On the weekend, I attended the annual Australia New Zealand Workshop on Experimental Economics (pdf program), this year held at Murdoch University. It was an interesting conference, but as most of the presentations concerned papers that are not yet in the public domain, I won’t go into any detail on the particulars (for the moment). However, a few observations are worth making. They may not be news to someone ensconced in the world of experimental economics, but they were news to me.

First, this was the first economics audience I have sat in where alternatives to the expected utility framework that dominates mainstream economics were practically discussed and at the forefront of people’s minds. Prospect theory was used to describe many of the reported experimental results and was often raised in discussions. The more common scenario I have experienced is a flood of complaints about the existing framework but little direct use of the alternatives. For economic models to be discarded and replaced the alternatives must be ready, and here it was actively occurring.

The presentations were also a timely reminder of the difference between important and significant. While most of the presentations involved a statistically significant finding in the experiment, the effect was often small. Given the state of my knowledge of experimental economics, it was often the small size of the effect, rather than the finding that the result was statistically significant that was the surprise. It reflects my general dissatisfaction with the word “significant” in reporting results. The practice of putting “statistically” before significant might help draw the distinction between significant and material .

At the conclusion of one of the presentations, I asked if the effect that was being observed might be the Dunning-Kruger effect – that the unskilled suffer the dual burden of being unskilled and lacking the metacognitive ability to recognise it. I also went on to state that Dunning and Kruger have suggested that the effect is persistent, so don’t be overly optimistic about improving the knowledge of the unskilled about their lack of skill. Andreas Ortmann, who was in the audience, responded that more recent work (of which he was a co-author) led to a more optimistic conclusion and that the unskilled may not be doomed to be unaware. I note that Ortmann has recently blogged about the paper at Core Economics.

Finally, as I always note at events of this nature, evolutionary theory has generally not threaded its way into people’s minds and work. I also doubt that we are going to see much genoeconomics in experimental economics for some time, as the sample sizes in the experiments (and the budgets to increase them) are far too small.

Scientific American has an excellent podcast of an interview with James Flynn on his new book, Are We Getting Smarter? The podcast accompanies an article from the latest issue.

Flynn makes some interesting points throughout the discussion, including the following thoughts on the interaction between the economy and IQ:

One of the big surprises is that Scandinavia, the IQ gains tailed off towards the end of the last century and many of us thought and I had an open mind that that would mean that they would tail off in the rest of the developed world. Well, three data sets are in now from America, Britain and Germany and they haven’t. They seem to be humming along on the Wechsler tests, you know the WISC and the WAIS, at just about three points per decade. We’re in the 21st century a decade now and there they still are.

And this revises one’s calculations a bit. I’d thought the 21st century would see the developing world catching up. Well it is because their gains are going even faster. It will be tougher to catch up than I thought. I think it’s wrong to look at the developing world in isolation from what’s going on there economically because IQ rises with modernity. Lynn and many others make the mistake of sort of thinking that you have to leap from an IQ of 70 to 100 and then you modernize. Well, it’s like going up a ladder. You gain a bit in terms of the modern mindset, you modernize the economy a bit and then you go up again, you know, slowly.

In this scenario, there can be some strong benefits to IQ enhancing policy interventions as it can set the population into the virtuous circle of modernisation and IQ gain.

Flynn’s book comes out on 6 September.

In an interesting paper in the Journal of Consumer Research, Nailya Ordabayeva and Pierre Chandon propose that conspicuous consumption may be higher in a more equal society as it provides an opportunity for a larger increase in relative rank.

The benefits of conspicuous consumption are highest when everyone is similar as a small signal can allow someone to jump ahead of the greater number of people clustered in similar income groups. Contrast this to the often heard argument that inequality increases conspicuous consumption, particularly among the lower classes, as there are greater pressures to “keep up with the Joneses”. The lower savings rate of lower-income groups is often cited in support of this claim.

Before getting to the empirical side of the study, the logical argument is interesting. If everyone faces the same incentives to increase their conspicuous consumption and have the same capacity to engage in conspicuous consumption (which equality would imply), then they will all do so and no-one’s rank would change. Although the first person to increase their conspicuous consumption might intend to jump a large group of people in status, the reality is that most people would be increasing their conspicuous consumption simply to maintain their relative ranking. The high conspicuous consumption state is the only stable equilibrium.

This argument changes if people have different preferences or compete in different arenas for status. Then conspicuous consumption might result in a change in rank if people engage in conspicuous consumption to different degrees.

Moving to the empirical work, the authors conducted five studies in which they primed the subjects with various scenarios of equality and inequality and surveyed the subjects’ consumption intentions (I should note that I always feel a slight sense of discomfort about the robustness of studies involving priming). Across the studies, the authors found that the people at the bottom felt more satisfied in more equal scenarios, but they were also more likely to engage in conspicuous consumption.

