Markets

Want to Make Hunter-Gatherers Irrational? Expose Them to Free Markets

Modern capitalism and the evolution of rational decision making

Share with your friends










Submit
More share buttons
Share on Pinterest

By David Berreby

A well-known example of irrational decision-making people’s tendency to overvalue the things they own (I would pay $1 for a coffee mug but will demand $5 for an identical coffee mug that happens to be mine). This bias of “the mind” is called the “endowment effect” and is often assumed to be universal (and therefore explained as the work of evolution). But in this paper Coren Apicella, Eduardo Azevedo, James Fowler, and Nicholas A. Christakis found that some people and some minds don’t have this bias at all. Rather than being built-in to human nature, they write, the endowment effect may be a habit of mind that people learn in market-oriented societies. If that’s true, it means that (for this trait at least) the hunter-gatherers described in the research were more rational before they were exposed to modern capitalism.

Apicella et al. ran their experiment on 91 Hadza Bushmen, who are among the last hunter-gatherer groups on the planet. In northern Tanzania, where they live, eco-tourism has created an almost-perfect sounding “natural experiment” to test for the effects of contact with modernity, the authors write. This is because some Hadza live near a major road, and have become assimilated into the tourist trade. During the three or four month high season for the tours, 10-20 cars per week will stop at Hadza camps, sometimes hiring Hadza men to take the visitors on hunts. Hadza in this area now make more bows and arrows than they need, so they can sell them to tourists, and they often drop in to a nearby village to buy things with the money they’ve been paid by the tour guides. On the other hand, Hadza who don’t live near the road see very few tourists and aren’t involved in that economy at all.

Get Evonomics in your inbox

So the experimenters had two well-contrasted groups of Hadza (who were otherwise genetically and culturally identical)—45 people with “Low Exposure” to tour groups and 46 with “High Exposure.” In both groups, each person was shown two packets of biscuits, told that one was now his/hers, and then asked if s/he’d like to trade for the other. Then the experiment was repeated with two lighters.

Statistical analysis found that the “Low Exposure” Hadza had about a 50-50 chance of trading “their” item for the other—in other words, this group was completely realistic, seeing there was no reason to prefer one of two identical objects over the other. On the other hand, the “High Exposure” Hadza had a 75 percent chance of keeping “their” item rather than trading it. A geographical analysis found that living near the trading village reduced a Hadza’s probability of trading “his” item by nearly 30 percent. This is, the authors write, consistent with the notion that “isolated Hadza display no endowment effect and that some of the novel environmental cues in the HE region led to the emergence of the bias.”

It’s not clear if the “novel environmental cues” involved participating in the modern economy (as a performer or guide or arrow-maker for tourists) or if it was simply perceiving others’ behavior (for example, watching tourists deal with their guides or shopkeepers), but there does seem to be something about exposure to the culture of non-hunter-gatherers that generates the endowment effect.

That market culture gave us modern economics and the thus the very idea of “rational economic man.” And markets are supposed to be efficient machines for finding the true value of the goods and services they trade, regardless of people’s hopes and fears. This is part of the reason conventional wisdom associates free markets with the shedding of traditions, prejudices and other blinders that prevent us from seeing the cold, hard facts. In fact, there have been studies (for instance, this one) which found that people with a lot experience trading in real markets lose the endowment effect.

It’s a surprise then to find that exposure to market mores would seem to make people less rational. But it’s not impossible to reconcile the findings about hunter-gatherers and experienced traders. Perhaps the endowment effect is created by a casual exposure to market culture—occasionally buying or selling, sometimes watching others. Hadza who have never had this exposure lack the effect. On the other hand, for those who do have the effect, becoming an expert in one market can make it go away. In other words, perhaps the endowment effect is an artifact of moderate exposure to markets. People with no exposure lack it; people with lots of exposure can train themselves to lose it.

