Book review from the New York Times — sounds interesting.
FOR A BETTER ECONOMY, WE NEED TO FIGHT OUR BETTER INSTINCTS
By NICOLE GELINAS
December 30, 2007 — The theme of Michael Shermer’s new book is a graceful paradox. Decades of study of behavioral psychology, neuroscience and genetics, layered over more than a century of evolutionary studies, proves that we’re not completely rational in making economic choices. But an understanding of our fascinating limitations, which Shermer provides, makes us freer than we were before we knew of them.
People and their governments make decisions based on “folk economics intuitions” – intuitions that are often false. One such intuition is that modern economies are so complicated that they can’t run themselves; they need direction from above. Shermer includes tales from mercantilist Europe right up to present-day controversies over monopoly at Microsoft to illustrate how easy it is for intelligent people to think that powerful officials must do something about a seeming market imbalance, that it won’t simply work itself out.
The author, an adjunct economics professor at Claremont Graduate University, compares the argument for top-down, centrally planned economics to the argument for intelligent design. Devotees of the latter often argue that “evolution” could not have designed something so complicated as the human eye, just as proponents of top-down economics argue, that, say, New York City needs the government to create jobs for the poor by doing things like build sports stadiums because the market won’t do it on its own.
Shermer easily demolishes another myth about both evolution and economics: that both depend exclusively on cutthroat, bloody-handed “survival of the fittest” competition to weed out the weakest creatures and companies. While competition obviously plays a vital part in the markets and in evolution, both primates and markets have evolved to depend on cooperation. Just as those among our hunter-gatherer ancestors who couldn’t cooperate in small societies risked punishment, including exile and death, today’s citizens, including top business executives, cooperate and complement each other across industry to serve customers as readily as they compete within a particular industry. People who can’t cooperate often face exile from the business world.
Further, research shows our brains actually experience pleasure when we cooperate, and studies in which people don’t cooperate – like in the Prisoner’s Dilemma, where each arrestee rats out the other – are often borne of extreme situations, such as a prohibition on any communication between participants, a handicap that isn’t common in the real world.
The most compelling chapters of Shermer’s book take us on an intimate tour of the best of the last half-century’s work in behavioral economics and neuroscience. Ever wonder why you like Coke better than Pepsi? A study has shown that when generic soda is labeled Coke, your brain actually tricks you into thinking it tastes better and produces more pleasure; branding wizardry can do that.
Ever wonder why you can’t bring yourself to sell that stock you bought 10 years ago even though it’s only lost you money since? Humans – and other primates – are more averse to losses than they are eager for gains. Ever wonder why casinos offer all those free meals and drinks? It’s not just to keep you from leaving to get sustenance. Free things activate a part of your brain that enjoys a reward, possibly helping to depress natural aversion to risk.
Ever wonder why you say you’re going to save money this year – then go out and buy that beautiful new suit, anyway? Our evolutionary ancestors knew that the future was uncertain – who know if you would even be alive next week? – so there wasn’t much desire to plan ahead.
One of our evolutionary shortcomings that lags the market, though, is that we’re best at being cooperative and trusting within our own groups, whether that group is a nation-state or a Wall Street bank. We have an evolved distrust of outsiders. But Shermer notes that good economics – free trade – helps to bridge that gap by encouraging trust across groups in addition to within groups.
Shermer notes that we must consciously choose freedom – all the more important since the temptation, in light of the weird decisions we sometimes make in the marketplace, is to surrender to someone who must know better.
The Mind of the Market
Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics
by Michael Shermer
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.
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