Charles Darwin and Daniel Kahneman: Radical changes are in store when these two men are properly introduced to one another.
Behavioral economics has become an increasingly popular topic over the last few years, as demonstrated by the success of a string of books like Predictably Irrational, Nudge, and Sway. Challenging the classical model of rational man -- which depicts people as well-informed decision-makers - behavioral economists have incorporated the insights of cognitive and social psychology - fields where researchers have done a rich business demonstrating people's tendencies to use simplistic and irrational biases. A classic example is Daniel Kahneman and Amos Tversky's demonstration of loss aversion - the finding that people are more psychologically moved by a loss of $100 than by a gain of an identical amount. To a rational economic mind, $100 is worth exactly $100. But Kahneman won a Nobel Prize for a body of work illustrating that this seemingly simple and rational equation ain't necessarily so.
Just down the aisle in the bookstore, the last few years have also witnessed a bustling business in the various volumes on evolutionary psychology, with Steven Pinker's How the Mind Works and Blank Slate as definitive examples of the genre. The evolutionary approach begins with the presumption that we can better understand everything about human behavior, from altruism to xenophobia, by considering our species in light of what biologists have learned about other animals (even those who don't invest in stock portfolios). With regard to decision-making, a central message of evolutionary psychology is that the human mind is best conceived not as a massive information-crunching computer, but as a multitude of mini-minds -- a collection of independent mental adaptations specifically designed to solve particular adaptive problems by crunching different kinds of information in very different ways.
Just as the infusion of cognitive psychology had a jolting impact on how we think about economics, the infusion of evolutionary psychology is likely to produce yet another seismic uplift in the terrain. On the evolutionary view, what seems irrational at the surface level may be, on closer examination, deeply rational.
The implications of the evolutionary multiple-mind viewpoint for everyday economic decision-making are thus far largely unexplored. But there is already evidence that the decision-rules a woman uses when thinking about how to negotiate with a stranger in the marketplace do not follow the same math as the mental rules she'd use in deciding how to exchange resources with her son --who shares half her genes, and is dependent on her generosity if he is himself to survive to reproductive age. Besides the different mental rules for dealing with strangers and close kin, everyday people need yet another set of decision-biases for interacting with friends -- to whom they are linked not by shared genes, but by trust-based reciprocal exchanges. And romantic partners do business according to still another set of decision-rules. In a series of studies I've conducted with a team of colleagues including Vlad Griskevicius, Jill Sundie, Bob Cialdini, we've found that a person's decisions -- about whether to conspicuously and wastefully throw around his or her wealth, to display his or her benevolence and nurturance, to risk a fight, or to go against group opinion -- will ebb and flow in predictable ways depending on whether that person is a she or a he, and on whether he or she is in a mating frame of mind, as opposed to thinking about status or worrying about life and limb.
Three of my former graduate students -- Jill Sundie, Norm Li, and Vlad Griskevicius -- had studied economics before shifting their interests to evolutionary psychology. Sundie and Griskevicius are now professors of business (at University of Texas and Minnesota, respectively). Norm Li is a professor of social psychology with joint appointments at the University of Texas and Singapore Management University. In a paper titled "Deep rationality: The evolutionary economics of decision-making," Griskevicius, Sundie, and Li join forces with me and with Arizona State's Steve Neuberg and Jessica Li to reconsider the intersection of evolutionary psychology and behavioral economics. The paper was just released this month as part of a special issue of the journal Social Cognition focusing on the "rationality debate."
It has been very useful for economists to use a common coin of "utility" to compare the psychological value of desirable outcomes as different as a tasty meal with friends, a romantic vacation, and a Porsche Carrera GT. But it's now the 21st century, and high time to seriously consider the differences between different forms of utility. Our evolutionary approach to decision-making assumes that the human mind keeps the distinct forms of currency separate, and evaluates different commodities very differently depending on whether that human mind is located in a man or a woman, and whether that man or woman is at the stage of life when they are seeking a mate, caring for a child, or helping take care of his or her children.
Besides the decision-making variations arising from a person's sex and life history stage, our model suggests that each individual decision-maker has several different economic subselves, and that the subself in charge right now depends on which adaptive threats and opportunities are currently prominent in the environment. What looks like irrationality to one subself may be deeply rational to another. Your marketplace subself, which is dominated by the question: "What's in it for moi?" would be aghast at the exorbitant bill your parental subself has run up sending junior through college, for example.