In any case, the other important lesson of this paper is that, as ever, theories about “the mind” shouldn’t be based on tests run only on minds that are Western, Educated, Industrial, Rich and Democratic, or WEIRD. And that, more generally, it’s always important to check one’s assumptions about what is innate and universal in psychology. “Whenever a pattern of human behavior is widespread, there is reason to suspect that it might have something to do with our evolutionary history,” a pair of biologists recently noted. True enough, but sometimes patterns of human behavior aren’t as widespread as we want to believe, in our eagerness to spin a theory. (People have, in fact, tried to find a reason why the endowment effect must have evolved to be a part of every human psyche—for example, here.) The attractiveness of such theories should make everyone a little cautious about the generalizations on which they rest.

Originally published here.

2016 May 4


Donating = Changing Economics. And Changing the World.

Evonomics is free, it’s a labor of love, and it's an expense. We spend hundreds of hours and lots of dollars each month creating, curating, and promoting content that drives the next evolution of economics. If you're like us — if you think there’s a key leverage point here for making the world a better place — please consider donating. We’ll use your donation to deliver even more game-changing content, and to spread the word about that content to influential thinkers far and wide.

MONTHLY DONATION
 $3 / month
 $7 / month
 $10 / month
 $25 / month

ONE-TIME DONATION
You can also become a one-time patron with a single donation in any amount.

If you liked this article, you'll also like these other Evonomics articles...




BE INVOLVED

We welcome you to take part in the next evolution of economics. Sign up now to be kept in the loop!

  • Derryl Hermanutz

    How many philosophers and theorists of “human nature” over the centuries begin with the assumption that our nature springs fully formed from the womb? John Locke (An Essay Concerning Human Understanding) is one of the few I have encountered who recognize that children are “encultured”, and their adult nature is a product of their enculturation.

    The assumption of a relatively fixed “human nature” should have dissolved after William James published The Principles of Psychology in 1890, when the nascent science of neuropsychology began to understand how we construct the worldview that conditions our experience of reality.

    But still today: How many people assume that their worldview-configured neural firmware presents them with an objectively true perceptual experience “of reality”? And are then baffled when two people observing the same reality cannot agree what is “really there”?

    People disagree about basic empirical facts, and disagree even moreso about human and social values. Inside each of our skulls are about 100 billion neurons firmwired by about 100 trillion axon-synapse connections. The number of permutations and combinations of arranging that many floating variables is effectively infinite. It is a wonder two humans can agree about anything at all.

    A “culture” homogenizes peoples’ beliefs and values so they can more or less agree about the facts and values of the worldview-conditioned experience of reality they are sharing. “Market economy” is a deficient worldview. Producing and consuming stuff and getting rich and poor in money and stuff is not “enough” to build a healthy culture.

    Preaching the deux ex machina workings of an invisible hand that automatically governs market society — without the need for deliberate human governemnt — is medieval theology pimped up for a supposedly post-superstitious rational era.

    Money — credit-debt and the bankers and financiers who wield it — pulls the puppet strings of the invisible hand that governs market society. But economic theology preaches money as a neutral medium of exchange. So the brainwashed masses believe the wealth and ownership structure of market society is the product of natural market forces, and are blind to the all-too-human financial powers who constructed a new industrial feudalism for a post-agrarian age.

    • Ormond Otvos

      Arguing that a large number of brain cells have infinite connections, and therefore there can’t be a significant “human nature” is no argument at all. There are many cells in the eye, but vision occurs despite their number. This is essentially a “blank slate” argument. See Pinker, Stephen “The Blank Slate”

      • Derryl Hermanutz

        You misread my comment. I didn’t say brain cells have infinite connections. I said the connections can be arranged in an effectively infinite number of different ways. Nothing I wrote suggested I believe in the blank slate idea. My point was about variability, and the role of culture in arranging the neural circuitry of individual members in culturally homogenous ways, to produce a shared worldview and a shared perceptual experience of life within their culture.

    • l777l

      Nonsense. Take a look at behavioral genetics. Consider the theory of evolution, as it applies not only to bodies anatomical, but also to body chemistry and brain (evolutionary psychology). Then check out “human universals”.

  • On the so-called endowment effect:

    “A well-known example of irrational decision-making people’s tendency to overvalue the things they own (I would pay $1 for a coffee mug but will demand $5 for an identical coffee mug that happens to be mine)”

    I want to buy low and sell high: what is irrational about that?

