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by David Friedman

Economics is built on a simple assumption—that individual behavior can best be predicted by assuming that each individual will take the actions that best achieve his objectives. The justification for that assumption, somewhat misleadingly labeled “rationality,” is that we have no good theory of mistakes, no way of predicting what particular irrational action an individual will take. That leaves the rational element as the best—although imperfect—way of predicting behavior.^[1]
Evolutionary psychology offers, among other things, a theory of mistakes—an alternative to the rationality assumption. In this essay I sketch out the nature of that theory, describe some puzzles that economics has a difficult time explaining, and try to show how modifying economics with the aid of evolutionary psychology might help explain them.

Evolutionary psychology^[2] starts from two simple assumptions:

The human mind is best understood not as a general purpose computer but as a set of specialized software modules, each designed to deal with a particular subset of problems.

Those programs have been designed by Darwinian evolution to produce reproductive success in our environment of evolutionary adaptiveness—the hunter-gatherer environment in which our species spent most of its species history.

Researchers in evolutionary psychology, starting with these assumptions, have generated and tested predictions ranging from differences in male and female special abilities to the timing of morning sickness.
Three important points are worth making about the second assumption in order to avoid misunderstanding. The first is that the assumption is not that individuals seek reproductive success—if we were doing that, the population of developed countries would be increasing much faster than it is—but only that we have those psychological characteristics that produced reproductive success in the environment we evolved in. The second is that reproductive success is an objective for the individual, not the group or species. Most scholars in evolutionary biology accept the view that traits which benefit group or species at the cost of the individual who carries them will be selected out.^[3]
The third point is that we are adapted not to the world we now live in but to the environment in which our species spent most of its history. Agriculture is a recent development. We would expect most of our characteristics to be designed to produce reproductive success in the environment in which our species spent most of its evolutionary history—believed to be an environment of small hunter-gatherer bands.^[4]

Evolutionary psychology adds two modifications to the rationality assumption. The first is an increase in its precision. Economists assume that individuals have objectives. But economic theory does not tell us what those objectives are, although observation and introspection provide at least a rough idea of what they are likely to be. Evolutionary biologists, on the other hand, know the objective of genes^[5]—reproductive success or, more precisely, inclusive fitness, getting as many copies of themselves as possible into future generations.^[6]
It follows that the assumptions of evolutionary psychology give economists some ability to predict what utility functions individuals will have. That ability is limited by our ignorance of the opportunity sets facing the genes—what sorts of organisms it is possible for them to construct. If, for example, there were a way of constructing a (phyloprogenitive) superman, a human being much stronger, faster, healthier, smarter, than existing humans and capable of surviving on practically anything, the gene that pulled off the trick would be a big winner in the Darwinian race. The absence of such supermen suggests that it cannot be done, or at least that doing it is so difficult that no gene has yet had managed it.
A less obvious example of the same point is the observed limit to how phyloprogenitive real human beings are. We are designed to seek reproductive success through a variety of traits—desire for sex that leads us to reproduce, parental love that leads us to care for our offspring, and many others. But despite those traits human beings, in the environments of recent centuries, produce far fewer children than they could produce and successfully rear—in part because we have found ways, ranging from birth control to pets, to sabotage the objectives of our genes in order to better serve our own objectives.^[7] A true phyloprogenitive gene, one that made reproductive success a high priority of every individual, would confer an enormous reproductive advantage on its carriers and rapidly spread through the population.^[8] The absence of such a gene is presumably due to the difficulty of such precise programming of an organism as complicated as a human being, plus the short time that has passed since the developments that make that tactic for reproductive success so much superior to less direct approaches.
Knowing the objective of our genes is not sufficient to tell us, with confidence, the objectives of the human beings that those genes build. But it is enough to suggest hypotheses—characteristics that would lead to increased reproductive success and that it might be possible for genes to give to the organisms they construct. Having formed such hypotheses, we can then test them by comparing their predictions to what we observe. That is a methodology routinely used in evolutionary biology—including, but not limited to, evolutionary psychology. It is the same as the methodology of positive economics save for a different and more explicit procedure for forming hypotheses.
One way in which evolutionary psychology modifies the rationality assumption is by predicting what objectives individuals are likely to have. A second is by providing a theory of mistakes.
Compared to rational thinking, Darwinian evolution is a slow process. While we expect economic man to choose the actions that achieve his objectives in the environment he observes around him, we expect evolutionary biological man to be designed to achieve his objectives—more precisely, his genes’ objectives—in the environment in which his species evolved. It follows that individuals are likely to be irrational—designed to act in ways not well designed to achieve their objectives—when the relevant features of the environment have changed rapidly enough so that evolution has not yet had time to catch up. The theory predicts not merely that individuals will make mistakes—that we already knew—but what mistakes they will make. They will make those mistakes that would have led to reproductive success in the environment in which the psychological characteristics leading to those mistakes evolved.^[9]

