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Economics as an Evolutionary Science: From Utility to Fitness

Posted on: Tuesday, 9 December 2003, 06:00 CST

Economics as an Evolutionary Science: From Utility to Fitness Arthur E. Gandolfi, Anna Sachko Gandolfi and David P. Barash New Brunswick, Transaction Publishers, 2002

Economics as an Evolutionary Science: from utility to fitness (New Brunswick, Transaction Publishers, 2002) is not an attempt to argue that current economics is an evolutionary science. Indeed, it is not. Instead, the authors, two economists (Arthur E. Gandolfi and Anna Sachko Gandolfi) and a psychologist (David P. Barash) try to rebuild economics on an evolutionary basis.

Economics attempts to explain how the economy functions, answering questions such as what is produced, who consumes what, and who produces what. In the traditional textbook, tastes are portrayed as a given. The heart of an economics course is price theory in which elegant mathematical arguments are used to derive consumer purchases of various goods. Yet at the basic level, no account is given of where the utility function comes from.

The authors attempt to remedy this problem. Their basic idea comes from evolutionary theory. The genes that came to dominate are those that out-reproduce others. Out-reproducing means leaving as many grand children or great grand children as possible (one could pick an even more distant generation but the language becomes awkward). We should have evolved so as to leave as many grandchildren as possible. This means that, in theory, the utility function should be expressed in units of grandchildren.

If this theoretical point is accepted, there are a series of implications that the book develops. All of an individual's income that is not used for maintenance (food, health, etc.) should be used for reproduction. Of course, some offspring may be more successful at having their own children then others. The children that are likely to be more successful are referred to here as the higher quality children. Resources can he invested in children to make them healthier, more attractive mates, better educated etc. Thus there can be a trade off between having numerous children and having a few children, hut of higher quality. The advantage to your reproductive success of having higher quality children is that they themselves will have more descendants, possibly as a result of being able to attract more mates (males) or better quality mates (both sexes). Biologists have recognized this distinction, with different species following either strategies of many offspring (r selected) or strategies of fewer, but higher quality offspring (k selected). Rushton has argued that different populations follow different strategies. For instance, in some non-human species the higher quality offspring may be bigger and hence less likely to be eaten. In theory, the humans that are most successful in leaving great- grandchildren make an optimal choice between many children and fewer children that are better fed, better educated, and are more likely to have numerous offspring. The better quality male children may be able to attract multiple wives, and have larger numbers of offspring through that route.

Humans are very unusual in that that they help their offspring raise their own children. The role of grandparents exists. Most other animals either abandon their children at birth, or raise them to reproductive maturity and then abandon them. Humans will frequently be observed to be helping their adult children. Humans are also observed to assist their grandchildren or their great grandchildren. They even leave money and other resources to their children or grandchildren. If these bequests help their descendants have more surviving children or descendants of greater quality (which may help these descendants attract more or better mates and hence leave more descendants themselves), the bequests are contributing to their reproductive success.

In accordance with this theory, when deciding which relatives to help, an individual should consider the different relative degrees of relatedness. Your children average 50% of their genes in common with you, your siblings 50%, and your grandchildren 25%. Evolutionary biology predicts that we would invest in our relatives in relation to this degree of relatedness. If we had the chance to save the lives of two grandchildren or one child (of the same age) we should treat the two grandchildren as equivalent to the child.

In evolutionary logic, we would trade off the value of leaving bequests to our descendants (as a way assisting them in producing offspring and hence helping to perpetuate our genes), or directly investing in them. As is well known, capital is productive and a sum of money put aside and invested can earn interest. It will gradually grow to be a greater sum. At any one time the investor has to decide whether to invest the money, or to invest it in offspring, or to invest it in human capital (such as education) for existing children, or to consume it today (which may bring higher status). If one waits too long to convert capital into offspring, the chance to spend it on children is lost (either ones wife is too old for additional childhearing, or your children are too old for extra money to them to result in more grandchildren). However, because you are less related to your grandchildren than your children, waiting to accumulate more wealth risks leaving it to grandchildren rather than children. Since the grandchildren are less related than the children, this delay in gifting can only be justified if the increase in value over time is great enough so that in one generation the purchasing power (in children) approximately douhles.

