New paper squares economic choice with evolutionary survival

Date:
July 27, 2020
Source:
Santa Fe Institute
Summary:
Unlike businesses or governments, organisms can't go into
evolutionary debt -- there is no borrowing one's way back
from extinction. This can lead to seemingly irrational economic
choices that suddenly make sense when viewed as a multiplicative,
evolutionary process.



FULL STORY ==========================================================================
If given the chance, a Kenyan herder is likely to keep a mix of goats
and camels. It seems like an irrational economic choice because goats
reproduce faster and thus offer higher near-term herd growth. But
by keeping both goats and camels, the herder lowers the variability
in growth from year to year. All of this helps increase the odds of
household survival, which is essentially a gamble that depends on
a multiplicative process with no room for catastrophic failure. It
turns out, the choice to keep camels also makes evolutionary sense:
families that keep camels have a much higher probability of long-term persistence. Unlike businesses or governments, organisms can't go into evolutionary debt -- there is no borrowing one's way back from extinction.


==========================================================================
How biological survival relates to economic choice is the crux of a new
paper published in Evolutionary Human Sciences, co-authored by Michael
Price, an anthropologist and Applied Complexity Fellow at the Santa
Fe Institute, and James Holland Jones, a biological anthropologist and associate professor at Stanford's Earth System Science department.

"People have wanted to make this association between evolutionary
ideas and economic ideas for a long time," Price says, and "they've
gone about it quite a lot of different ways." One is to equate the
economic idea of maximizing utility -- the satisfaction received from
consuming a good -- with the evolutionary idea of maximizing fitness,
which is long-term reproductive success. "That utility equals fitness
was simply assumed in a lot of previous work," Price says, but it's "a
bad assumption." The human brain evolved to solve proximate problems in
ways that avoid an outcome of zero. In the Kenyan example, mixed herding diversifies risk. But more importantly, the authors note, the growth of
these herds, like any biological growth process, is multiplicative and
the rate of increase is stochastic.

As Jones explains, most economics is additive -- adding value, adding
utility.

But evolutionary fitness is multiplicative, so it can't tolerate zero. The
size of the Kenyan's herd next year is essentially the size of the herd
this year times the net birth rate. If there is ever a zero in that
equation -- a drought kills the whole herd of goats -- it becomes a catastrophic loss that the herder can't overcome.

"These multiplicative factors influence variables that matter for
evolutionary fitness," Price says. In the herder scenario, the decision
to diversify ultimately benefits fertility and the long-term survival of
the family. The two liken major life decisions -- diversifying the herd,
buying a house, having more kids -- to lotteries with inherent risks
and uncertain payoffs. They theorize that evolution strongly favors "pessimistic probability weighting" - - choosing lower-profit camels
despite the immediate potential payoff of goats.

In the long run, Jones says, this may "leave money on the table" but it
keeps people in the evolutionary game.

Price gives another example: climate change. From a purely economic
standpoint, he says, one could argue it would be cheaper to do nothing now
and wait until geoengineering offers a solution however many years down
the road. But we don't know all the risks and potential consequences
of multiplicative factors like Arctic permafrost thaws and oceanic
circulation changes coming together at once. "We should probably deal
with climate change," Price says, because "the success of our species is probably way more important than eking out a little bit more efficiency
over the next five years of economic growth." Price also hopes to apply
these ideas to archaeology. "I am interested in pushing this perspective
into the past." He aims to study the problems and decision-making patterns
that preceded the Maya collapse.


========================================================================== Story Source: Materials provided by Santa_Fe_Institute. Note: Content
may be edited for style and length.


========================================================================== Journal Reference:
1. Michael Holton Price, James Holland Jones. Fitness-Maximizers Employ
Pessimistic Probability Weighting for Decisions Under
Risk. Evolutionary Human Sciences, 2020; 1 DOI: 10.1017/ehs.2020.28 ==========================================================================

Link to news story: https://www.sciencedaily.com/releases/2020/07/200727145817.htm

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