Economists sometimes observe people acting in ways that appear difficult or impossible to make consistent with the economic approach to understanding behavior. In this section I first consider a group of such economic puzzles that I believe can all be explained by a common characteristic of human psychology—the belief in just prices—itself explainable on evolutionary grounds. I then go on to consider two more puzzles—inconsistent time preferences and endowment effects—each of which I argue has an evolutionary explanation.

The first puzzle is the existence of predictable lines. Consider a restaurant whose patrons know that if they come for dinner on Friday or Saturday they will have to wait forty-five minutes for a table. The line does not increase the number of people the restaurant can serve^[10] but does impose an additional cost on customers in waiting time, raising the total cost of the meal enough to reduce quantity of meals demanded to the quantity the restaurant is capable of producing.
Suppose the wait is the equivalent, from the standpoint of the customers,^[11] to a ten-dollar increase in price. If the restaurant simply raised its price for the nights it was busy by ten dollars the line would shrink to close to zero. Customers would be no worse off—they would be paying the extra price in money instead of time—and the restaurant would be better off by ten dollars per diner. In the longer run, the increase in the amount restaurants could charge on busy nights would increase the supply of restaurants, bringing down the price and transferring at least some of the benefit back to the customers.
Restaurants do, to some extent, vary their price in this way—usually by announcing special discounts for low-demand nights rather than special surcharges for high-demand nights.^[12] Nonetheless, predictable long lines are a familiar feature of the restaurant world, which suggests some significant constraint limiting the degree to which they can vary their prices. A similar pattern is observed in other contexts—concerts, opening nights of popular films, and the like. Producers frequently follow pricing polices that lead to wasteful competition for under-priced goods. Doing so appears to make the producer worse off, contrary to what we would expect from the assumption of rationality.
One response consistent with casual observation is that a rock group or movie theater that routinely charged a price sufficient to ration demand down to supply for high-demand events would offend its customers and thus lose more in the long run than it gained in the short. But this explanation raises a second puzzle—the behavior of the customers. The average customer is no worse off in the short run as a result of such a policy, since it merely converts cost in time into cost in cash. And he is better off in the long run. So why should customers be offended? Why should they choose not to patronize producers who price their goods in the way that economic theory suggests they should?^[13]
A second and less striking puzzle is why firms that sell the same product at different prices at different times almost invariably describe their policy as a normal price and a discount rather than a normal price and a surcharge. This is less puzzling than the existence of predictable lines because there is no strong argument against doing it that way. But there is no strong argument for, either. Given that we already know what firms do, it is easy to argue that doing it that way makes them look good—they are giving their customers a special deal. But one could just as easily argue that the alternative policy makes them look good because it implies a lower ordinary price.
Next consider the history of price control. A law fixing a legal price below the price that would emerge from the market has a variety of consequences. In the long run, it is likely to make almost everyone worse off.^[14] In the short run, however, it may well benefit purchasers at the expense of producers—and for some products, most notably rental housing, the short run may be long enough to produce substantial transfers. Voters are, for familiar reasons, rationally ignorant, and long-run costs are often less obvious than short-run benefits. So it is not astonishing that imposing price control is sometimes politically profitable.
What is surprising is the pattern of when it is politically profitable. The costs and benefits of holding a price ten percent below its market level do not depend on whether the restriction prevents a price rise or forces a price reduction.^[15] Yet the former case is very much more common than the latter. Price control almost always arises in a context where it is intended to prevent prices from rising, very rarely in a context where a price is stable and the control is designed to push it below its current level.
All of these puzzles can be explained by a single assumption: Individuals believe that the proper price for a good is the price at which they are used to buying the good, resent being charged more than that price, and therefore attempt to punish those charging the higher price. That assumption is consistent both with casual observation of reactions to sharp price increases and with the history of ideas such as the scholastic philosophers’ doctrine of the just price.^[16]
Seen from the standpoint of economic rationality, the assumption makes little sense. Most people have no clear idea what determines the prices of the goods they buy, so no way of knowing whether yesterday’s price was fair, or just, or cost justified, or whether today’s higher price fails any of those criteria.^[17]
The behavior associated with the belief—the attempt to punish those charging "unjust" prices–also makes little sense. Suppose I really do know that a particular price is in some meaningful sense too high—say higher than the economically efficient price. Why is that a reason for me not to buy the good, assuming it is still worth more to me than it costs? Why is it a reason for me to be angry at the seller and express that anger by avoiding future transactions with him even if they would benefit me? In a world where goods and services are sold to large numbers of anonymous customers I cannot reasonably expect my refusal to buy, however justified, to induce the seller to lower his price.