The most interesting of these studies involved also priming the subjects with competitive or group assimilation goals. Where there is a more cooperative social context, conspicuous consumption did not increase when equality was increased. However, where people care about social gain in a competitive context, equality boosted conspicuous consumption. The effects of equality on conspicuous consumption could be mediated through the social context.

So is this work significant outside of the experimental setting? Even though there is society-wide inequality, inequality is likely to be lower within the groups that people associate and there would be gains to conspicuous consumption within those groups. A low-income person may not be able to compete with the investment banker, but they are unlikely to be pitching to the same audience. However, would exposure to other groups through television or other social mediums affect the perceived gains to conspicuous consumption?

The policy implications of this work could be important. As stated by the authors:

[W]e cannot simply assume that increasing equality will reduce consumption and that marketers and policy makers should build a more holistic view of redistribution policies and their consequences. Specifically, our results suggest that the implications of redistribution policies need to be reconsidered for different social environments. For example, we find that increasing income equality succeeds in reducing conspicuous consumption in cooperative environments and when people are indifferent to the social context. This suggests that redistribution policies may be particularly effective if supplemented with policies to promote resistance to social pressure, which focus on relationships with friends and family. Echoing Putnam (2007), the promotion of a broad sense of “we” through popular culture, national symbols, education, and common experiences may not only increase trust but could also reduce conspicuous arms races.

The question of unintended consequences to policy decision raises its head again.

The idea that modern sedentary lifestyles are leading to obesity has come under attack in a New York Times article in which Herman Pontzer writes about a recent PLoS ONE paper that he co-authored.

Pontzer and his colleagues’ research showed that the number of calories burned in a typical day by a member of the Hadza, a hunter-gatherer tribe in Tanzania, was indistinguishable from that burned by a typical adult from Europe or the United States. This is despite the miles of hilly terrain covered by Hadza women while gathering and Hadza men while hunting. The reason the Hadza consume no additional calories in total is because they expend less energy in other areas, such as the background rate of metabolism.

The odd thing about Pontzer’s NYT article is the title “Debunking the Hunter-Gatherer Workout”. If Pontzer spent some time on the various hunter-gatherer and paleo websites, he would quickly discover that the typical paleo workout is not based upon burning more calories, but is framed around a fractal pattern of exercise – brief moments of great exertion, longer periods of moderate exercise such as walking, and lots of rest – roughly like the Hadza lifestyle.

Razib at Gene Expression also makes an interesting point about the paper:

I checked over their references, and the authors don’t note the rather numerous studies since the mid-2000s which indicate that metabolism has been one of the major targets for natural selection in the Holocene (last 10,000 years). For example, Adaptations to Climate-Mediated Selective Pressures in Humans, or, Adaptations to climate in candidate genes for common metabolic disorders. If I had to bet I think the authors of the PLoS ONE paper are on to something, but they need to be careful to generalize from the Hadza, Western populations. In fact, I would be very curious to see a similar survey of the Bushmen of South Africa, and the Pygmies of the Congo. Probably the results would be the same, but it would still be informative to check to see if in fact these deeply diverged human lineages tended toward the same metabolic housekeeping and accounting. If so, then that might be the ancestral state.

As I recently posted about, we may still reflect our ancestral state, but recent human evolution means that it should not be assumed.

Paul Frijters has written an interesting review of Daniel Kahneman’s Thinking Fast and Slow over at Club Troppo. In the review, Frijters suggests that Kahneman’s main contribution to economics is keeping economists honest:

In terms of the whole rationality debate, the main contribution that Kahneman makes with this book, and that he in my opinion has made throughout his career, is to keep economists honest. …

Kahneman’s value derives from the great temptation amongst economists, particularly those of a strong theoretical bent, to fall in love with their abstractions and to pretend they are accurate descriptions of how things really work. Whereas the early economists were explicit about how their view of ‘rational economic man’ was merely an abstraction, later generations have far too often taken that abstraction and other closely associated ones (such as the whole notion of stable preferences, discount rates, loss-aversion, risk-aversion, etc.) literally. The number of economists I know who pretend to their students and themselves that things ‘derived’ from these abstractions, like the Welfare theorems, ‘prove’ things about the real world is astoundingly high. That pretence cannot be confronted and belittled often enough. Our models are derivative of an understanding of the real world, not the ultimate source of that understanding.

Each time an economist develops a model incorporating individual choice, the economist should ask whether changing the underlying assumptions to incorporate loss aversion, the planning fallacy or any of the raft of other biases and heuristics identified by Kahneman and colleagues is likely to change the model conclusions. It is worth knowing what is built on sand.