All this theory is well worked out (with appendices providing the mathematical derivations). The natural question associated with such an elegant theory is to ask if it is true, i.e. does it make correct predictions. Unfortunately, the most obvious predictions appear false. Most Westerner's are clearly having fewer children than they could support. The rich who could afford to support as many children as their wives could hear, are clearly having many fewer children than they could support.

What is the problem? It is probably not that the theory of evolution is wrong, nor is the theory wrong that humans have drives that historically have resulted in more descendants. Instead, the problem seems to be that humans are living in an environment that is quite different from that in which they evolved. Most authors emphasize (and these authors do in places) that human evolutionary history is very long, and that most of human evolutionary history was spent as hunter-gatherers in a lifestyle that is quite different from the current industrial lifestyle (and even quite different from a peasant lifestyle).

Many specific personality and behavioral traits emerged during that period, but a direct attempt to maximize the number of children does not appear to have been one. Instead, males (and to a less extent females) have been led to seek copulations. This led to pregnancies. The offspring were loved and raised by the parents, hut especially by the mothers. This is the basic mechanism which has kept the human race in existence.

However, since hunter-gatherer times there have been many changes. The most obvious is contraception. Effort is still devoted to sexual activities or to seeking the status that frequently leads to sexual access. However, this is no longer certain to produce children.

It is a stable of sociobiology that women have commonly sought to marry upwards, seeking to marry a man of status higher than their own. Throughout most of human history this was sensible strategy which resulted in more resources and more protection for the women. The higher status of the family resulted in the offspring having higher status. They were in turn able to attract better mates.

However, in today's conditions it appears that many educated and successful women are looking for men who are even more successful than they are. By the time these women have finished their professional educations and established their careers they are no longer young and in the prime of their fertility. The men they desire to marry are very much attracted by feminine beauty and younger women. The result is that many of these professional women either do not marry or marry only at an age too old to have a large family, or perhaps any family at all. Selection today is probably against women seeking higher status mates.

This treatise, as other sociobiological treatises, points out how optimal male and female strategies differ. Since males can produce large quantities of sperm, they can fertilize large numbers of women. Even if the odds of the child making it to adulthood or low, the cost of the sperm is so low that it is usually in the reproductive interests of the males to accept, and usually to seek, opportunities for fertilization. As a result most males find sex attractive, even if it is with a relatively undesirable partner.

In contrast, pregnancy followed by lactation in humans requires considerable energy. If a female become pregnant with the child of a male who is undesirable either because he will not support the child, or because he docs not have good genes, the female has lost a chance to have a child by a better male. As a result females are themore selective sex, and are usually very selective in the choice of the males they have sex with. However, this is not universal and some females follow what is called a "fast" strategy in this book. Such females are relatively unselcctive in who they choose to have sex with. In the modern Western economy where most children grow to maturity (a social welfare system provides support for those without fathers), the fast strategy probably results in more descendants. Thus evolution is probably favoring the fast strategy.

One can speculate about the personality traits which make women more likely to choose the family route, and to start a family early. A strong desire for sex, romance, a family, and children would make a woman more likely to marry, and to many young. Women with less self confidence would appear more likely to choose family rather than believing they will succeed at a career, and to accept an early proposal of marriage rather than holding out for a better suitor, confidant that a better one will indeed come along. Accepting the early proposal probably leads to an earlier pregnancy, and a poorer career. Possibly selection is now for less self confidence in women.

In spite of the implausibility of asserting that humans in the modern world maximize their number of descendants, the hook does show a number of ways in which evolutionary theory can be useful in economics.

Especially interesting is the chapter on "Rules, Roles, and Reputations." The basic problem tackled here is how ordered society emerges, and how does the trust that permits all the complex exchanges that make a modern economy function come to be. This is often discussed in terms of the problem called "prisoner's dilemma". Two prisoners have been arrested, and are being held without the ability to communicate with each other. If they cooperate with each other in keeping their crimes secret they come out ahead. However, each is offered a reward if he defects (i.e. tattles) on the other. The biggest gain comes from defecting when the other tries to cooperate. A smaller gain occurs if both cooperate with each other. The lowest gain (actually negative) come if the prisoner tries to cooperate with his partner, hut his partner detects. Total gains are maximized it the two cooperate. However, each prisoner is better off defecting regardless of what his partner does. This is a model for many social situations in which it is in the interest of an individual to take an advantage of another, and not to be "nice" (or to live up to his side of bargains).

