Networked minds require a fundamentally new kind of economics

Published on Real-World Economic Review Blog RWER, by Editor and Christian Waloszek, April 24, 2013.

… In their computer simulations of human evolution, scientists at ETH Zurich find the emergence of the “homo socialis” with “other-regarding” preferences. The results explain some intriguing findings in experimental economics and call for a new economic theory of “networked minds”. 

Economics has a beautiful body of theory. But does it describe real markets? Doubts have come up not only in the wake of the financial crisis, since financial crashes should not occur according to the then established theories. Since ages, economic theory is based on concepts such as efficient markets and the “homo economicus”, i.e. the assumption of competitively optimizing individuals and firms. It was believed that any behavior deviating from this would create disadvantages and, hence, be eliminated by natural selection. But experimental evidence from behavioral economics show that, on average, people behave more fairness-oriented and other-regarding than expected. A new theory by scientists from ETH Zurich now explains why.

“We have simulated interactions of individuals facing social dilemma situations, where it would be favorable for everyone to cooperate, but non-cooperative behavior is tempting,” explains Dr. Thomas Grund, one of the authors of the study. “Hence, cooperation tends to erode, which is bad for everyone.” This may create tragedies of the commons such as over-fishing, environmental pollution, or tax evasion.

Evolution of “friendliness”: … //

… Networked minds create a cooperative human species:

  • “This has fundamental implications for the way, economic theories should look like,” underlines Professor Helbing. Most of today’s economic knowledge is for the “homo economicus”, but people wonder whether that theory really applies. A comparable body of work for the “homo socialis” still needs to be written.
  • “While the “homo economicus” optimizes its utility independently, the “homo socialis” puts himself or herself into the shoes of others to consider their interests as well,” explains Grund, and Helbing adds: “This establishes something like “networked minds”. Everyone’s decisions depend on the preferences of others.” This becomes even more important in our networked world.

A participatory kind of economy: … //

… Further information:

(full text).

Links:

The Inflation Dog Didn’t Bark, But What About the Others? on Triple Crisis, by Eric Yeldan, April 23, 2013: The IMF released the April edition of its World Economic Outlook (WEO). One of the key analytical chapters (Chapter 3) of the Report is titled The Dog that Didn’t Bark: Has Inflation Been Muzzled, or Was It Just Sleeping? Its main argument (or rather sort of a mystery that needs to be resolved, in the words of its authors) is that over the course of the previous crisis episodes we used to witness severe increases in unemployment along with a simultaneous fall in inflation. Yet, during the current great recession there has been very little movement in inflation, while unemployment rates soared almost everywhere; —hence the metaphor: inflation (the dog…) does not respond (… bark).  And the alleged mystery is but why? …;

Even Harsh Frontline Program on Retirement Investments Understates How Bad They Are, on naked capitalism, April 24, 2013;

Entering a Resource-Shock World: How Resource Scarcity and Climate Change Could Produce a Global Explosion, on ZNet, by Michael T. Klare, April 22, 2013;

Can’t pay, won’t move: resisting the bedroom tax, on red pepper, by Izzy Koksal, April 2013: With a new raft of housing benefit cuts hitting this month, including the infamous ‘bedroom tax’, tenants are getting angry – and organised. Izzy Koksal meets some of them …;

A corporate-made catastrophe, on Socialist Worker, by Elizabeth Clinton, April 23, 2013.

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