Otherwise, most of Frijters’s post is focused on the usefulness of the System 1 and System 2 device that Kahneman uses through the book to describe the two modes of human thinking – fast, intuitive use of heuristics and slow rational calculation. Frijters doubts that the System 1 and System 2 device will be broadly adopted in the mainstream economics canon as, among other reasons, the distinction between System 1 and System 2 is unclear and there are more intuitive alternative labels available.

In part, I feel that Frijters was looking for something different to what Kahneman sought to provide. Kahneman was using the labels to frame the body of work and to offer a way of thinking about it, and not seeking to sell System 1 and System 2 as the all-encompassing framework for economic analysis. Kahneman chose the System 1 and System 2 labels over others for working memory reasons. Further, the adoption of the dual process account of reasoning under the System 1 and System 2 and other labels throughout psychology (and even popular discourse) suggests that it has some utility. Whether economists find it useful and take it up is another question.

Peter Turchin, advocate of Cliodynamics, has posted on his recent success in adopting the “paleo diet”. The diet is based on the food presumably eaten by our evolutionary ancestors in the Paleolithic era, which is before the dawn of agriculture. Lots of meat, fruit, vegetables and nuts, but no grains.

Although I have much sympathy for the paleo diet for its health benefits (its largely how I eat), I’ve always thought the paleo label was not quite right. Turchin raises this point:

When I explain to friends that I don’t eat any cereals or grains, legumes, or dairy, a frequent reply is – “what’s left?!” Actually, a lot. All kinds of meat, any seafood, eggs, all kinds of fresh vegetables (salad type – lettuce, tomatoes, cukes, radishes, green scallions, cilantro, peppers), other vegetables (all varieties of cabbages, numerous kinds of squash, avocado, olives, asparagus, onions and leaks, spinach), root vegetables (potatoes, yams, carrots, root parsley, yucca, and a number of others I haven’t explored yet), fruits and berries and nuts. No caveman ate the kind of varied diet that we can obtain by an easy trip to the supermarket. So the ‘paleo diet’ is a complete misnomer.

A bigger issue, however, is the evolutionary interpretation of the paleo diet. Evolution is about reproduction, not health. That is why agriculture came to dominate the world despite the initial hit to health that resulted. And even if the paleo diet is the healthiest diet and we are well adapted to it, there is no rule of evolution that says it cannot be improved on. Turchin writes:

Additionally, there is no particular virtue in eating an undomesticated variety, compared to a domesticated one. In particular, I suspect that wild rice is probably worse for you than white rice. Both are grass seeds, and so poisonous by definition. But with the domesticated rice there is at least hope that the most poisonous varieties have been selected out (although it is not a certainty). Interesting how an evolutionary approach makes you look at things from a very different angle.

And this is before we consider recent human evolution – compare the ability to digest grains and alcohol between groups with varying histories of agriculture, and we get very different results. Again, steering clear of rice or grains may be the better health option, but evolution has changed the equation from what it once was.

I prefer the example of tomatoes – sourced from South America, not consumed by out ancestors on the African plains, but they are a core element of many paleo diets. I would suggest the tomato eaters are better off for it. When our hominid ancestors started to eat meat, did a group of them refuse to join in as they preferred to eat the “Pliocene diet”?

From a working paper by Garett Jones released earlier this year:

Social science research has shown that intelligence is positively correlated with patience and frugality, while growth theory predicts that more patient countries will save more. This implies that if nations differ in national average IQ, countries with higher average cognitive skills will tend to hold a greater share of the world’s tradable assets. I provide empirical evidence that in today’s world, countries whose residents currently have the highest average IQs have higher savings rates, higher ratios of net foreign assets to GDP, and higher ratios of U.S. Treasuries to GDP. These nations tend to be in East Asia and its offshoots. The relationship between national average IQ and net foreign assets has strengthened since the end of Bretton Woods.

Jones notes that as capital flows become increasingly free, the opportunity for high IQ people to increase their holdings of assets will also increase. East Asian populations, with the world’s highest average IQs, will come to hold a greater proportion of the world’s financial assets than they now do.

Jones argues that policies that lift cognitive skills should be implemented through nutrition, education or immigration policies. This will in turn increase the level of financial assets of the population as they increase their average saving rate. Plus, as Jones has noted in other papers, increased IQ has benefits beyond savings rates.

One interesting element of the paper is the title – Will the intelligent inherit the earth?
IQ and time preference in the global economy – which I have paraphrased for the title of this post. While intelligence and reproductive success have an ambiguous relationship in modern settings, lower fertility for the high savers would result in them holding an increasing proportion of the world’s assets, while simultaneously forming a smaller proportion of the population. The intelligent may own the earth, but they might be vastly outnumbered.