Although this hook doesn't discuss it, repeated experiments have shown that humans are not as selfish as the strict logic of game theory would suggest. The question is what prevents them from acting in a purely selfish manner.

Part of the answer pointed out here is that social interactions are not now, and probably were not in the pre-historic environment one time interactions. Instead, people repeatedly interacted with each other. A sensible strategy if one will interact with someone repeatedly is tit for tat. One starts by being nice. One then one acts as they do. If they respond by being nice, you continue to be nice. If they are selfish, you are selfish. If they are also cooperative, there is a long period of cooperation. People who are non-cooperative soon find that no-one cooperates with them. While there is a potential problem if it is known that the game will end (i.e. the player will die) at a certain time, the uncertainty as to when the game will end (i.e. time of death) makes a cooperative strategy the optimal strategy if one repeatedly encounters the same people. Even when there is a chance someone will die before a favor is returned, the likelihood that his descendants will return the favor makes cooperation the best strategy.

Considerations of reputation also assist in maintaining cooperation. A sensible strategy upon meeting someone one has not previously dealt with is to rely on that person's reputation. If they have a reputation for acting in a reliable manner, it is sensible to start by cooperating with them and trusting them. Given that how others will treat you depends on your reputation, maintaining a good reputation becomes important. A worry here is that the reputation and reciprocation work best in small scale communities (such as humans evolved to live in) where you interact with the same people repeatedly. In modern urban areas, the economically optimal strategy will often be to take advantage of others, figuring either you will never deal with them again, or that your bad behavior will not affect your reputation (probably because word of it will not reach the people you care about). However, when everyone is following these strategies life may be appreciably less pleasant.

A basic idea of the book is that resources can be used to produce either more low quality children, or fewer high quality children, or fewer children and more wealth for descendants (which wealth the descendants may convert to offspring). Near the end of this section there is a discussion of the tensions that arise in a society that has one group following a strategy of producing large numbers of low quality children, and another group producing fewer but higher quality children along with physical capital. The authors point out that under democracy the group producing more children will be tempted to use their votes to take wealth from the group with fewer children. The group with more wealth will be tempted to try to control the more numerous groups, buying the loyalty of enough military to offset the other groups greater numbers. This of course produces a constant temptation to abandon democracy. The best line in the book is, "All of which brings to mind the adage that politics consists of obtaining money from the wealthy and votes from the poor, by promising to protect each from the other." (p216). Unfortunately, no source is given for the adage (although in general the hook is well footnoted).

Does the book succeed in its goal of setting a new foundation for economics? I am afraid not. Their summary of their reformulation is (p.221) "All that is required is to replace the utility function, used by economists to describe the ordering of individuals' preferences, by a new utility function that contains only one argument: namely the number of potential descendants in some unspecified future generation." Unfortunately, the testable implications of that formulation appear wrong. The simplest prediction, that people state as their goal to have the maximum number of descendants is clearly false. Nor do people appear to act as if this was their goal. It seems clear that people would seldom use contraception if they sought to maximize their number of descendants, yet they do.

The authors of the book themselves admit to a number of difficulties with their theory. While their theory predicts that people accumulate resources in order to leave more descendants, it is actually observed that as income and wealth increase, the number of children decrease. This has been shown by Lynn (1996) in a hook reviewed and summarized in this journal (Miller 1997).

An obvious alternative to the theory of this book is to retain the standard economic view that humans maximize utility, hut to recognize that the utility of various goods and service depends on human tastes. These tastes are in turn the product of evolution. Human tastes and drives evolved because drives that contributed to leaving descendants were selected for. We then have something that looks more like standard economics, hut with a behavior affected by evolved tastes.

Evolutionary psychology then provides a theory of these tastes. The goals of our economic activities are a set of tastes that evolved over a long period of evolutionary history. The tastes that survived are those that resulted in leaving more descendants. Most sociobiological writings suggest that many of these tastes were shaped by conditions during our long hunter-gather period. Of course, current conditions are radically different from conditions a few hundred to a few thousand years ago, and these drives today may not lead to a large number of descendants. It remains true that the genes that are found in each succeeding generation are determined by who in the previous generation succeeded in reproducing (which implies staying alive long enough to reproduce). However, current conditions have not been around long enough for anything approaching equilibrium to have been achieved. Predictions based on equilibrium conditions do not work very well.

