by Kate Raworth
Our readiness to cooperate and to punish defectors has been most famously demonstrated in the Ultimatum Game, which has been played in many societies beyond Western, educated, industrial, rich and democratic ones. Two players – a proposer and responder who are anonymous to each other – are offered a sum of money to share, typically equivalent to two days’ earnings. The proposer suggests how to divide it and, if the responder accepts that division, they each receive their respective shares; if the responder rejects the proposal, however, they both go empty-handed. And they only get to play the game once. If, as mainstream theory assumes, people were purely self-interested then responders would accept any amount offered: to turn it down would be to reject free money. But what happens in practice? Responders typically reject proposals that they think are unfair, even if it means they walk away with no money at all.25 We humans are ready to punish others for their selfishness, even if it costs us.
The most interesting results, however, emerge from the contrasting ways that different societies play the game. Among North American university students – the archetypal WEIRD community – proposers tend to offer the other player a 45% share, and offers below 20% tend to be rejected. Meanwhile, among the Machiguenga living in the Peruvian Amazon, proposers tend to offer far less – around just 25% – and responders almost always accept their share, no matter how small it is. By contrast, among the villagers of Lamelara, Indonesia, proposers offer to give away almost 60% of the money, and rejections are rare.
What explains these wide variations in cultural norms of reciprocity? In large part, the diverse societies and economies in which we live. North Americans live in a highly interdependent market-based economy that relies upon a culture of reciprocity to make it work. In contrast the hunter-gatherer Machiguenga live in small family groups and meet most of their needs within their own households, with little trade between: as a result their dependence on community reciprocity is relatively low. The Lamelara, in turn, depend upon communal whale hunting for their livelihoods, heading out to sea in large canoes carrying a dozen or more men who must then share each day’s catch: strong norms of sharing are essential to their collective success, and are reflected in their high offers in the game.
Across diverse cultures, social norms of reciprocity clearly vary according to the structure of the economy, particularly the relative importance of the household, market, commons or state in provisioning for society’s needs.26 People’s sense of reciprocity appears to co-evolve with their economy’s structure: a fascinating finding with important implications for those aiming to rebalance the roles of the household, market, commons and state in any society.
From fixed preferences to fluid values
Economic theory curiously begins with the over-18s: it is rational economic man, not rational economic boy, that we first meet – but why? Because the theory hinges on being able to assume that people have pre-set tastes, formed independently of the economy. Few would attempt to deny that corporate advertising grooms children, making the most of their pester power today while seeding the tastes and desires that will draw their purchasing power tomorrow. But adults can perhaps be portrayed as sovereign consumers, with firms merely aiming to deliver the products and services that match their existing preferences. Under this set-up, any changes in people’s shopping habits must largely be due to new product information, a shift in relative prices, or a change in their incomes.
This story is, of course, far from credible. Adults, like children, are by no means immune to the marketeer’s message, as Sigmund Freud’s nephew, Edward Bernays, realised in the 1920s. ‘We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of,’ he wrote in his book Propaganda, ‘… It is they who pull the wires which control the public mind.’27 Bernays invented the ‘public relations’ industry and rapidly became America’s master wire-puller, convincing women (on behalf of the American Tobacco Corporation) that cigarettes were their ‘torches of freedom’, while persuading the nation (on behalf of the Beech-Nut Packing Company’s pork department) that bacon and eggs were the ‘hearty’ all-American breakfast.28 Drawing on his uncle’s insights into the workings of the human mind, Bernays knew that the secret to influencing preferences lay not in advertising a product’s attributes (it’s bigger, faster, shinier!) but in associating that product with deeply held values, such as freedom and power.
Those deep values that Bernays masterfully tapped into have since been systematically researched, with profound results. Since the 1980s the social psychologist Shalom Schwartz and colleagues have surveyed people of all ages and backgrounds in over 80 countries, identifying ten clusters of basic personal values that are recognised across cultures: self-direction, stimulation, hedonism, achievement, power, security, conformity, tradition, benevolence and universalism. When it comes to nurturing human nature, three things stand out in their findings.
First, all ten basic values are present in us all, and each one of us is motivated by their full array, but to widely differing degrees that vary between cultures and individuals. Power and hedonism, for example, may predominate for some people, while in others benevolence and tradition prevail. Second, each of the values can be ‘engaged’ in us if it is triggered: when reminded of security, for example, we are likely to take fewer risks; when power and achievement are brought to mind, we are less likely to take care of others’ needs. Third, and most interestingly, the relative strength of these different values changes in us not just over the course of a lifetime, but in fact many times in a day, as we switch between social roles and contexts, whether moving from the workplace to the social space, the kitchen table to the conference table, from the commons to the market to the home. And – just like muscles – the more often any one value is engaged, the stronger it becomes.
Schwartz’s value circumplex, which shows the ten basic personal values that are common across cultures.
