Tuesday, August 6, 2013

Why Homo economicus isn't very smart


I'm getting back tomorrow from extended travels in Poland and the UK and hope to resume some more frequent blogging. Just a quick note today to clarify my recent column in Bloomberg on Homo economicus and the payoffs to friendly types in Prisoner's Dilemma games. Several people commenting on Bloomberg have suggested that what I've said was known 20 years ago or was all evident from the famous work of Robert Axelrod on the iterated Prisoner's Dilemma. They don't seem to have taken a look at the specific paper I referred to in the piece, which is very recent, but maybe that's my fault as I didn't spell out what is new about this work as well as I could have.

This study by Thomas Grund and colleagues does not JUST look at the iterated Prisoner's Dilemma or point out that mechanisms of group selection can support the evolution of altruists. This is indeed already known and has been known for a while. However, these mechanisms are also subject to limitations depending on various factors such as group mixing. The current study looks at a situation in which individuals CAN care about the payoffs for others with whom they interact (their utility function has an other-regarding component). It assumes that this does NOTHING for their reproductive fitness, however, this being totally distinct from utility and depending on an individual's own payoff. In other words, the model assumes that helping behavior is costly.

So, why would someone come to care for about the payoffs to others? Why indeed. This is where the story gets interesting. Just let this be possible by giving everyone a "friendliness" parameter F reflecting how much they care about others (0 = no caring, 1 = a lot of caring). What the study shows is that, even if everyone starts out with F = 0, this situation is unstable to the evolution of caring behavior. If individuals pass on their friendliness (genetically or culturally) to offspring, then random variations in friendliness values, caught on the wing by selection, can spread through the population. In effect, friendliness, even though it matters not for actually fitness, can provide an organizational scaffolding that makes it easier for cooperators to find cooperators. The mere possibility of friendliness (you can call this arbitrary variable anything you like) allows a spatial segregation of the population that enables much higher levels of cooperation.

This is, I think, quite new and very different from earlier studies. It introduces an essentially new element. Homo economicus, in this world, suffers because he is not capable of responding as flexibly as are others in the population (i.e. making decisions on the basis of matters that have no link whatsoever to his fitness). Those who are more flexible -- and apparently unreasonable -- can come to dominate quite quickly in the right circumstances. From the paper:
However, why does this transition happen in just a few generations (see Fig. 1B), i.e. much faster than expected? This relates to our distinction of preferences and behaviour. When an ‘idealist’ is born in a neighbourhood with friendliness levels supporting conditional cooperation, this can trigger off a cascade of changes from defective to cooperative behaviour. Under such conditions, a single ‘idealist’ may quickly turn a defective neighbourhood into a largely cooperative one. This implies higher payoffs and higher reproduction rates for both, idealists and conditional co-operators.

The intriguing phase transition from self-regarding to other-regarding preferences critically depends on the local reproduction rate (see Fig. 2). The clustering of friendly agents, which promotes other-regarding preferences, is not supported when offspring move away. Then, offspring are more likely to encounter defectors elsewhere and parents are not ‘shielded’ by their own friendly offspring anymore. In contrast, with local reproduction, offspring settle nearby, and a clustering of friendly agents is reinforced. Under such conditions, friendliness is evolutionary advantageous over selfishness.
 


12 comments:

  1. I can see the Axelrod comparison - in Axelrod and Hamilton's Science paper they discuss initial viability and how clustering can lead to the emergence of cooperative behaviour. And despite the framing as the agents caring nothing for their reproductive pay-offs, cooperation spreads in Grund and colleagues' paper due to kin selection (kin clustered in a location). Similarly, the multi-level selectionists would frame those clusters as trait groups with higher fitness.

    If there is an original part of this paper relative to Axelrod's work, it is the utility function. But the interesting thing about the utility function is that, in the context of a local neighbourhood full of kin, the function has the agents acting in a manner that closely enough approximates Hamilton's rule for them to prosper.

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  2. Why do you denigrates Axelrod? I think it is fine

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  3. This comment has been removed by the author.

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  4. One of the authors on the paper I wrote about tried to post a comment here but had some technical problems. So I'm posting it for him (Dirk Helbing):

    Experts should note that there has been research on so-called "altruistic behavior" in social dilemma situations such as the prisoner's dilemma since more than 3 decades. However, if scientists would have understood the "homo socialis" with other-regarding preferences already before, the key concept of the "homo economicus" should have disappeared from the economic literature since a long time, but it didn't for a reason. In fact, the increasing empirical and experimental evidence for fairness preferences and unexpectedly high levels of cooperation in one-shot prisoner's dilemma, dictator and ultimatum games have been waiting for a convincing theoretical explanation until very recently. It is important here to distinguish between other-regarding preferences and cooperative ("altruistic") behavior. Other-regarding preferences means that people intentionally do not maximize their payoffs, but try to consider and improve the benefits of others. Most game theoretical work is strictly compatible with the concept of "homo economicus", identifying mechanisms that make it advantageous in one way or another to cooperate. For example, if the "shadow of the future" in repeated prisoner's dilemma interactions is long enough, it creates a higher payoff when people cooperate, and that's why they do it. In other words, some mechanisms such as repeated interactions, punishment, transfer payments, and others change the payoff structure of a prisoner's dilemma game such that there is no dilemma anymore. Martin Nowak has mathematically shown that many such mechanisms can be understood with Hamilton's rule, according to which people cooperate when the benefits of cooperation exceed the costs. Other work shows that cooperation in prisoner's dilemma games may survive if people imitate more successful behavior of neighbors, but if one believes in rational choice, why should people imitate, if they can reach a higher payoff by another behavior? In fact, all such cooperation in spatial prisoner's dilemma games disappears, if imitation is replaced by a "best response" rule, which assumes a strict maximization of utility, based on the previous decision of the interaction partners. In Ref. [4], Grund et al. have combined such a "best response" rule with standard evolutionary rules of mutation and selection, when people reproduce, and the outcome was a "homo socialis", if offspring stay close to their parents, which they often do. But the transition is not smooth. It requires a phase where unconditionally "friendly" behavior is dysfunctional and happens only by mistake. Random spatio-temporal coincidence of a friendly trait is equally important for other-regarding preferences to emerge. However, conditionally cooperative behavior resulting from other-regarding preferences may also occur between strangers, i.e. they do not require genetic relatedness, as the following movie shows: 
    http://vimeo.com/65376719 These new discoveries mean that key concepts of both, the theory of evolution and of economics, must be reconsidered.

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    1. This framing is very much in the style of multi-level selection. In the article, Grund et al. note that group selection cannot work with mixing, but David Sloan Wilson and others' conception of multi-level selection allows this mixing through the formation of "trait groups" - the conditionally cooperative groups of unrelated individuals observed by Grund et al. The paper provides an interesting demonstration, but I am struggling to see how this requires reconsideration of evolutionary theory beyond the framing proposed by Wilson and others.

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  5. To my mind the way of ccoperation between people nowadays shifts from an individual so to say way to a cooperative one. In many cases frienly behaviour and altruism bring people additional benefit, whether in the way of money assistance, sharing the market or getting additional services. So I am sure a new generation of businessmen will make our society a "largely cooperative neighbourhood".

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  6. The homo economicus term itself refers to an abstract unity describing a rational human being. The simplification is useful as long as economists draw out smart theories and models. And this is the same reason why these theories fail from time to time. Men are interational, they always want more... more risk, more money, more opportunity... they developed internet service 24/7 mostly to entertain themselves than for rational reasons. Regarding others is not the key at this point of time.

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