Today, in contrast to the prediction that the wealthier and higher status will have more reproductive success, the evidence is that these individuals actually have less success. That current reproductive patterns are dysgenic, i.e. those with socially valued traits, such as intelligence, are having less children. This appears to happen because the more intelligent and more conscientious have fewer unplanned pregnancies than the less intelligent and the less conscientious. It also appears that the more intelligent women have an opportunity for interesting and exciting careers, and many choose to put their efforts into these. A woman whose highest paid employment opportunity is factory work or working behind a counter is likely to find staying at home and being a mother more attractive than a woman who has an opportunity for a teaching job, or a similar exciting career.

It is interesting to speculate about what traits may he being selected for in the current environment beyond low intelligence. The tendency to morning sickness is probably being selected against since women who find pregnancy extremely unpleasant are less likely to voluntarily become pregnant. There may be a positive selection for love of children. Women, and to a less extent men, seem to find children very attractive and to have a positive desire forthem. Till recently married women were likely to become pregnant, even if they did not particularly want to be pregnant. Now with most pregnancies being a positive choice, it is likely that the more "feminine" women with the traits that lead to desiring children are out reproducing other women. Ambition in women, while probably contributing to economic success, is probably being selected against. Hewlett (2002) has described how the desire for career success has led to many professional women postponing childhcaring until they discover to their surprise that it is too late, and they are past their most fertile years.

Although the model that evolution influence tastes, and tastes influence economic activity is not the author's preferred formulation, they do recognize it, and concede that some current behaviors probably do not maximize the number of descendants. They give the classic example of our tastes for sweets and fats which directed us to good foods during the long period when food was scarce. Only in the current period of abundant food (at least in the West) have these tastes been counterproductive, causing us to become obese (and less attractive sexually), not to mention reducing our lifespan.

Today, much male effort is still devoted to seeking sex. Most nonmarital sex in an age of contraception fails to result in offspring and exposes the participants to risk of venereal diseases. This is clear evidence against a theory that humans always act to maximize the number of their descendants. However, it is very plausible, as the authors note, that until very recently, non- marital sex regularly resulted in offspring.

Likewise, much male striving for status appears to contribute little to number of offspring. Indeed, it may reduce number of offspring, judging from the current inverse correlations between education or income and number of children. However, the author mentions a study of males in Quebec that showed that income was not correlated with number of children. However, male income correlated with the number of potential conceptions that would have resulted if birth control was not used, especially for unmarried men. The number of potential conceptions was calculated from intercourse frequencies and partner numbers. Women's preference for higher income men seemed to contribute much to this outcome.

To this reviewer, a much better strategy than making the number of offspring a measure of utility, is to develop an evolutionary psychology and to then derive the implications of this for economics.

With such an approach evolution does have much to contribute to economics. One contribution is to recognize the importance of status. See Frank (1999) or the review article in this journal (Miller 2000). Because high status males have left more children, men seem to have built in tendency to seek status. This does not seem to have been recognized in economics. Because income is the proximate route to status in most societies, there is much effort to increase income. Most people think they will be much happier if their income is higher. Among the poorer people of the world this is probably true where the income is used to purchase goods that meet physical needs such as food, fuel, or medicines. However, once these needs are met increasing national income appears unlikely to greatly increase welfare, because there will still he large disparities in status. Income redistribution will accomplish little to increase welfare because the vast discrepancies in status will remain.

Status seeking has implications for tax policy (See Miller 1975). The usual consumption theory in economics is developed with goods that are used to satisfy physical needs such as clothes and shelter. After the theory is developed an implicit assumption is made that measures that reduce individual utility also reduce total social utility. A textbook policy conclusion is that taxes that cause prices to deviate from marginal cost reduce total social utility. This holds for individuals who are not competing with each other and where none of the goods are status goods. The usual conclusion drawn is that luxury taxes (and other taxes targeted at specific goods) are a had idea.

