Will Homo Economicus Evolve?

Paul Seabright, an economist who wrote The Company of Strangers: A Natural History of Economic Life, has a nice piece in the Financial Times that points out how economists have missed the Darwinian revolution:

If the news that 2009 will see worldwide celebrations of Charles Darwin’s 200th birthday has passed you by, you may have spent the last year living on Mars, or being home schooled in Kansas. Or you may just have been hanging out with economists.

The economics profession has paid little attention to the intellectual revolution that followed the publication of Darwin’s Origin of Species, whose 150th anniversary is also celebrated this year.

There have been, it is true, many attempts to draw analogies between economic competition and the struggle for survival that drives natural selection. The current crisis may even bring these back into fashion, though the survivors of the bloodbath in banking may turn out to be the most politically well-connected rather than the fittest in any other sense.

But economics as a discipline, also some two centuries old, sees little use for the insight that human beings share recent common ancestors with the apes. Economic man crunches data like a computer, pursuing private goals that are simply too personal to be worth discussing.

Nowadays, behavioural economics is booming. But it is largely a descriptive science, documenting the way man has short-sighted preferences, or miscalculates risks.

These are conceived as flaws in the make-up of Homo economicus rather than adapted traits in the make-up of Homo sapiens. The methods of evolutionary biology play almost no part in behavioural economics as it is done today.

If Darwin had been around to reflect on the financial crisis, he might have reminded us, in his diffident way, to think of human beings not as inadequate calculating machines, but as remarkably well-adapted apes.

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The problem is that many primates do not adapt well to life in zoos, and Wall Street is the biggest and strangest zoo of them all.

It presents our large primate brain with vast challenges, of which the greatest has been solving strategic reasoning of the thousandth degree.

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The big surprise of the last three months to economists has been that professional investors behave with as much of a group instinct as retail investors.

But it would not have surprised Darwin: professional investors are just another primate population. If you want to change their behaviour you have to change the way it feeds back not just into their pay packets, but into the status competition and coalition formation in their chosen peer-group.