Economics and Human Motivation Charles Darwin meets Adam Smith … · 2019. 4. 5. · Charles...

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Economics and Human Motivation Charles Darwin meets Adam Smith and Immanuel Kant J¨orgen W. Weibull Stockholm School of Economics Institute for Advanced Study in Toulouse January 18, 2019

Transcript of Economics and Human Motivation Charles Darwin meets Adam Smith … · 2019. 4. 5. · Charles...

Page 1: Economics and Human Motivation Charles Darwin meets Adam Smith … · 2019. 4. 5. · Charles Darwin meets Adam Smith and Immanuel Kant J¨orgen W. Weibull Stockholm School of Economics

Economics and Human Motivation

Charles Darwin meets Adam Smith and

Immanuel Kant

Jorgen W. WeibullStockholm School of Economics

Institute for Advanced Study in Toulouse

January 18, 2019

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1 Introduction

• Economics traditionally assumes selfishness, Homo oeconomicus

— An opportunistic creature without morality or concern for others

— A portrait of humans that most of us are reluctant to accept; ar-

guably almost everybody is to some degree guided also by other

motives, such as altruism, envy, inequity aversion, fairness, and

morality

• Why is then standard economics based on the premise that all economicagents are selfish?

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• Adam Smith’s (1776)

An Inquiry into the Nature and Causes of the Wealth of Nations

“As every individual [...] intends only his own gain, and he is in this, as in many

other cases, led by an invisible hand to promote an end which was no part of

his intention.”

“It is not from the benevolence of the butcher, the brewer, or the baker, that

we expect our dinner, but from their regard to their own interest”

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• Economists have since also studied “social” or “other-regarding” pref-erences:

— altruism (Becker 1974)

— inequity aversion (Fehr and Schmidt 1999)

— social efficiency (Charness and Rabin 2003)

• Some have suggested we should include moral values:

— Arrow (1973), Laffont (1975), Sen (1977)

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• Questions to be discussed today:

Q1: Is the hypothesis of pure self-interest empirically valid? If

not, what motives can then better explain data?

Q2: Does the hypothesis of self-interest have theoretical support

in terms of ”survival of the fittest”? More generally: What motives

have a survival value according to Darwinian evolutionary theory?

Q3: What are the implications for economic analysis and policy,

if pure self-interest is replaced/enriched by theoretically founded

motives?

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• Today’s discussion will be based on results from an ongoing research

project with Ingela Alger (Toulouse School of Economics and Institute

for Advanced Study in Toulouse)

• To our own surprise, we found that Darwinian evolution lead to pureself-interest only in special cases. In more general cases, it leads to a

combination of self-interest and Kantian morality, and sometimes also

a bit of envy

• Preliminary results from laboratory experiments suggest that such mo-

tivations may have stronger predictive power than pure self-interest

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• So what, precisely, is ‘Kantian morality’?

“Act only according to that maxim whereby you can, at the same time,

will that it should become a universal law.”

[Immanuel Kant, Groundwork of the Metaphysics of Morals, 1785]

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• Other moral systems, versions of ”Golden Rules”:

— Old testament: “Thou shalt love thy neighbor as thyself”

— Lao Tze (Taoism): “Regard your neighbor’s gain as your gain, and

your neighbor’s loss as your own loss”

— Aristotle: “We should behave toward friends as we would wish

friends to behave toward us”

— Confucius: “Never impose on others what you would not choose

for yourself”

— Hindu Mahabharata: “This is the sum of duty: do not do to others

what would cause pain if done to you”

— Buddhist Udana-Varga: “Hurt not others in ways that you yourself

would find hurtful”

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— The Eloquent Peasant (Egypt, 2000-1750 BC): “Do for one who

may do for you, that you may cause him thus to do”

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• Let us attack Q2!

What motives have a survival value according to modern Darwinian

evolutionary theory?

• In our first attack, we use ”evolutionary stability” in line with evolu-tionary game theory

• In our second attack, we use statistical methods from population biol-

ogy

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2 Evolutionarily stable utility functions

• Maynard Smith and Price (Nature, 1973) defined evolutionary stabilityas a property of strategies in symmetric and finite two-player games

under uniform random matching

• How define evolutionary stability of utility functions?

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Imagine the following scenario:

1. Individuals in a large population are now and then randomly matched

into groups of fixed size

2. The interaction within a group takes the form of a game in material

payoffs (say, money or calories)

3. Each participant has the same set of strategies available, and the ma-

terial payoff to any player is unaltered if two other group members’

would switch strategies with each other

4. Each individual in the population is endowed with some utility function,

by which we here mean a function that represents a preference ranking

of the vector of strategies used in his or her group

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5. Each individual strives to maximize his or her expected (subjective)

utility

6. Each individual’s preferences (utility function) is his or her private in-

formation

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2.1 Assortative random matching

• Suppose almost all individuals in the population have utility function, and only a small population share have utility function

• The former are called residents and the latter mutants

• The random matching is uniform or assortative. In the first case, all

individuals have the same chance of meeting a mutant. In the second

case, mutants have a higher chance than residents of meeting other

mutants

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• Examples:

— In a large anonymous market, random matching of buyers and sell-

ers may be approximately uniform

— In matchings among relatives, matching is assortative if children

inherit their preferences from their parents

— In societies with geographic, linguistic, and/or cultural structure,

matching may be more or less assortative

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Definition 2.1 (Alger and Weibull, 2013, 2016) A utility function is evo-

lutionarily stable against utility function if individuals with utility function

on average earn a higher expected material payoff than mutants with util-

ity function , in all Nash equilibria under incomplete information, in all

population states where the mutants are rare.