Once it is realized that some goods are desired primarily for status reasons, it is realized it is possible to extract income through taxes on these goods without reducing the average utility experience by the purchasers of these goods. Consider diamond jewelry. These appear to derive their value from their expense through their ability to convey status (or make a romantic statement through their cost). Suppose a heavy tax is imposed on diamonds that doubles their prices. What had previously been a $1,000 diamond will soon convey the same prestige message as a $2,000 diamond. Those buying $2,000 diamonds after the new tax can experience the prestige of wearing a $2,000 diamond. This should be the same prestige was previously experienced before the tax by those wearing $2,000 diamonds. Hence, diamond buyers would not have not been harmed by the imposition of the tax. However, the proceeds of the tax are available for some socially useful task. In the traditional model, the utility of the tax payer is reduced by the amount of the tax. In addition there is a deadweight loss from distorting the choices of the consumers.

The above provides a powerful argument for taxing luxuries and status goods. It is also possible to use the human desire for status to motivate desired behavior at very low financial cost. The British system of knighthoods (which permits the honored individual to enjoy high status of being Sir so and so) undoubtedly motivates (or helps motivate) many good works. Yet the cost of giving someone a title is low.

Evolutionary science has much to say about the economics of sex differences. Males and females have evolved to follow different reproductive strategies and to have somewhat different goals and abilities. The book discusses these at length as might be expected since one of the authors has written a whole book on the topic (Barash and Lipton, 2001).

However, there is another implication of the idea of humans as the product of evolution that is not discussed. This is race differences. If human personalities and abilities have evolved over thousand of years, during which humans lived in a wide range of climates, it is to be expected that these regional populations will have evolved different traits. The personalities and other traits needed for survival and reproduction in a tropical climate are quite different from those needed in the Arctic. Until recently the populations in these different continent-size areas seldom bred with each other. Natural selection would he expected to shape the personalities and abilities of the different continental area populations differently.

The author of this review has set out some of these expectations. While both males and females may gather plant materials, eggs, and some small animals, the hunting of large game is almost always a male activity. In the tropics, there is usually adequate food that can be gathered year round and a female can gather enough food to support her and her children year rounds. However, in cold climates there is little to be gathered during the winter. Fruits, berries, seeds and tender leaves are hard to find. Frozen ground makes digging for tubers hard and snow conceals the tubers location. Easily gathered eggs are not yet available. Insects, reptiles, and small animals are often unavailable because they have hibernated or migrated. The major source of food is large game, including ungulates such as deer and reindeer. Hunting for these is usually a male role because of the upper body strength required and the need to be free of children. Pregnant women and women carrying small children (prone to cry) are likely to be especially unsuccessful as large game hunters. As a result, women and their children are dependent on male provisioning for survival during cold winters. In turn men become selected for the willingness to provide such provisioning and women for the ability to persuade men to provide it.

Male mating strategies are often described as being on a continuum between "Cad and Dad". Those on the cad side devote most of their efforts to achieving matings. Those on the dad side help to bring up the offspring they have helped to create. The choice of mating strategy appear to be affected by genetic factors, (i.e. are at least partially heritable). The strategy that produces the most offspring will increase over time. In the colder areas (Eurasia) males who do little to provision their offspring, and instead spend their resources seeking additional mating opportunities, may impregnate more women and produce more babies. However, they will have fewer of their babies grow up to produce grandchildren. The end result is fewer grandchildren. The men will be selected for a higher degree of faithfulness. The selection for aggression and risk taking will be less. Even if winning dominance fights with others results in mure impregnations, dying while one has children to be provisioned will likely result in fewer surviving offspring. The result will be selection for less aggression and longer lives.

In contrast, in tropical areas, even if the father does little provisioning, mothers can gather enough food to rear their children. Having multiple wives and supporting multiple families becomes feasible. Male strategies of high aggression and risk taking that increase the chances of wives result in more offspring. More details on the argument are supplied in Miller (1994).

Even after the coming of agriculture, the more northern areas adopted plough agriculture where an animal pulled the plough and a male was required to control the animal and handle the plough. This made polygamy impractical for more than a minority of the population. For some reason, possibly related to g\eographical isolation and disease that affected draft animals, the tropics tended to retain a horticultural system of agriculture. With horticulture, women can do most of the work and grow enough to support their children. Thus, in tropical areas, the route to male reproductive success was tilted towards actions likely to result in a maximum of impregnations.