Schwartz further found that the ten basic values can be grouped around two key axes, as illustrated in his circumplex. The first axis juxtaposes openness to change (which concerns independence and novelty) with conservation (concerning self-restriction and resistance to change). The second axis juxtaposes self-enhancement (focused on status and personal success) with self-transcendence (having concern for the wellness of all). That divide between self-enhancement and self-transcendence is echoed in the contrast between extrinsic motivation – which moves us to act in order to achieve a further outcome, such as gaining status, money, or some other benefit – and intrinsic motivation, which moves us to do something because it is inherently engaging or satisfying.29 What’s more, the ten values tend to influence one another in push–pull ways across these axes. Engaging one value, such as stimulation, tends to activate its neighbours, hedonism and self-direction, while simultaneously suppressing its opposites, security, conformity and tradition.30
Such insights into the responsiveness and fluidity of the values that motivate our actions bring far greater nuance to humanity’s emerging portrait than did the pre-set preferences of Homo economicus, with many implications for how we can nurture human nature, as will emerge below.
From isolated to interdependent
Depicting rational economic man as an isolated individual – unaffected by the choices of others – proved highly convenient for modelling the economy, but it was long questioned even from within the discipline. At the end of the nineteenth century, the sociologist and economist Thorstein Veblen berated economic theory for depicting man as a ‘self-contained globule of desire’, while the French polymath Henri Poincaré pointed out that it overlooked ‘people’s tendency to act like sheep’.31 He was right: we are not so different from herds as we might like to imagine. We follow social norms, typically preferring to do what we expect others will do and, especially if filled with fear or doubt, we tend to go with the crowd.
One telling experiment with the musical tastes of WEIRD teenagers demonstrated just how influential social
norms can be. Participants were recruited – 14,000 of them – through a teen website and were invited to listen to a set of 48 songs (all unknown tunes by unknown bands) to give them a rating and then, if they wished, to download their favourites. In a control group, participants were given only the name of each band, the title of the song, and a recording of the music before they gave their ratings. In eight other separate groups, however, participants could also see how many times each tune had already been downloaded by others within their group.
The outcome? Across all eight experimental groups, each song’s popularity was partly determined by its quality (as rated independently by those in the control group): the ‘best’ songs rarely did poorly and the ‘worst’ rarely did well. But a good deal of each song’s popularity was also due to social influence: the participants preferred songs that they knew others liked. And the more prominently that other participants’ ratings were displayed on the website, the more likely it was for a ‘smash hit’ to emerge within each group – but, fascinatingly, the harder it became to predict which song the hit would turn out to be.32 This kind of herd behaviour can be highly contagious and highly uncertain. And it explains the unpredictability not only of the next chart-topping song, but also of next summer’s fashion craze – not to mention the ‘animal spirits’ driving boom and bust in stock markets – revealing the strength of social networks in shaping our preferences, purchases and actions.
Social influence of this kind is set to grow as people’s lives come to be more tightly networked than ever before, albeit in new ways. As network theorist Paul Ormerod points out, we are more aware than ever before of the opinions, decisions, choices and behaviours of other people. In 1900, around 10% of people worldwide lived in cities; by 2050 around 70% of us will. Couple this proximity of city dwellers with worldwide communications transmitting news and views, data and ads, and what emerges is a dynamic global network-of-networks of human beings.33
For Veblen, one of the most pernicious effects of such social influence was the rise of what he called ‘conspicuous consumption’: the appeal of buying luxury products and services to signal our status to others in the hope of ‘keeping up with the Joneses’. Joseph Stiglitz points out that this effect is particularly concerning today in the context of high inequality, both within and between countries. There is a ‘well-documented lifestyle effect’, he notes, in which ‘people outside the top 1 percent increasingly live beyond their means. Trickle-down economics may be a chimera, but trickle-down behaviourism is very real.’34
What is the implication for economic policy aiming to influence how we behave? Economists have traditionally sought to change people’s behaviour by changing the relative price of things, be it through a tax on sugar or a discount on solar panels. But such price signals often fail to achieve their expected results, Ormerod points out, because they can be drowned out by far stronger network effects, thanks to social norms and expectations of what others in the network are doing.35 At the same time, it may be possible to harness such interdependence for behavioural change, as we will see.
From calculating to approximating
Homo sapiens clearly can’t match the infallibility of rational economic man. That much has been agreed upon since the 1950s when Herbert Simon broke rank with his fellow economists and started to study how people actually behaved, finding their rationality to be severely ‘bounded’. His findings, augmented by those of psychologists Daniel Kahneman and Amos Tversky in the 1970s, gave birth to the field now known as behavioural economics, which studies the many kinds of ‘cognitive bias’ that systematically cause humans to deviate from the ideal model of rationality.