The logic of Deep Rationality suggests that fundamental biological motives such as mating and self protection should drastically change all the traditional behavioral economic biases, such as temporal discounting (the tendency to take a loss for an immediate payoff rather than wait for a larger one), and probability discounting (the tendency to prefer a certain payoff over a chance at a larger one). The same motives should also move around what a person regards as a luxury versus as a necessity, and should do so very differently for men and women. A series of experiments by Norm Li and his colleagues has already begun to demonstrate the profound importance of distinguishing between luxuries and necessities in different aspects of social decision-making.
Let's reconsider the classic case of "loss aversion" in this light. Evolutionary theorists including E.O. Wilson have suggested that ancestral humans might have been generally inclined to worry more about avoiding losses than acquiring gains, given that they frequently lived close to the margin of survival (extra food would be nice, but insufficient food could mean death). This provides a possible adaptationist hypothesis about past conditions, but does not fully exploit the scientific strengths of the modern evolutionary approach, which can be used to generate specific new hypotheses about when and how loss aversion should ebb and flow with functionally important motivations. For example, the usual inclination toward loss aversion should be erased or even reversed when a mating motive is activated. Furthermore, this erasure should occur only for males, and not for females. Why? As evolutionary biologists have noted, female mammals (including Homo sapiens) have an intrinsically high minimum investment in their young, and this inspires them to be relatively more selective in choosing mates. As a consequence, males must compete to be chosen by the more discriminating females. There are various ways for a male to say: "Pick me! Pick me!" One is to display a noticeable wasteful display (such as a peacock's feathers or a Porsche Carrera); another is to directly outcompete the other males (butting them with antlers or winning a fight for a well-appointed executive office). To beat out the competition, it helps to take risks, and indeed male mammals become especially risky during the mating season. It follows that men primed to think about mating should act like big-horned sheep during the rutting season - when too great an aversion to losses would prevent the kind of risky competition that will beat out the other males.
If our logic is correct, then the standard Kahneman and Tversky loss aversion curves (now reprinted widely in modern economics textbooks) will change in predictable ways for men under the influence of a mating motive. As part of a series of ongoing experiments funded by the National Science Foundation, Jessica Li, Vlad Griskevicius, Steve Neuberg and I have been testing this particular hypothesis. Stay tuned and I'll fill you in on our specific results. But for now, let me close with a suggestion: We are on the verge of a totally new way of thinking about economic rationality. To say that we are "predictably irrational" only captures half of the truth. As we begin to update behavioral economics with an understanding of the evolved modular mind, our seeming irrationalities will be found to be not only predictable, but at a more important level, deeply rational.
For further reading:
Kenrick, D.T., Griskevicius, V., Sundie, J.M., Li, N.P., Li. Y.J., & Neuberg, S.L. (2009). Deep rationality: The evolutionary economics of decision making. Social Cognition, 27, 764-785 (special issue on the rationality debate).
Li, N.P., Bailey, J.M., Kenrick, D.T., & Linsenmeier, J.A. (2002). The necessities and luxuries of mate preference: Testing the trade-offs. Journal of Personality & Social Psychology, 82, 947-985.
Kenrick, D.T., Sundie, J.M., Nicastle, L.D., & Stone, G.O. (2001). Can one every be too wealthy or too chaste? Searching for nonlinearities in mate judgment. Journal of Personality & Social Psychology, 80, 462-471.
Griskevicius, V., Tybur, J.M., Sundie, J.M., Cialdini, R.B., Miller, G.F., & Kenrick, D.T. (2007). Blatant benevolence and conspicuous consumption: When romantic motives elicit strategic costly signals. Journal of Personality & Social Psychology, 93, 85-102.
Sundie, J.M., Kenrick, D.T., Griskevicius, V., Tybur, J., Vohs, K., & Beal, D.J. (in press). Peacocks, Porsches, and Thorsten Veblen: Conspicuous consumption as a sexual signaling system. Journal of Personality & Social Psychology. (Nov 1, 2010, online publication). doi: 10.1037/a0021669.