selfishly optimizing “homo economicus”.
Trespassing the “valley of tears”
“But it does not always go so well,” Christian Waloszek continues. “A superfriendly, unconditionally cooperative individual may be exploited by everyone, consequently getting a miserable payoff and no offspring. Hence, such people might die without an impact on the world.” That means, the evolution from the “homo economicus” to the “homo socialis” may go through a valley of tears. “Without random mutations it would never happen,” adds Helbing. However, if enough conditionally cooperative individuals are already around, the “homo socialis” spreads.
“This has fundamental implications for the way, economic theories should look like,” underlines Professor Helbing. Most of today’s economic knowledge is for the “homo economicus”, but people wonder whether that theory really applies. A comparable body of work for the “homo socialis” still needs to be written. Our economic thinking may have been totally misled. It may apply to the “untamed selfish beast” that characterized Thomas Hobbes’ picture of humans, when he called for the ordering hand of a state in his book “Leviathan” back in 1651. But since then, much has changed.
Networked minds create a cooperative species
For example, Nobel Prize winner Elinor Ostrom has shown that people can manage their resources in a cooperative way, if following certain rules. This is found in Swiss communities as well as collaborative projects in the Web2.0. Wikipedia is probably the best-known example. “Now, we have laid the foundation of a new theory of human decision making,” says Helbing. “Thanks to its evolutionary foundation, we just have to make very few, widely accepted assumptions.” This sets the model apart from many alternative choice models. The long overdue unification of the behavioral sciences might be just around the corner.
“People in our model do not behave irrationally,” explains Grund, but while the “homo economicus” optimizes its utility independently, the “homo socialis” puts himself or herself into the shoes of others to consider their interests as well.” Helbing adds: “This establishes something like “networked minds”. Everyone’s decisions depend on the preferences of others.” This becomes even more important in our networked world.
A participatory kind of economy
How will this change our economy? Today, many customers doubt that they get the best service by people who are driven by their own profits and bonuses. “Our theory predicts that the level of other-regarding preferences is distributed broadly, from selfish to altruistic. Academic education in economics has largely promoted the selfish type. Perhaps, our economic thinking needs to fundamentally change, and our economy should be run by different kinds of people,” suggests Grund. “The true capitalist has other-regarding preferences,” adds Helbing, “as the “homo socialis” earns much more payoff.” This is, because the “homo socialis” manages to overcome the downwards spiral that tends to drive the “homo economicus” towards tragedies of the commons. The breakdown of trust and cooperation in the financial markets back in 2008 might be a good example.
“Social media will promote a new kind of participatory economy, in which competition goes hand in hand with cooperation,” believes Helbing. Indeed, the digital economy’s paradigm of the “prosumer” states that the Internet, social platforms, 3D printers and other developments will enable the co-producing consumer. “It will be hard to tell who is consumer and who is producer”, says Christian Waloszek. “You might be both at the same time, and this creates a much more cooperative perspective.”
For further information:
Thomas Grund, Christian Waloszek, and Dirk Helbing (2013) How natural selection can create both, self- and other-regarding preferences, and networked minds. Scientific Reports 3, 1480; DOI:10.1038/srep01480.