verbumlogos: Economics

Economists have more to learn from the natural sciences if they are to claim a realistic model of human behaviour

You’ve come to a canteen for lunch: at one end of the counter, you see juicy fat burgers sizzling on a grill and, at the other end, healthy-looking salads. After a little hesitation, you choose the burger. “Cheese and bacon with that?” Well, why not?

Classical economists, perhaps uniquely among members of the human race, would assume you made your decision fully aware of the implications of your actions, that you weighed up those implications and came to the conclusion that, all things considered, the cheese and bacon burger is the better choice. But I for one am rarely so rational and frequently rue my failure to take the healthy option. Considering there are more than a billion people worldwide who are overweight, I’m guessing I’m not alone.

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Some economists have realised this and, given the failure of classical models to predict the financial crisis, their young discipline of behavioural economics is now enjoying something of a heyday. They are convinced that accurate models and good policymaking require accurate approximations of real-life human behaviour. They therefore try to take into account our most predictable foibles, such as a tendency to short-term thinking. Economists’ knowledge of these foibles comes from other disciplines – psychology mostly – so they are always playing catch-up. But ever more research on the depths of our irrationality suggests they are still way, way behind.

Take nudging. The idea is that when economists and policymakers understand the ways in which we are predictably irrational, they can tweak policies so that we make the right choices despite ourselves. So, for example, we could make sure the salads are presented at eye-level at the entrance to the canteen, and the burgers are tucked away somewhere at the back.

Since the publication of the book Nudge in 2008, this art of gentle manipulation without restricting freedom of choice has become the new big idea in politics; one of the authors, Richard Thaler, is now a consultant for David Cameron, while the other, Cass Sunstein, has been given a senior position in Barack Obama’s White House. It is an approach to market intervention acceptable to both left and right, promising cheap, practical, “third-way” solutions to many of our pressing social and economic ills.

But what if a lot of people still buy burgers in artery-clogging quantities even if they have to walk past the health food to get to them? I know that every time I go to a certain Swedish furniture megastore, that part of me that speaks up for the salmon salads (displayed first and at eye-level) is easily bludgeoned into silence by the part of me that wants those fatty little meatballs in creamy sauce. If the depths of our irrationality is such that we will hunt down the burgers (or equivalent) wherever they are hidden, then nudging will not be enough.

And this is just what the latest research is showing. Three new books bring the evidence together from a wide range of disciplines: in Deceit and Self-Deception: Fooling Yourself the Better to Fool Others, the eminent biologist Robert Trivers argues that we have evolved to distort our image of reality systematically. Dean Buonomano makes similar claims in Brain Bugs: How the Brain’s Flaws Shape Our Lives, but focuses on his own field, neuroscience, for evidence. And in I’ll Have What She’s Having: Mapping Social Behaviour, two anthropologists and a marketing guru argue that behavioural economics and Nudge theory do not take adequate account of our social nature.

Trivers’ Deceit and Self-Deception is the most original and important of these works. In it, he attempts to construct a grand theory of deception, arguing that we continually paint a distorted picture of the world so that we might more easily get our way with others. So we inflate our achievements, play down our failings and rationalise away our mistakes.

Widely regarded as one of the most important evolutionary theorists of our time, Trivers argues that we have evolved these tendencies over hundreds of thousands of years – and, indeed, share many of them with monkeys.

Deceit and Self-Deception is a remarkable book, thick with ideas, yet relaxed and conversational in tone. Perhaps most remarkable is how ruthlessly Trivers confronts his own self-delusions: among other disarming confessions, you can read about how he was easily conned in Jamaica because he was so confident he understood the local culture, and how he nearly died while showing off in the hope of diverting a young lady’s attention away from his “more muscular nephew”. If we all examined our faults and foibles as honestly as Trivers does, the world probably would, as he hopes, be a more decent place.

The book is vast in scope, covering every aspect of our lives from sex to religion, family to war. But Trivers reserves particular ire for the failings of economic theory: it “acts like a science and quacks like one” he writes, but it is not one. Its key ideas are naive and circular: it assumes we make our choices as rational utility maximisers, for example. And what is utility? It is whatever we, in fact, choose. There is no room in such a theory for me to plan to buy a salad, then persuade myself when faced with the cheeseburger that it is the superior option (“just this once”) only to regret it later. “Yet,” he rages, “such is the detachment of this ‘science’ from reality that these contradictions arouse notice only when the entire world is hurtling into an economic depression based on corporate greed wedded to false economic theory.”