    Nothing. And certainly nothing irrational for people participating in a market or auction.

    The endowment effect is something important to theorists who work with the concept of certainty equivalents and utility functions which map to a real number,

    But, it is not an example of irrational choice. Not even close.

    • John M Legge

      You want “buy low and sell high”; in other words you want to cheat your trading partner by selling for more than you judge something to be worth and offering to pay less.
      This can only lead to loss of trust and the progressive disintegration of society. Who would wish to enter a market knowing that the traders will try to cheat them? Who will lift a finger to warn you of an oncoming disaster if you have successfully conned them?
      What is rational about trying to destroy the society in which you live and the markets that operate within that society?

      • l777l

        “You want “buy low and sell high”; in other words you want to cheat your trading partner by selling for more than you judge something to be worth and offering to pay less.”

        Wrong. Value is subjective. It’s the very point of exchange. Someone else has a better use for that piece of wood than you do. And you have a better use for that piece of fabric he owns, than he has for it. This is not a zero-sum game, nor a game of clones trading

        edit:

        “Who would wish to enter a market knowing that the traders will try to cheat them?”
        Without restricting the above in the least, someone who things he may be smarter than the other guy, and is willing to risk it. This, by the way, shows the value of information, and creates incentives for producing/gaining knowledge.

        • John M Legge

          “Buy cheap, sell dear” is pure arbitrage and represents at best the exploitation of knowledge asymmetry. Your example is exchange of different commodities; but by ignoring time you have over-simplified.
          Neither the wood nor the fabric in your example were endowments (I hope): you have acquired title to the wood by your effort and skill; likewise he acquired the cloth by the application of effort and skill. A mutual profit is now possible through the division of labour and differential skill acquisition.
          “Buy cheap, sell dear” is when you buy his firewood for $1 and when the weather turns cold, sell it back for $5.

          • l777l

            “”Buy cheap, sell dear” is when you buy his firewood for $1 and when the weather turns cold, sell it back for $5.”

            No, it’s not limited to the same two parties and selling back.

          • John M Legge

            Pure arbitrage requires deception. If you know that B needs firewood and A has it and will sell for a $1 the ethical course is to introduce them. Buying from A for $1 and selling to B for $5 is “buy cheap, sell dear” and the anyone who does it deserves the contempt of all.
            I don’t know what else you are getting at.

          • l777l

            No. If someone spends resources to gain information (such as who wants what, when, and how much), it’s fine to receive compensation. If one takes risks by investing and stocking things, it’s fine to receive compensation. Further, if one is free to sell one’s physical property, free to sell one’s physical labor, then one is free to sell one’s intellectual property, and one’s intellectual labor (– the “intellectual” is [a matter of] information).
            As for “deception”, not providing information (the classic example is that of the arrival of a ship with more goods) is not an act of deception. It’s neutral behavior. However, I understand the sentiment, and would prefer not to do business with someone who acts like that.

          • John M Legge

            You “would prefer not to do business with someone who acts like that.”

            You and 70% of the population. In a “normal” society people who “act like that” are ostracised or worse. The whole neoliberal era and the associated financialisation of the economy has been about normalising immoral behaviour.

            Quoting my own post above: “This can only lead to loss of trust and the progressive disintegration of society. Who would wish to enter a market knowing that the traders will try to cheat them? Who will lift a finger to warn you of an oncoming disaster if you have successfully conned them?
            What is rational about trying to destroy the society in which you live and the markets that operate within that society?”

          • Traders are trying to trade.

            What allows a trade is: asymmetric preferences, informations or beliefs.

          • John M Legge

            Not at all.

            Trade, as distinct from profiting by deception, requires that the seller can, by prior value adding activity, offer the buyer net benefits greater than the buyer could achieve by its own efforts. There is no moral challenge in claiming a share of the value added by exertion.

            Profiting from asymmetric information is, in the common belief of humanity, theft.

