Absolute versus relative utility. Why homo sapiens is not homo economicus. Homo economicus, a theoretical construct, is assumed to prefer absolute utility. However, behavioral economicus suggests that homo sapiens actually prefers relative utility. Evolutionary biology explains the reasons.
Apparently, evolution has equipped us with a subconscious long-term perspective that often disagrees with the neoclassical economic assumption that we maximize utility in the here and now.There is an interesting observation in the post that is also borne out in fact.
The value of reputation can explain such enigmatic human customs as dueling in Europe, “saving face” in East and South Asia, and honor killing in some Muslim communities. For instance, the ancient Chinese practiced filial piety, in which family elders were revered to a degree that they were entitled to the best living conditions—the finest food, the coziest rooms, and the highest social status—even though they were too old to work. The logic: filial piety served as the gold standard for reputation. (How can we trust a person who won’t even treat his parents or grandparents well?) Without knowing the value of reputation, the practice of filial piety makes no economic sense. Clearly, the benefit of reputation warranted the cost of sacrifice.I was just reading that in China today, filial piety is a factor in one's credit score. Those who don't take care of their parents take a reputational hit.
There is also lifetime payoff versus immediate payoff. Homo economicus assumes immediate payoff, or short term payoff. Homo sapiens recognizes a tradeoff between immediate payoff and lifetime payoff, and has a bias toward lifetime payoff.
Evolution is a blind, amoral process, only caring about organisms that can leave behind the most copies of genes in their lifetimes, regardless of whether they behave selfishly or selflessly in the short term. That is, when the ultimate evolutionary prize is lifetime fitness, being either cooperative or competitive makes no difference, for they are the two sides of the same coin, serving the same end.
Humans have long lifespans and live in stable social groups. These conditions, as biologist Robert Trivers argues, favor cooperation, which often leads to better payoffs than what individuals can accomplish alone in the long run. That’s why prosocial behaviors have thrived in humans. Accordingly, rather than maximizing the utility in every one-shot deal as assumed in rational choice theory, being rational in evolution means behaving in a way that can lead to maximum lifetime payoff.
With the two conceptual modifications—relative and lifetime payoff—in rational choice theory, neoclassical economics can be made compatible with evolution and gain traction in the real world.Evonomics
Economics Can Explain the Real World with Two Fixes
Lixing Sun | professor of biology at Central Washington University