• The notion of Nash equilibrium is due to John Nash (1950), for which

he received the 1994 Prize in Economic Sciences in memory of Alfred

Nobel

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2.2 Homo moralis

Definition 2.2 An individual is a Homo moralis if his or her utility function is the expected material payoff obtained when other group members’

strategies are probabilistically replaced by the individual’s own strategy.

Extreme cases:

1. If with probability 1 no strategy is replaced, then we obtain Homo

oeconomicus: then is identical with the material payoff function, .

For = 2 this means ( ) = ( )

2. If with probability 1 all strategies are replaced, then we obtain Homo

kantientis, then is identical with the material payoff function eval-

uated when all players use the same strategy. For = 2 this means

( ) = ( )

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• In two-player games, the Homo moralis utility function is a linear com-bination of selfishness and Kantian morality:

( ) = (1− ) · ( ) + · ( )

where 0 ≤ ≤ 1 is the degree of morality

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2.3 Main result

Theorem 2.1 (Alger and Weibull, 2013,2016) There exists a Homo moralis

utility function, , that is evolutionarily stable against all utility functions

that are behaviorally distinct from . All utility functions that are behav-

iorally distinct from are evolutionarily unstable. The degree of morality,

, of the stable Homo moralis variety is uniquely determined by the assor-

tativity of the matching process.

• Intuition: Homo moralis with the right degree of morality preemptsmutants, since then the best a mutant can do, in terms of her material

payoff, is to mimic the residents

• Proof: Topological arguments similar to those used by John Nash(1950) in his existence proof for Nash equilibrium

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2.4 In sum

1. A new family of utility functions those of Homo moralis, are favored

by Darwinian natural selection

2. The Homo moralis family spans a continuum from pure selfishness, a

la Adam Smith, to pure Kantian morality

3. This result is very general, it holds for any group size and any sym-

metric aggregative game in material payoffs

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Having answered Q1, let us briefly study

Q1’: Do the results also hold within the framework of contemporary pop-

ulation genetics?

After that, we will turn to

Q2: Do the predictions hold up in controlled laboratory experiments?

Q3: What are the implications for economic analysis and policy?

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3 A population-biology approach

[Alger, Lehmann and Weibull, 2015, 2018]

Imagine

1. A large population divided into (a large number of) identical locations,

or islands, with a fixed number, , of individuals on each island. Each

individual occupies one slot (”breeding spot”)

2. The inhabitants of an island interact with each other. The interaction

is represented by an aggregative symmetric game in material payoffs

3. Each individual is endowed with a utility function that guides her

behavior. This utility function is the individual’s private information

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4. Evolution (genetic or cultural) takes place perpetually and stochasti-

cally over an infinite sequence of demographic time periods.

5. Within each time period, the game is played on every island. Some in-

dividuals die, others survive and some get offspring. Those with higher

material payoffs are more likely to survive and have more offspring

(a) Offspring inherit their (genetic or cultural) single parent’s utility

function

(b) Offspring compete for empty slots, those that arise when grown-up

individuals die, either on their native island or, by migration, on

another islands

(c) Offspring that do not obtain any empty slot die

6. We generalize the above scenario by allowing for random island ”wars”

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Definition 3.1 A utility function is uninvadable if the lineage (dynasty)

from a single mutant individual, endowed with any other utility function ,

gets extinct in finite time with probability one.

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3.1 Darwinian fitness

• An individual’s fitness is defined as the expected number of her imme-diate descendants: her surviving offspring, and herself if she survives

• We assume that this fitness depends on

— the individual’s own material payoff,

— the material payoffs to her island neighbors, and

— the average material payoff in the population at large

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3.2 Weak selection

• In evolutionary biology weak selection refers to situations in which thefitness effects of heritable traits are small and can be represented in

terms of their first-order effects

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3.3 Main result

Theorem 3.1 (Alger, Lehmann and Weibull, 2018) There exists a utility

function, , that is uninvadable under weak selection. In classic evolution-

ary scenarios it is a linear combination of (a) her own material payoff, (b)

the material payoff she would earn if a random number of her island neigh-

bors would switch to her strategy, and (c) her neighbors’ average material

payoff (with their actual strategies). The weight given to the third term is

negative if the risk of war is small, positive if the risk of war is large.