            My doctor knows more about the management of chronic conditions than I do. I accept his advice and pay his consultation fees and then buy and use the preparations that he prescribes. The information involved is extremely asymmetric.

            If a doctor prescribes preparation B instead of preparation A because the supplier of B offered him a kickback rather than because of any clinical indication most people would consider this immoral bordering on illegal but it is still trading on “asymmetric preferences, informations or beliefs.”
            I am not vindictive enough to hope that your medical practitioner subscribes to your moral code, but I am tempted.

          • Yes, and this is typical of your examples, in this case the doctor has a fiduciary duty towards his patients.

            Traders have no such duty, nor would it be wise to impose a general fiduciary duty.

          • John M Legge

            I don’t think that you understand the meaning of fiduciary.
            I wasn’t proposing to impose anything; but I was pointing out that arbitrageurs have the morals of a flea and deserve the contempt of all decent people. Economic theories that attempt to justify arbitrage threaten social cohesion. You may be happy with that, I am not.

          • “Profiting from asymmetric information is, in the common belief of humanity, theft.”

            With this, you go from the dense to the unbelievable in your misguided attempt to understand the debate, or what is at issue with this experiment.

            Since it would be theft in your view for me to educate you further, I thank you for contributions.

      • John, markets work because:

        a) most entering them want to buy low and sell high;
        b) most don’t see this as cheating;
        c) most traders have different preferences, beliefs and attitudes, which facilitates the trade.

        • John M Legge

          Arbitrage is generally seen as theft.
          When you say “markets” to refer to actual produce markets or an economic abstraction? At produce markets the stall holders earn a margin by breaking up wholesale quantities and presenting their offer attractively, both value-adding activities.
          In practically all non-financial markets, abstract as well as real, goods and services are offered for money by traders and suppliers who have added significant value: they earn their margins. Only in financial markets do we see identical products being offered at highly variable prices where the sole trading motive is, indeed, “buy cheap and sell dear”.
          Financialisation of the economy has accelerated inequality and amplified instability. It is a clear demonstration as to why “buy cheap and sell dear” is a slogan for the morally bankrupt.

          • You write: “Arbitrage is generally seen as theft.”

            By who? Who in general?

          • John M Legge

            The crime of obtaining advantage by deception. The arbitrageur must conceal the existence of a buyer from the seller.

  • l777l

    ‘Statistical analysis found that the “Low Exposure” Hadza had about a 50-50 chance of trading “their” item for the other—in other words, this group was completely realistic, seeing there was no reason to prefer one of two identical objects over the other. On the other hand, the “High Exposure” Hadza had a 75 percent chance of keeping “their” item rather than trading it.’

    How in the world is a group “realistic”/rational?

    All individuals in both groups behaved rationally, if the two choices are seen as equivalent. (Aggregation is irrelevant.) Further, in favor of the “capitalists”: there’s no point in trading an item for an identical one. Actually, here’s a reason to not trade: ask yourself, why would that person want to have your lighter? He has better information than you do (information asymmetry). And he’s probably not an altruist. So don’t trade. And why would you accept the first offer anyway?

  • Kris

    I think one could make the argument that an “anti-endowment” effect can also be reconciled with being a member of a market-oriented (and shopping-oriented) culture. In fact, coffee mugs are a perfect example. Because we have so much “stuff”, and can always buy more stuff, items we bought a while ago don’t necessarily retain their value to us (I’m not speaking of things that lose value or become obsolete or outmoded). For instance, the coffee mugs I was so excited about getting five years ago are now devalued in my mind in relation to a new set I want, and rather than demand even more than their initial value, I send them off to the Salvation Army or some such after getting the new mugs.

  • Helga Vierich

    (a tale from the Kalahari, fieldwork conducted in 1979, among a hunter-gatherer populaiotn known as the Kua)

    The affair of the spoons

    I arrived at the camp of //oa/e one afternoon and looked around in dismay. Three men were busy carving pieces of wood by the fire, ignoring the cries of the five small children who seemed to be waiting to have something to eat. Once in a while the oldest girl, about nine years old, would draw some small roasted on- ions from the ashes and share these with the chil- dren. But they were clearly not happy with this meagre fare and rushed around me when I sat down, asking if I had brought any mealie (maize) meal for them. I had, as a matter of fact, brought some with me and the older girl and I rapidly made ready a little cast iron pot to cook it. The older girls and all the women had gone out to get wood, and would hopefully also bring home some wild plant foods for the evening meal.