The result is racial differences in reproductive strategies that exist even today. Negroids follow a mating strategy tilted towards multiple matings. Caucasians and Orientals tilt their strategy towards provisioning, which implies monogamy. The result is differences in family structure. These can be seen even in American cities with many more single parent families among the blacks. This goes along with higher rates of poverty.

This same differential paternal investment theory can be used to explain racial differences in intelligence. Where male provisioning is not critical, female mate choice is relatively simple. She can select for good genes as signified by health, appearance, vigor, and fighting ability. There is relatively little scope for male deception regarding traits that can be appraised by inspection. In contrast, where male provisioning is important, females (or relatives choosing for them) choose mates partially on the basis of their ability and willingness to provision. Making this choice in itself requires considerable intelligence since deductions must be made about the male's future behavior from his previous behavior. Naturally, males have an incentive for deceptions about their future intentions. Males with higher intelligence have an advantage in pulling off such deceptions, and higher intelligence females have an advantage in seeing through the attempted deceptions. Because of the importance of male provisioning, women have an incentive to convince possible providers that they are the biological father of the woman's children. Doing this convincing requires intelligence, and detecting an attempted deception requires intelligence. Females try to convince males they have been faithful and/or will be faithful. Doing this convincing requires intelligence, and detecting cheating requires intelligence. The result is stronger selection for intelligence in northern climates than in southern climates.

The regional variation in evolved intelligence persists. Intelligence and latitude are correlated, and the average intelligence of nations correlates with their incomes. For more on this see Lynn and Vanhanen (2002) or the review article discussing it in this journal (Miller 2002). Within countries, intelligence and income correlate with race (Negroids are less intelligent than Caucasians or Orientals), which is to say they correlate with the climate where the original population evolved. In turn, the intelligence differences appear to explain the differences in income between the races. The best documentation that there are IQ differences between the races and that these are probably genetic is in Jensen (1998). The documentation that intelligence differences are important, as well as that they differ by race is found in Herrnstein and Murray (1999).

Thus, while evolutionary psychology clearly has implications for economics, they are probably best developed by using evolution to explain the basic human drives and differences, while retaining the traditional tools of economics.

Edward Miller

References

Barash, David P. and Judith Ever Lipton

2001 The Myth of Monogamy, Fidelity and Infidelity in Animals and People. New York, Freeman and Company (2001).

Frank, Robert H.

1999 Luxury Fever: Why Money Fails to Satisfy in an Era of Excess Free Press; (1999).

Hermstein, Richard J., and Murray, Charles

1999 The Bell Curve: Intelligence and Class Structure in American Life , Free Press.

Hewlett, Sylvia Ann and Syliva Ann Hewlett

2002 Creating a Life: Professional Women and the Quest for Children, 2002.

Jensen, Arthur

1998 The g Factor: The Science of Mental Ability (Human Evolution, Dehavior, and Intelligence), Praeger Publishers; (January 1998).

Lynn, R.

1996 Dysgenics: Genetic Deterioration in Modern Population, Westport: Praeger.

Lynn, Richard and Tatu Vanhanen

2002 IQ and the Wealth of Nations (Westport, CT: Praeger, 2002).

Miller, Edward M

1975 "Status Goods and Luxury Taxes," American Journal of Economics and Sociology, April 1975, 141-154.

Miller, Edward M.

1997 "Income, Intelligence, Social Class, and Fertility," Journal of Social, Political, and Economic Studies, Vol. 22 (Spring 1997) No 1, 99-121.

Miller, Edward M.

2000 "Luxury and Status: Why Money Fails to Satisfy in an Era of Excess," Journal of Social, Political, and Economic Studies, Vol. 25 (Spring 2000) No. 1, 99-106.

Miller, Edward M.

2002 "Differential Intelligence and National Income," Journal of Social, Political, and Economic Studies, Vol. 27 (Winter 2002) No. 4, 513-522.

Miller, Edward M.

1998 "Why Race Matters: Race Differences and What They Mean" Journal of Social, Political, and Economic Studies, Vol. 23 (Summer, 1998) No. 2, 360-366.

Copyright Council for Social and Economic Studies Fall 2003

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