As noted by Steve Hsu and Razib Khan, a new paper in Nature Genetics reports evidence of recent selection on existing variation in height in European populations. The paper’s authors summarise as follows:

In summary, we have provided an empirical example of widespread weak selection on standing variation. We observed genetic differences using multiple populations from across Europe, thereby showing that the adult height differences across populations of European descent are not due entirely to environmental differences but rather are, at least partly, genetic differences arising from selection. Height differences across populations of non-European ancestries may also be genetic in origin, but potential nongenetic factors, such as differences in timing of secular trends, mean that this inference would need to be directly tested with genetic data in additional populations. By aggregating evidence of directionally consistent intra-European frequency differences over many individual height-increasing alleles, none of which has a clear signal of selection on its own, we observed a combined signature of widespread weak selection. However, we were not able to determine whether this differential weak selection (either positive or negative) favored increased height in Northern Europe, decreased height in Southern Europe or both.

Although it is not clear what the nature of the selection was, this paper provides yet another example of human evolution since the origin of agriculture. Add it to growing list.

This finding reflects some of the material in Cochran and Harpending’s book The 10,000 Year Explosion: How Civilization Accelerated Human Evolution, where they argued that selection on variation in existing functional genes, as opposed to new mutations, would have played a major role in the initial response to agriculture. Selection could have been particularly strong in the case of balanced polymorphisms, which occur where a population maintains two different alleles of a gene. In such a case, balanced polymorphisms can respond quickly to the environmental change as the alleles are already at a substantial prevalence in the population. In comparison, a new mutation present in a single person may take thousands of years (if it spreads at all) to reach the higher frequencies where the rate of spread will be largest.

However, Cochran and Harpending also suggested that as population increased, the importance of new mutations increased:

Human genetic variation was limited in the days before agriculture, in part because populations were small, and it was often not useful, since many of the changes that were favored among agriculturalists would actually have been deleterious among their hunter-gatherer ancestors. This means that some of the alleles with the right effects in farmers would have been extremely rare or nonexistent in their hunter-gatherer ancestors.

Therefore, new mutations must have played a major role in the evolutionary response to agriculture—and as luck would have it, there was a vast increase in the supply of those mutations just around this time because of the population increase associated with agriculture. … Increased population size increased the supply of beneficial mutations just as buying many lottery tickets increases your chance of winning the prize.

By the beginnings of recorded history some 5,000 years ago, new adaptive mutations were coming into existence at a tremendous rate, roughly 100 times more rapidly than in the Pleistocene.

Regardless, it is positive to see the Nature Genetics paper as a sign of increasing research on selection of standing variation across large numbers of loci as a complement to the search for novel mutations.

From Mark Pagel, author of Wired for Culture: Origins of the Human Social Mind, in a RSA podcast:

Cultural evolution and genetic evolution are still going on. We’re still evolving. Our societies are strongly selecting against violence and antisocial behaviour at a genetic level. People who knock you over the head and steal your wallet get thrown in jail, and it’s hard to have reproductive success in jail. And some societies even kill people who do those things, and so we are still selecting against antisocial behaviour very strongly in our societies. And so we’re still evolving. There’s hope.

A new paper in PNAS suggests that the similarity between European and Neanderthal genomes is due to population structure in Africa (500,000 odd years ago), not recent interbreeding (50,000 odd years ago). It has been getting a decent bashing, much of it before it was even released. The problem is that the model underlying the theory does not match recent data, which has overtaken the model since the idea behind it was first conceived.

John Hawks writes:

Paleoanthropology is a field where data are rare and precious, and we do a lot of arguing about the validity of models. …

Genomics is not such a field. We have abundant data today to compare with Neandertal genomes. Yet puzzlingly, the idea of Neandertal ancestry has been challenged by several papers that haven’t performed any new empirical comparisons at all. I’m struggling to figure this out. We have an unparalleled ability to explore the genomes of humans and Neandertals, and we should believe a computer model with no empirical data?

Modeling is a lot of work. We’re trying to avoid putting a lot of investment into modeling that will be easily refuted by the next piece of genomic data. Data are flowing now so rapidly that we can afford to be naive empiricists. …

David Reich dismissed the new paper by Eriksson and Manica as “obsolete”. I agree. The paper describes a model without carrying out any new empirical comparisons, and so has fallen behind where the science has gone.

If we set up a continuum between the rare data of paleoanthropology and the abundant data of genomics, economics is closer to the genomics end of the continuum. Yet papers with models and no reference to the empirical evidence abound, even where the data is plentiful. I suspect that this is at least partly due to the culture in economics. As I wrote earlier this year, a beautiful model in economics is often appreciated, even where it is in direct conflict with empirical evidence. And the pile of economic models that have been discarded as they are inconsistent with empirical observation is very small.