    But the men had done no hunting in over two weeks and were neglecting their trap-lines as well. The nine year old wiped her face wearily and mut- tered that no one had tasted meat in a long time and all their bellies were empty. I looked around and saw that the rough huts were in poor repair, and new large holes had appeared in addition to the ones that had still not been repaired from my previous visit. There were a few skins still piled in a corner but no work had been done to soften and make them usable for cloth- ing, blankets, or carrier bags. The piles of firewood were alarmingly low, and several of the fires seemed to have gone out all together. There was very little food stockpiled. None of the usual baskets filled with roasted wild beans, dried berries or fresh tubers were to be seen. There was absolutely no dried meat to be seen anywhere.

    You may be wondering now, if this picture was brought on by drought, or the mid dry season ‘hungry season’ when few fresh foods were available. No. This sad state of affairs was not the result of an eco- logical or seasonal calamity. It was pure economic breakdown. And it was all my fault.

    A few weeks earlier, I had set in motion the gradual dissolution of normal subsistence activities that kept these people fed and housed. I had an idea, as my time in the Kalahari was coming to a close, of what kind of thing I might bring back with me as presents for all my friends and relatives back in Canada. I would get them carved wooden spoons. I had noticed many times the Kua men making such spoons and deco- rating them with patterns using a wire glowing red from the fire. The spoons were made of a light wood, usually a common tree wood called mohonono. Each spoon was unique. So I offered to pay a small amount of cash for any spare spoons.

    That’s it. That is all I did. Within a few days I had been able to buy about 15 spoons, and every morn- ing there was a steady line of men arriving with more. I had called a halt within a few days, saying I had enough, but the response was that some exception- ally beautiful spoons appeared, with much more elaborate carving than I had seen before. So I weak- ened and told them I would make an exception for such fancy ones. Within a week I had some incred- ible spoons.

    By the end of the second week however, I began to see some upsetting things. All the older boys and men seemed to be doing nothing but making spoons. The women had to travel further every day to find enough suitable wood for making more spoons. As a result, the men did not go hunting and the women were neglecting their gathering of food. They were not going to places where wild plant food was abundant, but rather gathering whatever they could on their way to get suitable wood for making more spoons. With the money from selling spoons, a lot of tobacco was purchased and everyone was using much more than they normally did. A lot of the younger kids had started to smoke, since there was so much to share around. I heard a lot of coughing. Many people spent the day lying under their blankets with raging headaches, a not uncommon result of too much smoking, as I un- derstand it. Three times that week women came to me to buy maize meal from me, saying they had no time to walk all the way to the shop for it. As a result, I had to go get some more in the local shop, much earlier than I had intended and I bought extra in antici- pation of my neighbour’s needs.

    Within two weeks, things were looking pretty grim.

    From independent subsistence hunters and gatherers, my little spoon project had turned these people into a cottage industry proletariat on starvation wages.

    And this was why I had come into the camp that morning. No more spoons! It took a long time to persuade them that I was serious. Even several weeks later some really nice merchandise still kept appear- ing. One man said that if I would keep him on as a worker making spoons, it would be just between the two of us. He would leave the spoons in a special hiding place and all I had to do was replace it with money every day. He had discovered, he told me, that he could not live unless he had tobacco every single day.

    So, in a nutshell, I had learned the hard way, that human beings love falling into economic traps…
    From: Wilderness, wild foods, subsistence & identity, a paper in the journal Before Farming: 2008/1 article 2.

  • chrisyakimov

    It’s a quibble, but i’m pretty sure that unless two people are identical twins, they cannot be genetically identical. I like the piece and the study. For credibility, you may want to revise this sentence: “So the experimenters had two well-contrasted groups of Hadza (who were otherwise genetically and culturally identical)”.