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Human Nature and Economics

Human Nature and Economics. Good and Bad. 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?. To what extent are desirable ends constrained by human nature? Is insatiability a human characteristic?

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Human Nature and Economics

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  1. Human Nature and Economics

  2. Good and Bad • Write a list of 5 behaviors characteristic of a good person • Write list of 5 behaviors characteristic of a bad person

  3. Why Study Human Nature? • To what extent are desirable ends constrained by human nature? • 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

  4. Why Study Human Nature? • To what extent are allocative mechanisms constrained by human nature? • Are we inherently competitive, cooperative, or both? • Are we rational, emotional, or both? • Are people the same everywhere?

  5. Will Competition or Cooperation Solve Society’s Current Crises? • 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?

  6. What is the conventional economic model of human nature? • Homo-economicus • Self-interested • Insatiable • Rational • Competitive • Is this closer to your depiction of a good person or a bad person?

  7. Market Economics Driven by Competition • Assumes humans insatiable, always act in rational self interest, do not care what happens to others • Must design a system that leads to greatest good for greatest number • Rewards greed and selfish behavior • Invisible hand • “Virtue of Selfishness” • How do we test market theory?

  8. How do we test these assumptions? • Study history • Game theory and games • Experimental economics • Neuro-economics • Psychology and economics • Evolutionary biology

  9. Are People Insatiable? • Insatiable!

  10. Evidence from history, evolution and behavioral economics • Hunter-gatherer economies • Absolute vs. relative wealth • Widow birds • Status treadmill • Alternative forms of status

  11. Human Needs • Market goods only one of many human needs • Needs consistent across time and cultures • How we satisfy them differs • Satiation occurs • Pseudo-satisfiers

  12. Are People Rational?

  13. Split into two groups. Group 2 leave room

  14. Group 1 • Serious flu will kill 600 people • 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

  15. Group 2 • Serious flu will kill 600 people • 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

  16. Are People Rational or Emotional? • Out of control trolley • Losses vs. gains • WTP vs. WTA • Is perfect rationality possible in a complex world?

  17. Do people care about the future?

  18. What are our attitudes towards the future? Discounting • Would you rather have $10 today, or $12 in one month? • The discount rate • 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?

  19. How do we Discount? • Hyperbolic discounting • 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?

  20. Are we Purely Self-interested? • Game theory and experimental economics • Ultimatum game • Dictatorship game • Public goods game

  21. Or do we care about others? • H. comunicus, concern for fairness and community preferences • H. naturalis, concern for sustainability and whole system preferences

  22. Are we Competitive or Cooperative? Evidence from Neuroscience and behavioral econ • Neurotransmitters • Dopamine • Oxytocin • Neuroeconomics and prisoner's dilemma • Investment game • Oxytocin and trust • Altruistic punishment • Tit for tat

  23. Evidence From Evolution • Kin selection: Altruism, empathy, reciprocity evolve ifRB/C > 1 • C= cost of empathic behavior to individual • B=benefit to others • R= degree of relatedness • Group selection vs. individual selection • Pseudomonas species • Encompasses kin selection • Cooperation and energy abundance • Dictyostelium discoideum (amoeba) • Myxococcus xanthus (self-organized, predatory, saprotrophic, single-species biofilm called a swarm) • In humans, genetic and cultural evolution interact

  24. Are People the Same Everywhere? • Ultimatum game across cultures

  25. Why Does this Matter? • Desirable ends • Humans are satiable • We have a broad range of needs • Desired ends are in relationship to what others have • Allocative mechanisms • 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

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