Examples abound. We (the WEIRD ones, at least) typically exhibit: availability bias – making decisions on the basis of more recent and more accessible information; loss aversion – the strong preference to avoid a loss rather than to make an equivalent gain; selective cognition – taking on board facts and arguments that fit with our existing frames; and risk bias – underestimating the likelihood of extreme events, while overestimating our ability to cope with them. There are many more. Indeed one Wikipedia page lists over 160 cognitive biases, like a jumbo-size game of spot-the-difference between rational economic man and his fallible human equivalent.36
What to do in the face of such irrational shortcomings? Introduce nudge policies, say Richard Thaler and Cass Sunstein, which they define as ‘any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives’.37 Thanks to Edward Bernays, brands and retailers have been nudging us for almost a century in the implicit messaging of advertisements, in the placements of products in shops and TV shows, and in the psychology of sales. But public policy can be designed to nudge us too. Displaying fruit at eye level in a school canteen is a healthy eating nudge. Structuring company pension schemes to be opt-out rather than opt-in is a nudge towards long-term income security. Nudge policies, in essence, can be used to encourage us to mimic the way that we would behave if we were as rational as economic man.
Policy nudges can clearly work but the ever-growing catalogue of cognitive biases makes humans start to look rather incompetent: indeed it starts to seem a miracle that we have survived at all. Just the opposite is the case, argues the evolutionary psychologist Gerd Gigerenzer: we have survived and thrived not despite our cognitive biases but because of them. These so-called biases are the underpinnings of our heuristics, the unconscious mental short cuts we take every time we use a ‘rule of thumb’ to make decisions. Over millennia, the human brain has evolved to rely on quick decision-making tools in a fast-moving and uncertain world and in many contexts those heuristics lead us to make better decisions than exact calculations would do.
The take-the-best heuristic, for example, provides a ‘fast and frugal’ way of making decisions under uncertainty. Working with hospital medics, Gigerenzer helped to create a simple three-question decision tree allowing doctors to use the best, or most pertinent, information in rapidly assessing whether patients are at risk of a heart attack and should be admitted for coronary care. First ask Question 1: are there irregularities in the electrocardiogram? If yes, admit for coronary care. If no, ask Question 2: are chest pains the primary symptom? If yes, admit for coronary care. If no: ask Question 3: is any one of five other specific symptoms present? If yes, admit for coronary care; if no, provide a bed in the general ward. Fascinatingly, this method has been found to make more accurate predictions than a medical computer program that gathers and weighs up around 50 pieces of information about each patient.38 Given the value of fast and frugal heuristics like this one, perhaps we should think of ourselves not as rational man but as heuristic man and be proud of it too: what first appears to be a failure of rationality might be better thought of as a triumph of evolution.
The power of such heuristics led Gigerenzer to disagree with the prescriptions of behavioural economists who, he says, ‘think that people are basically hopeless when it comes to understanding risk, and we need to nudge them into behaviour from birth to death’. Rather than overriding our rules of thumb with a nudge, he argues, we should nurture those heuristic abilities while bolstering them with basic skills in assessing risk. ‘We live in the 21st century, surrounded by complex technology, and there are things that we will not be able to anticipate,’ argues Gigerenzer. ‘What we need is not just better technology, bigger bureaucracy and stricter laws … but risk-savvy citizens.’ And he has demonstrated that we can indeed learn to become more risk-savvy, by successfully teaching everyday statistical-reasoning skills to German doctors, American judges and Chinese schoolchildren alike. Rather than be passively nudged into acting wisely, he believes, we can be learn to be risk-savvy with the rule of thumb and so choose to act wisely ourselves.39
It’s an appealing and empowering approach, but one problem with relying upon heuristics won’t go away: they work best in the context for which they evolved. Humani
ty’s context, however, has changed over the past 10,000 years and particularly dramatically in the last 200 years. Take the devastating effects of climate change, for example: at first they tend to be invisible, delayed, gradual and distant: four characteristics that our heuristic decision tools are infamously bad at handling well. The smart way forward, then, for policymakers seeking to promote behaviour change may lie in encouraging a judicious mix of risk-savvy heuristics and behavioural nudges, based on a much-needed understanding of when each approach might work best.
From dominant to dependent
A new economic self-portrait must reflect the way that we see humanity’s place in the world. The traditional Western depiction of man has nature lying at his feet and at his disposal. ‘Let the human race recover that right over nature which belongs to it by divine bequest,’ wrote the seventeenth-century philosopher Francis Bacon.40 That perspective was echoed by W. Arthur Lewis, founder of development economics, in his 1949 book Economics: Man and His Material Means, which set out to study ‘the ways in which mankind tries to wrest a living from the Earth’ by making ‘the most efficient use of scarce resources’. This presumption of man’s dominion over nature runs far back in Western culture, at least to the Bible’s opening verses. It also underpins the language of environmental economics, which frames the living world as a storehouse of ‘natural resources’, as if it were waiting – like a pile of Lego blocks – to be transformed by man into something useful to man.