Economics from a biological viewpoint

One of the earlier advocates of using evolutionary biology in economics was Jack Hirshleifer, a professor of economics at the University of California, Los Angeles. Hirshleifer was author of The Dark Side of the Force: Economic Foundations of Conflict Theory, which includes evolutionary analysis of cooperation and conflict, and some discussion of the unification of law, economics and evolutionary biology. The subject of this post is his 1997 article Economics from a Biological Viewpoint from the Journal of Law and Economics. Coming on the heels of E.O. Wilson’s Sociobiology, Hirshleifer states that there is no argument about the utility of using sociobiology in economics. The only open question is how much utility can be gained.

Unlike Becker’s 1976 article linking economics and sociobiology, Hirshleifer does not draw the parallels and then imperialistically march economics into evolutionary biology. Hirshleifer focuses on the message that sociobiology has for economics, not on “how we can set the biologists straight”.

Hirshleifer is scathing of the disinterest of economists in understanding the foundation of tastes and preferences. Hirshleifer asks if economists are waiting for someone in another field to do the work, and suggests that since it is not being done, economists will need to take on this role. Hirshleifer considers that preferences are governed by how they affect fitness, and adopts a strong version of this approach. He prefers to explain the apparently fitness-reducing actions of modern humans on the basis that the fitness benefits are simply not apparent to us, and not that they might be maladaptive.

Most of Hirshleifer’s discussion of preferences focuses on altruism, where he is critical of Becker’s approach. Hirshleifer points out that Becker gives the agents arbitrary levels of altruism, with altruistic behaviour emerging as long as there is one altruist. Becker is not using evolutionary biology to look at what the tastes might be, but is trying to supplant an evolutionary explanation of why altruism emerges.

Hirshleifer does note a benefit of Becker’s approach in his discussion of cheating, as Becker’s rotten kid theorem shows that altruism on only one side of the transaction may be enough to prevent it. Hirshleifer also discusses how honest signals can evolve to reduce cheating, but the absence of the handicap principle (only just proposed in 1975) from the discussion highlights why the principle is so important in understanding how signals work.

Hirshleifer is sympathetic to group selection arguments and covers some of the classic group selection models, although he does not subject them to serious analysis as to whether they might be the right explanation. He also relies on what appears to be a version of multilevel selection theory to argue that mixed levels of altruism and free riding can exist in a population, whereby reassortment allows altruists to continue to survive despite their fitness disadvantage relative to free-riders in the same group.

The most novel part of the paper (to me) was Hirshleifer’s discussion of specialisation. Specialisation limits competition, but there is a dichotomy between the competitive and cooperative division of labour. In competitive specialisation, species try to avoid direct competition by choosing a narrow niche, while cooperative specialisation allows for gains from trade. Hirshleifer argues that biologists have more subtle understanding of specialisation as they recognise the variety of dimensions across which it occurs.

One dimension of specialisation is the distinction between “K-strategies” that make superior use of resources in constrained environments and “r-strategies” that pioneer and settle unfilled environments. Hirshleifer sees selection between these strategies as having had an effect in American history:

[H]uman individuals, families, races etc. are biological entities which may be regarded as choosing competitive strategies. Martial races may concentrate on success through politics, conflict, or violence (“interference strategy”); others may have proliferated and extended their sway through high birth rates; others through lower birth rates but superior efficiency in utilizing resources (“exploitation strategy”). The r-strategist pioneering human type was presumably selected for in the early period of American history - a period long enough for genetic evolution, though cultural adaptation may have been more important. This type was not entirely antisocial; altruist “pioneer” virtues such as mutual defense and sharing in adversity can emerge under r-selection. In the present more crowded conditions the preferred forms of altruism represent “urban” virtues of a negative rather than positive sort: tolerance, nonaggressiveness, and reproductive restraint. Even today it seems likely that a suitable comparison of populations in environments like Alaska on the one hand and New York City on the other would reveal differential genetic (over and beyond merely cultural) adaptations.

One other interesting point that Hirshleifer covers is teleology. Biologists generally consider evolution to be directionless, in contrast to the economic story of the invisible hand leading to positive outcomes. Hirshleifer argues that the imperfections in nature are largely due to a lack of property rights founded on law and government. As a result, there is more chance of an optimal outcome in human economies than in nature. However, Hirshleifer is not naive, and he notes that the institutions that provide the rule of law and government may also be used to steer outcomes away from optimality.

There is plenty of other material in the article worth reading, although some of it feels dated. This includes a section of the article on the evolutionary economics of Alchian, Nelson and Winter, which Hirshleifer terms “quasi-biological” and is worth reading for the discussion of whether businesses actually maximise.