Now shift the analysis back twenty thousand years. As a member of a hunter-gatherer band, you engage in a variety of transactions with your fellows, trading goods and services—food, sex, support in intra-group conflict, and the like. While money has not yet been invented, prices—the amount of food you must give in exchange for sex, the favors you must do someone if you want him to do a favor for you—are a familiar part of your environment. In this world all markets are thin—it is, after all, a small band—so the typical transaction is a bilaterial monopoly bargain.
Assume an environment sufficiently stable so that, for some transactions, there are “usual prices.” Those prices must be within the bargaining ranges of both buyer and seller,^[18] since otherwise the transactions would not occur. The environment is not, however, perfectly stable. Sometimes the circumstances of one party or another shift his bargaining range—the range of terms for which the transaction is in his interest.
You are a buyer whose current circumstances make the good much more valuable to you than usual, widening the bargaining range. If you could somehow commit yourself not to pay more than the usual price, you, rather than the seller, would get the increased benefit from this transaction. One way to do so is to be emotionally programmed to resent any increase above the usual price—resent it enough so that the humiliation of being “cheated” will outweigh the gain from the transaction.
As in any bilateral monopoly game, the argument works both ways. If the seller could somehow commit himself not to accept less than your reservation price,^[19] he would be the one to pocket the gains from the trade. There is, however, an important difference between your situations. You know the usual price and, assuming the special circumstances affect only you, know that it is probably within the seller’s bargaining range. So your commitment strategy is unlikely to commit you to a price outside the bargaining range—which would make the transaction impossible. The seller does not know your reservation price, so if he commits himself to his guess at what you are willing to pay he may choose a price at which the transaction can not occur.
A second difference is that the usual price is common knowledge of both parties. If the seller believes that the buyer is committed not to pay more than the usual price, he knows how much he can ask. But if the buyer believes that the seller is committed not to accept less than the buyer’s reservation price, he still has to guess what the seller believes that is.
The strategy works symmetrically when the seller is, for special reasons, willing to accept a much lower price than usual—on a barter market, this is the same situation seen from the other side. And, returning briefly to the present, we observe that people resent not only unusually high prices when they are buyers but unusually low prices when they are sellers—giving us, among other things, one explanation for why wages are sticky downwards.
What about the situation where the seller’s costs are unusually high, making him unwilling to sell at the usual price? If the result is to eliminate the bargaining range, no transaction will or should take place. But if the seller’s cost is lower than the value to the buyer, either because the special circumstances affect both in similar ways or because the increased cost is still within the usual bargaining range, a buyer’s commitment not to pay more than the usual price results in an inefficient bargaining breakdown.
There is a solution to this problem. A seller charging an unusually high price can defend himself against the buyer’s commitment strategy by offering to show the buyer that his costs really are unusually high, that he is really, and not only strategically, unwilling to sell at the usual price. From that we get the conventional view of pricing that economists find so frustrating and wrongheaded—as the outcome of bargaining between buyer and seller, with each required to justify any deviation from past prices.
It follows that, in the context of a hunter-gatherer society (more generally, a society where most transactions take place on thin markets) belief in a just price—defined as the usual price—can be understood as a commitment strategy that benefits those who adopt it. The benefit depends on an environment sufficiently stable so that knowledge of past prices provides a simple rule for identifying a price that is probably within the other party’s bargaining range. It works better if bargainers can to some degree identify situations where the rule would result in one party demanding a price outside of the bargaining range and treat them as special cases..
We now have a possible solution to the set of puzzles described above. Human beings have a functional module in their minds that deals with exchanges with other human beings. One feature of that module, hard-wired in by evolution, is that human beings regard the usual terms of exchange as right and any deviation from those terms that makes them worse off as a presumptively wicked act by the other party. This feature resulted in human beings that possessed it getting better terms in bilateral monopoly bargains in the environment in which we evolved, so having more resources and achieving greater reproductive success.
The belief in just prices and the associated commitment strategy continue to benefit those who hold it under some circumstances—markets with the features I have described. They injure those who hold it in the anonymous mass-market settings in which most modern economic transactions occur. And the fact that other people have that characteristic makes me worse off, both because it leads to inefficient policies by firms (long lines) and governments (price control) and because it leads to those others getting better terms from me when we happen to be in a bilateral monopoly transaction.