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• For symmetric two-player games:

( ) = (1− ) · ( ) + · ( ) + · ( )

where where 0 ≤ ≤ 1 is the degree of morality, and , if positive, isthe degree of altruism, and, if negative, the degree of spite

— A combination of self interest, morality, and altruism/spite (altru-

ism if 0, spite if 0)

— The coefficients and are uniquely determined by the evolution-

ary scenario:

∗ is lower the more migration there is

∗ is higher the larger is the risk of war, with 0 if the risk is

small and 0 if the risk is large

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3.4 In sum

1. A new family of utility functions, those of competitive moralists, are

favored by genetic and cultural (Darwinian) evolution

2. This family spans a continuum between selfishness (a la Adam Smith),

pure Kantian morality, and, in addition, some degree of spite or altruism

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• Having considered Q2 we now turn to Q2 and Q3

4 Experimental evidence

• To the best of our knowledge, Homo moralis and competitive moralistshave not been analyzed, or even known, before

• But is there any empirical evidence for their existence?

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4.1 A pilot study

[Miettinen, Fehr, Kosfeld & Weibull, 2018]

• Laboratory experiment with 98 master students in Zurich, to play asequential prisoners’ dilemma, with equal chance to be first or second

mover

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• For this data, we analyze the predictive power of:

— Homo oeconomicus (Adam Smith, 1776)

— Altruism (Becker, 1976)

— Inequity aversion (Fehr & Schmidt, 1999)

— Social efficiency (Charness & Rabin, 2002)

— Reciprocity (Charness & Rabin, 2002)

— Homo moralis (Alger & Weibull, 2013)

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RESULTS

model hit rate Selten scoreHomo oeconomicus (no parameters) 028 016Altruism (1 parameter) 040 002Inequity aversion (2 parameters) 053 028Social efficiency (2 parameters) 076 026Reciprocity (3 parameter) 076 026Homo moralis (1 parameter) 070 033

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4.2 A more comprehensive study

• Joint work with Ingela Alger and experimental economist Boris vanLeeuwen (Tilburg University)

• Experiments with 130 master students in Tilburg, each subject making18 decision in a handful of different games

• The analysis of the data has not yet been fully analyzed, but thereseems to be a strong case for heterogeneity in motivation, with a

dominant element of self-interest, a significant degree of (Kantian)

morality, and spite; in short, competitive moralists

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5 Implications for economic analysis and policy

• How will economic analysis change if we replace Homo oeconomicus

by Homo moralis with an arbitrary degree of morality?

• Instead of presuming pure self-interest, as traditional economics do, wenow instead assume partly morally motivated agents

• Economic analysis will then keep all its powerful tools but not be prej-udiced in favor of selfishness. I will allow for the whole spectrum of

intermediate degrees of morality, and the degree of morality will be an

empirical question

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5.1 Trust

• Trust varies across countries and over time, and trust is positively cor-related with economic prosperity and growth [Algan and Cahuc (2010)]

• A tool for experimental study: the trust game [Berg et al. (1995)]

— One individual, the investor, can send some money to another in-

dividual, the trustee

— The sent amount is multiplied by some factor, usually three

— The trustee decides how much of the gross return to send back to

the investor

• If both are Homo oeconomicus, the trustee sends back no money andthe investor therefore sends nothing

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• Yet, in experiments the average investor sends a significant share ofher endowment, and most trustees send back part of the gross return

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• What will Homo moralis do in such an interaction?

— Full investment materializes for sufficiently high (but empirically

non-plausible) degrees of morality

— As falls, investment falls, and less is paid back

— Eventually, at some low 0, investment ceases

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5.2 Environmental economics

• Arguably, the effectiveness of environmental policy depends to a largeextent on human motivation

• Let us very briefly analyze the behavior of Homo moralis in an otherwisestandard model of consumption with external effects [Musgrave (1959),

Arrow (1970)]

— A continuum of consumers, two consumption goods, one environ-

mentally neutral and one harmful

— The quality of the environment depends on aggregate consumption

of the second good, and hence each individual’s impact on the

environment is nil

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• Each consumer derives material well-being from own consumption and

from the quality of the environment, which depends on aggregate con-

sumption of good 2: (1 22)

• What happens if all individuals are identical Homo moralis with as

their material payoff function?

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• Classical economics necessary first-order condition on each individual’sconsumption generalize to

2 (1 22)

1 (1 22)=

21−

1· 3 (1 22)1 (1 22)

= 0 : Homo oeconomicus (only prices matter)

= 1 : Homo kantiensis (socially optimal environmental behavior)

0 1: Homo moralis refrains somewhat from consuming the environ-

mentally harmful good (3 0)

• Policy recommendation: combine environmental taxes with public in-formation about effects on the environment

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6 Conclusion

1. Behavioral and experimental economics, other social and behavioral sciences, every-

day observation and introspection suggest that human motivation is richer than pure

material self-interest

2. Two methodological distinct evolutionary theories suggest a combination of self-

interest and (Kantian) morality, and sometimes also spite or altruism (within-group

altruism only if conflicts between groups are frequent)

3. These generalizations of Homo oeconomicus fit nicely into the otherwise standard

framework of microeconomics and game theory

4. If Homo oeconomicus is replaced by Homo moralis or, more generally, competitive

moralists, then economists can rid themselves from the critique for being simple-

minded and cynical about human motivation.

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THANKS FOR YOUR ATTENTION!

AND GOOD LUCK IN YOUR STUDIES!