Trivers would like to see economics rebuilt on new foundations: those of evolutionary biology. But many of his specific claims are far from solid. They suffer from the broader weakness of his discipline: that claims about the evolutionary usefulness of this or that trait are notoriously difficult to test and relatively little is known with certainty about our prehistoric past. Some of Trivers’ theories, therefore, go far beyond the evidence – such as his claim that the rate at which new religions emerge is a function of the number of diseases in a given area. Perhaps Trivers, a grand old man of his field, can indulge himself in such speculations, safe in the knowledge that a generation of graduate students will earn their spurs trying to fill in the gaps.

Buonomano’s book Brain Bugs begins on more solid ground – the recent insights of neuroscience. His aim is to show how the specific structures of our brain have evolved over millennia in ways that have ill-prepared us for “the digital, predator-free, sugar-abundant, special-effects-filled, antibiotic-laden, media-saturated, densely populated world we have managed to build for ourselves”. And he begins well, with a fascinating account of the way memories are made, and how these particularities frequently lead us into error. As he makes clear, this has real world impact, from forgetting your phone number to identifying the wrong person in a police line-up to developing entirely false memories of parental abuse.

But where it leaves neuroscience for broader speculation, Brain Bugs is derivative or superficial. Like Trivers, Buonomano is at his weakest when theorising about what “brain bugs” lie behind religion. His astonishingly naive answer (that religion partitions off unanswerable questions so we can get on with the real work) only demonstrates that many scientists cannot resist using their pet theories to have a dig at the irrationality of spiritual belief, yet do so with a laziness that discredits the discipline whose very superiority they are advocating.

But Buonomano is spot-on when he applies his understanding of the brain’s inherent blips to the potential of Nudge theory. Generally, he welcomes the recognition of behavioural economics that we are frequently far from rational. Yet nudging, he argues, is “ultimately limited in reach ... the effects are often relatively small, helping some people, but far from all, improve their decision”. If we are hardwired to salivate at the prospect of salty, fatty meat, most of us will happily walk past the salad counter to get some.

Whereas Trivers argues that economics should be based on a better understanding of our evolutionary history and Buonomano argues it needs a better understanding of the brain, the three authors of I’ll Have What She’s Having argue that it underestimates the extent to which we would rather copy others than think for ourselves. In making their case that “we are not the rational computers that classical economics presupposes,” Alex Bentley, Mark Earls and Michael J O’Brien claim that, instead, we mostly just do what everyone else does.

Their case is strong: we do, indeed, first copy our parents, then our peers, then anyone who seems to be doing well for themselves. And we are frequently right to do so: if you want to work out how to use the Tokyo Metro, you could do worse than to stand back for a minute and watch everyone else. But the real value of this book is in its attempt to work out what our copying instinct means for predicting the behaviour of large populations. The authors cleverly show how the resulting patterns diverge from what is predicted by classical economics – especially when there are a large number of people involved or a large number of similar options to choose from. So rational choice theory might help predict whether one individual will invest in a fund, but will not tell us anything about which investment funds will prove popular nationwide.

But it is surprising that this book sells itself as an alternative to current thinking in behavioural economics. Thaler and Sunstein’s Nudge deals extensively with social influence – indeed, this is one of the three pillars of their theory, a fact the authors of I’ll Have What She’s Having fail to acknowledge. They might be right that their work is a step beyond Nudge but it is a much smaller step than they suggest.

However, taken together, these books make a strong case that behavioural economics has some way to go before it can claim a realistic model of human nature. They also reveal a problem at the very heart of Nudge theory: it assumes that our wise leaders will use their powers to nudge us for our own good. But why should we think they are any less self-deceived and irrational than the rest of us?

Trivers cites fascinating research showing the extent to which power corrupts: experiments have shown that “when a feeling of power is induced in people, they are less likely to take others’ viewpoint and more likely to centre their thinking on themselves.” When this comes together with other widespread cognitive failings, such as an illusory sense of control and removal from the consequences of their actions, the result is politicians who are short-sighted, bellicose and focused on little beyond their own re-election.

And as Buonomano points out, history shows that when politicians do grasp the nature of our mental limitations, they are as likely to use this knowledge “to control public opinion, ensure loyalty and justify wars” as to nudge us into eating more salad. This is an image of our leaders with which the “Occupy” protesters in St Paul’s and around the world would readily agree. We might join them in asking: who is nudging the nudgers?

Stephen Cave is a writer and philosopher based in Berlin. His book, ‘Immortality’, is published next year by Random House

Deceit and Self-Deception: Fooling Yourself the Better to Fool Others, by Robert Trivers, Allen Lane, RRP£25, 416 pages

I’ll Have What She’s Having: Mapping Social Behaviour, by Alex Bentley, Mark Earls and Michael J O’Brien, MIT Press, RRP£15.95, 136 pages

Brain Bugs: How the Brain’s Flaws Shape Our Lives, by Dean Buonomano,Norton RRP£16.99, 240 pages