I began the previous section with the claim that hunter gatherers are familiar with prices and exchange. The obvious context is individual trade—usually and somewhat confusing described in the evolutionary literature as reciprocal altruism.^[20] Thus, for example, we observe a pattern among both humans and baboons where one individual assists another in intragroup conflict in exchange for later assistance in the other direction.^[21] The existence of such exchanges implies an implicit price—how much assistance must be given in exchange in order that one party not regard the other as cheating on the relevant social rule. Similarly, the exchange of food for sexual favors has been observed among both humans and closely related primates.^[22]
For a less obvious form of exchange, consider meat sharing among the Ache of eastern Paraguay, who were until very recently full time nomadic hunter-gatherers and still engage in extended foraging trips. Hunting is done by the men. The individual hunter who kills a particular animal has no ownership rights over it; the cooked animal is shared out among the group. On the face of it, this looks like a situation of pure communism—individual production, communal consumption, no exchange.
Anthropologists Kim Hill and Hillard Kaplan, in their study of the Ache,^[23] discovered an interesting pattern: Individuals were identified as good or bad hunters and good hunters had substantially greater reproductive success, more surviving offspring, than bad hunters. Their explanation was that, despite the apparent egalitarianism of the sharing of meat—which provided the bulk of the calories consumed—good hunters were still rewarded. Membership in foraging bands was fluid. In order to make sure that the good hunters went with a particular band it was necessary for other band members to offer them rewards for doing so—in the form of better care for their children, more sexual access to women in the band, and the like.
While the individual foraging band lacks the formal hierarchical structure of a modern corporation, the situation is in other respects one familiar to us. Most employees in a modern society, like hunters in an Ache foraging band, have no ownership claim over the particular goods or services they produce. Their reward still depends on their productivity, but through a more indirect mechanism. Firms that pay employees less than they are worth risk losing them to other firms. Foraging bands that under reward good hunters may find that, next time around, the good hunters go with other bands. Just as in the case of individual exchange, there is an implicit price, just one linked to the services provided rather than directly to the goods produced.
To see how the logic of just prices might play itself out in this situation, consider the formation of a foraging band at a time when it happens that no other bands are being formed. Members of the band could propose to good hunters they wished to recruit that they be satisfied with the same treatment as everyone else—that being preferable to staying home. Good hunters committed to a norm of "just payment" would decline that proposal—and if they were known to be committed to that norm would end up with their usual favorable treatment.

Intertemporal choice provides a second example of puzzling behavior that may perhaps be explained by evolutionary psychology. The usual economic model, going back at least to Marshall^[24] and given its present form by Samuelson,^[25] assumes that an individual’s preference between present and future utility can be described by a discount rate. The preferred alternative is the one that maximizes the present value of utility, discounted at that rate. Mathematically:

U = U₁ + U₂/(1 + r) + U₃/(1 + r)² + · · ·

Where r is the individual discount rate on utility, U is the utility that the individual maximizes, U₁ is the utility received in year 1, U₂ in year 2, and so forth.
While it is not clear that this particular structure is required by rationality, it does have some attractive properties. In particular, it guarantees that the preference between two future alternatives at different dates does not change as we approach them; individual choice is, in that sense, consistent over time.
While this seems a plausible description of rational choice, it does not appear to describe real world behavior.^[26] A variety of experiments show that many individuals, faced with (say) the choice between a thousand dollars today or eleven hundred dollars next week will prefer the former, yet faced with the choice between a thousand dollars a year from now and eleven hundred dollars a year plus a week from now will prefer the latter. The usual pattern appears to be a very high discount rate for choices in the near future and an increasingly low discount rate as the alternatives become more distant.^[27]
Evolutionary psychology suggests a straightforward explanation for such a pattern. In the experimental setting, subjects are told that they are choosing between two certain payoffs at different times. In the world in which we now live, that is a believable story; modern financial institutions make possible secure promises of future performance, such as those embodied in certificates of deposit or U.S. government bonds.
The world in which our species evolved did not have such institutions. In that world it was rational to discount promises of future performance. One meal today was worth a great deal more than one meal next week because today’s meal was there to be taken; next week’s might not be. One meal a year from now, on the other hand, was not worth much more than one meal a year plus a week from now; both were promises that might well fall through, and the chance of their falling through was not greatly altered by the additional week.^[28]
Not only was the behavior rational twenty thousand years ago, it was, to a considerable degree, rational a good deal more recently, sufficiently so to become proverbial. “A bird in the hand is worth two in the bush.”^[29]

