Failing Homo economicus

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Failing Homo economicus

Imagine yourself betting on the long-term survival of two types of people. One is the classic egoist, focused and ruthless. The other is more selfless, willing to help fellow humans without any evident gain. Who will be more successful?

For anyone steeped in the prevailing thinking of our era, the obvious winner is the egoist. Darwinian evolution and the lore of modern capitalism tell us that only fierce competitors survive. Altruists, game theorists teach us, are mathematically incapable of achieving dominance. Acts of cooperation are either errors born of ignorance or purely selfish strategic moves aimed at getting something of greater value.

The idea that biological competition favors the greedy, creating the ultrarational and incentive-driven Homo economicus, remains at the core of the models economists use to understand the world. It is taught to millions of students and informs the decisions of the planet’s most powerful policy makers.

Problem is, the “hard-headed,” supposedly scientific take on human behavior bears little relation to reality. An overwhelming body of research demonstrates that helping behaviors (or, as economists like to say, “other-regarding preferences”) are the norm in human interactions around the globe. This raises the question: If it really does pay to be greedy, why do humans act differently?

So far, there’s no definitive answer. But there is some evidence that rational self-interest isn’t always the best strategy. In conditions of harsh competition, Homo economicus might not prevail.

In a recent study, several scientists at the Swiss Federal Institute of Technology in Zurich examined a classic situation in game theory known as the prisoner’s dilemma. It involves two participants in the same crime who are being interrogated separately. They stand to receive the least combined prison time if neither confesses, but each can go free by ratting out the other. Rational incentives and strict self-interest lead both to confess, earning them the maximum possible combined prison time. They can beat the game only if other factors, such as genetic relation or repeated interactions, make it possible for them to cooperate.

The prisoner’s dilemma is a proxy for many situations in which self-interested behavior has broadly negative consequences. As such, it’s useful in studying the processes driving such phenomena as pollution, global warming, overfishing and tax evasion.

The Swiss team ran simulations in which hundreds of people (semi-intelligent computer agents) met in pairs to play the game. Some of the players acted in pure self-interest, while others had the potential to care about their counterparts’ payoffs. The helping trait could spread in the population, with parents passing it on to their offspring, only if it actually helped people gain resources and reproduce. Homo economicus had an apparent advantage, never spending any resources on others, whereas the “nice” species commonly wasted resources to benefit others.

The surprising result: In many simulations, the nice species ended up doing better than Homo economicus. How? The cooperative types tended to cluster and interact with one another preferentially, thereby benefiting from each other’s selfless behavior. The researchers called the winning species Homo socialis - quite rightly, as it isn’t blind to the potential of social interactions to enhance well-being.

The findings could have important implications for policy makers. They suggest that institutions - that is, the details that define how people interact - have a big influence. The cooperative Homo socialis emerges only in the right institutional environment and can easily be exterminated by the wrong one. Institutions built on self-interest, such as corporate-governance rules that require executives to place the interests of shareholders over those of society, may perversely prevent more cooperation from emerging only because they take an outdated view of human behavior.

The take-home point is that Homo economicus is an oversimplified caricature who, in many situations, fails to benefit from real possibilities. Greed isn’t good, as Gordon Gekko famously said in the film “Wall Street.” In many cases, it’s not even very smart.

* The author, a theoretical physicist and the author of “Forecast: What Physics, Meteorology and the Natural Sciences Can Teach Us About Economics,” is a Bloomberg View columnist.

by Mark Buchanan
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