Trade-offs, fast and slow

(featured image credit: domeckopol)

Our biology determines how we make decisions, but we have a secret weapon

Economics and biology are not the most obvious bedfellows. Standard economics has a reputation of assuming agents who have access to all relevant information and sufficient computational power to work out the optimum choice. But real, biological people from flesh and blood generally don’t behave according to this idealized model. Are they separated by a chasm that is hard to bridge, or are the two domains closer than it seems?

The contrast between an idealized representation and the messy reality is not that unusual. A real wheel is not a perfect circle, yet in many situations, engineers happily use a circle as an entirely reasonable approximation for a wheel. But the difference between what we humans actually do, and what standard economics expects us to do, is often so large that the homo economicus model is not much use in predicting our behaviour.

Economics and biology, peas in a pod

This is quite remarkable. One of the core concepts of economics is the trade-off, and that same concept is also quite central in living organisms, from single cell creatures to much more sophisticated ones, all the way to mammals. Even uncomplicated unicellular organisms are sometimes faced with multiple options: different things they could eat, or different directions in which they could travel. This way are more nutrients but further away, that way there are fewer, but they’re closer. Which way to swim?

It would perhaps be a bit too far-fetched to ascribe to amoebae the capacity to perform a cost-benefit analysis, but if you don’t mind a little reductionism that is, in a way, exactly what they do. Those organisms whose DNA helps them make such trade-offs well and pick the more beneficial option are the ones that survive and replicate.

OLYMPUS DIGITAL CAMERA

Hello, I am a micro-economist (photo: PROYECTO AGUA CC BY)

And evolution carries on along similar lines. Natural selection is the mechanism by which organisms that are better than others at gaining access to and utilizing resources are more likely to thrive and persist. We can see that very same mechanism in action in the economy too: by much the same logic some businesses are successful and grow, others disappear.

A great deal of the behaviour of animals (as well as plants, though that might stretch the term behaviour a bit too much) can be explained and predicted using concepts at the core of economics: trade-offs, costs and benefits. Even the efficient allocation of resources can be seen all over nature: plants channel the right amount of energy towards producing flowers (to ensure fertilization by insects) and ultimately seeds, and birds spend or the right amount of time feeding their young. Why are humans so different?

A recent article in the scientific magazine Nautilus, by evolutionary biologist and psychologist David Barash, sheds some light. Dr Barash deals with the question why we are so bad at tackling climate change, and argues the reason is that our cultural evolution has been outpacing our biological evolution.

For many thousands of years, our ancestors found life tomorrow was identical to life today. They, like their ancestors, were wired to respond to instantaneous threats and opportunities. The decisions they needed to make had a scope of, at a stretch, a few months. Their trade-offs were fast trade-offs: they could experience the consequences of their choices very quickly.

And year after year, generation after generation, the environment in which they lived remained the pretty much the same. The glacial pace at which it changed was matched by the speed at which our ancestors’ biology evolved: infinitesimally small genetic changes between parent and child. And all along, there was little reason for advanced decision-making to emerge, or the ability to interpret complex conditional probabilities, or conduct long-range scenario planning. Even if some human specimen had, through some mutation, acquired this capability, they would not have gained any comparative advantage by it.

Not so good at the slow trade-offs

Until very recently, the assumption that life would be pretty much the same in 20 or 50 years’ time as at present held completely true. The status quo was our ancestors’ reality, and it got hardwired into the neuro-cerebral circuitry they needed to make the choices that allowed them to survive and prosper: it was good enough and fit for purpose. Small wonder we find ourselves behaving as if that is still the case… and having had to invent labels like status quo bias, hyperbolic discounting and present bias.

