Human Nature and Economics
Good and Bad
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Write a list of 5 behaviors characteristic of a good
person
Write list of 5 behaviors characteristic of a bad
person
Why Study Human Nature?
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To what extent are desirable ends constrained by
human nature?
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Is insatiability a human characteristic?
Biophilia: have humans evolved to value nature?
Social animals—is fairness a desirable end? Do we care
about others for their sake, not our own?
Discounting
Why Study Human Nature?
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To what extent are allocative mechanisms
constrained by human nature?
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Are we inherently competitive, cooperative, or both?
Are we rational, emotional, or both?
Are people the same everywhere?
Will Competition or Cooperation
Solve Society’s Current Crises?
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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?
What is the conventional economic
model of human nature?
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Homo-economicus
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Self-interested
Insatiable
Rational
Competitive
Is this closer to your depiction of a good person or
a bad person?
Market Economics Driven by
Competition
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Assumes humans insatiable, always act in rational
self interest, do not care what happens to others
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Must design a system that leads to greatest good for
greatest number
Rewards greed and selfish behavior
Invisible hand
 “Virtue of Selfishness”
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How do we test market theory?
How do we test these
assumptions?
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Study history
Game theory and games
Experimental economics
Neuro-economics
Psychology and economics
Evolutionary biology
Are People Insatiable?
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Insatiable!
Evidence from history, evolution
and behavioral economics
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Hunter-gatherer economies
Absolute vs. relative wealth
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Widow birds
Status treadmill
Alternative forms of status
Human Needs
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Market goods only one
of many human needs
Needs consistent
across time and
cultures
How we satisfy them
differs
Satiation occurs
Pseudo-satisfiers
Are People Rational?
Split into two groups. Group 2
leave room
Group 1
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Serious flu will kill 600 people
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Choice A: Conventional vaccine will save 200 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
Group 2
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Serious flu will kill 600 people
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Choice A: Conventional vaccine will result in death of
400 people
Choice B: Experimental vaccine has 1/3 chance of
saving everyone, 2/3 chance of saving no one
Mark your choice
Are People Rational or Emotional?
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Out of control trolley
Losses vs. gains
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WTP vs. WTA
Is perfect rationality
possible in a complex
world?
Do people care about the future?
What are our attitudes towards the
future? Discounting
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Would you rather have $10 today, or $12 in one
month?
The discount rate
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Opportunity costs and investments
Pure time preference
Uncertainty
Richer future
∑(Bt-Ct)(1+r)-t
What happens in your brain when you discount?
Who discounts the most?
How do we Discount?
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Hyperbolic discounting
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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?
Are we Purely Self-interested?
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Game theory and experimental economics
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Ultimatum game
Dictatorship game
Public goods game
Or do we care about others?
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H. comunicus, concern for fairness and community
preferences
• H. naturalis, concern for sustainability and whole
system preferences
Are we Competitive or
Cooperative? Evidence from
Neuroscience and behavioral econ
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Neurotransmitters
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Dopamine
Oxytocin
Neuroeconomics and prisoner's dilemma
Investment game
Oxytocin and trust
Altruistic punishment
Tit for tat
Evidence From Evolution
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Kin selection: Altruism, empathy, reciprocity evolve
if
RB/C > 1
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Group selection vs. individual selection
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C= cost of empathic behavior to individual
B=benefit to others
R= degree of relatedness
Pseudomonas species
Encompasses kin selection
Cooperation and energy abundance
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Dictyostelium discoideum (amoeba)
Myxococcus xanthus (self-organized, predatory, saprotrophic,
single-species biofilm called a swarm)
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In humans, genetic and cultural evolution interact
Are People the Same Everywhere?
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Ultimatum game
across cultures
Why Does this Matter?
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Desirable ends
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Humans are satiable
We have a broad range of needs
Desired ends are in relationship to what others have
Allocative mechanisms
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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