So today we are still pretty good at fast trade-offs, like deciding to open our umbrella when it starts to rain, or to turn down the heat underneath the pan with the potatoes the moment it reaches boiling point. But when it comes to choices that have consequences way into the future, slow trade-offs as it were, that is a different affair.

congestion

Slow traffic, slow trade-off (photo: World Bank Photo Collection CC BY)

Think of the amount of traffic on motorways and in town centres. In the UK, the number of motor vehicles has grown nearly eightfold since 1950. That means we are spending more time queuing in traffic than ever. Yet so many of us keep on doing it, day after day. But imagine that the extra 20 minutes it takes you on average to get to work was not the result of a gradual process over maybe 20 years. Imagine that, last week, it took you, say, 30 minutes each way, and every day this week that jumped to 50 minutes. You’d be quick to look at alternatives – take public transport, work from home, stagger working hours, car sharing… all the things we know we could do now, but by and large don’t. The fast trade-offs we’d make with a rapid change, we don’t make when they’re slow trade-offs.

If by saving for our retirement today we would feel the benefit tomorrow, we’d be much more eager to do so. But it is distant, and our biology assures us our lifestyle tomorrow, and the day after, and in 20, 30 or 40 years’ time, will be the same as today by default. We see poignant illustrations of the eventual consequences of making fast trade-offs where we ought to make slow ones: a couple in their sixties, having for years spent their money trying to keep up with the Joneses, expecting to retire soon, and assuming they will be able to maintain their present lifestyle of an oversized house (with 25 years to go on their mortgage), expensive new cars, and getting pricey in-home care.

You might imagine that people with a scientific slant are better at taking the long view, and do not assume that things will forever be the way they are. Not so. Computer software developed in the 1960s and 1970s used just two digits to represent the year in dates so precious storage space could be saved – everyone knew full well that the first two digits were ‘19’ anyway. Sure, that would become problematic in the year 2000, but that was so far into the future that nobody worried much about it. And release after release of the programs kept the two-digit year. Software developers made the fast trade-offs: investing in changes and upgrades that offered immediate benefit, not a fix for a distant problem. And as the turn of the century approached, still nothing had been done, leading to the frantic scramble for resources to deal with the Millennium bug.

Challenges ahead

Did we learn? We’ll have to see. A new problem is looming. Many computer systems using (or based on) the Unix operating system represent time as the number of seconds since January 1st 1970 as a 32-bit number. The largest number that can be stored thus is 2,147,483,647. That looks like (and is) a huge number… but in seconds, it’s not that big: it corresponds with less than 70 years. So, unless something is done about it, on 19th January 2038, a little after 3am UTC, numerous computer clocks will suddenly jump back to 13 December 1901. And that is small beer compared to the challenge of climate change.

Our cultural development has given us powers to change our environment in ways that were unimaginable a couple of centuries ago, and our wiring has not kept up. Our biology is much as it was 100,000 years ago and doesn’t help us with making the slow trade-offs we need to make today, choices that cast their shadows decades, if not centuries, into the future.

catweazle

Same biology, big culture shock (via youtube)

Dr Barash uses a very nice thought experiment to illustrate this: imagine swapping a baby born 200,000 years ago with one from today. “Each would undoubtedly grow up to be a functional member of her society: hunting mastodons or gathering roots and berries in one case, and perhaps running a hedge fund or piloting jet aircraft in the other,” he writes. But do the same thing with two adults and you get a different picture. Like the new born babies, they do not differ in biology, but they would be utterly maladapted to their alternative environment: it would be culture shock, not biology shock. (Readers from a certain vintage may remember the TV-series Catweazle in which a medieval wizard who inadvertently ends up in the 1960s had a similar experience).

Thankfully, we do have a secret weapon (although we are not always equally good at using it): we can learn. Baby dogs and cats are born with the instinct not to soil their dens with their waste products; baby humans are not. But while it takes a good few years, small humans can “learn to pee and poop in a toilet”.

If even toddlers can overcome the limitations of their hard wired instincts by complementing it with their soft cognitive abilities, there is hope for us all. We can learn to make not just good fast trade-offs, but also good slow ones. Let’s just do it.

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About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Cognitive biases and fallacies, Economics, Society and tagged , , . Bookmark the permalink.

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