A professor purchases lots of school mugs, selects at random half the members of a group of students, and gives one to each of them. He then asks each student with a mug to state the price at which he would be willing to sell it and each student without a mug to state the price he would be willing to pay for one. Finally, he calculates the market clearing price—the price at which there is exactly one seller for each buyer—and reallocates mugs and money accordingly.
At the end of this process, the mugs should be in the possession of whichever students most value them. Since they were originally handed out at random, we would expect that about half of the students who most valued them would have gotten them and half would not, hence that about half of the mugs should change hands.
In fact, almost none of them did. The conclusion from this classic experiment^[30] was that, on average, people value a mug more when they have it than when they do not—the lowest price at which someone who has a mug will sell it is, on average, higher than the highest price that someone who does not have a mug will be willing to pay to buy it. That was supported by the actual prices the students gave. The median seller required about twice as much to be willing to sell as the median buyer was willing to offer.
This result—applied to mugs and much else—is known as an endowment effect. On average, for many but not all sorts of things, someone who owns something values it more than someone who does not. While the results of a single experiment along these lines can usually be explained away as due to something else, the experiment has been repeated enough times in enough different ways to justify considerable confidence in the conclusion. One thus has the apparently paradoxical result that someone choosing between one package containing a mug and ten dollars and another containing no mug but fourteen dollars reveals inconsistent preferences—whichever package he starts with, he prefers it to the alternative.
The explanation of this pattern of behavior starts with the observation that it is not limited to humans.

It has long been known that some species of animals exhibit territorial behavior. An individual fish, bird, or mammal in some way claims a particular territory for his own and attacks other members of his species that trespass on it. Even if the trespasser is somewhat larger and stronger than the claimant, the claimant usually wins such conflicts—at some point the trespasser retreats.^[31]
The logic of the situation is straightforward. Unless the trespasser is much stronger a fight to the death is a losing game for both parties, since even the winner risks substantial injury. The claimant has somehow committed himself to fight more fiercely the closer the trespasser gets to the center of the territory. The trespasser, recognizing that commitment, eventually backs down and retreats. Presumably the commitment is accomplished through a behavior pattern hard-wired into the psychology of a territorial species.
A different way of putting this is that territorial animals exhibit an endowment effect—each individual will fight much harder to keep his territory than he will to conquer someone else’s territory. The effect is not limited to real estate. It is a familiar observation that a dog will fight harder to keep his own bone than to take another dog’s bone.
Now consider the same logic in a hunter-gatherer society with no external institutions to enforce property rights. Imagine that each individual considers every object in sight, decides how much each is worth to him, and then tries to appropriate it, with the outcome of the resulting Hobbesian struggle determined by some combination of how much each wants things and how strong each individual is. It does not look like a formula for a successful society, even on the scale of a hunter-gatherer band.
There is an alternative solution, assuming that humans are at least as smart as dogs, robins, and Siamese fighting fish. Some method, possibly as simple as physical possession, is used to define what belongs to whom. Each individual commits himself to fight very hard to protect his property—much harder than he would be willing to fight in order to appropriate a similar object from someone else’s possession—with the commitment made by some psychological mechanism hard-wired into humans. The result is both a lower level of (risky) violence and a more prosperous society.
The fact that the result is attractive does not guarantee that it will occur—evolution selects for the (reproductive) interest of the individual, not the group. But in this case they are the same. To see that, imagine a population in which some individuals have adopted the commitment strategy described above, some have adopted no commitment strategy, and some have adopted different commitment strategies—for example, a strategy of fighting to the death for whatever they see as valuable. It should be fairly easy to see that individuals in the first group will, on average, do better for themselves—hence have (among other things) greater reproductive success—than those in the second and third.
How do I commit myself to fight very hard for something? One way is by perceiving it as very valuable. So the same behavior pattern that shows up as territorial behavior in fish and ferocious defense of bones in dogs shows up in Cornell students as an endowment effect. Just as in the earlier cases, behavior that was functional in the environment in which we evolved continues to be observed, even in a context where it now serves no useful purpose.^[32]

So far I have been discussing the use of evolutionary psychology to solve puzzles—explain situations where the conclusions of economic analysis appear inconsistent with observed behavior. Evolutionary psychology can also be used to make sense of behavior which, while not inconsistent with conventional economics, is also not implied by it—to explain why the individual utility function has charcteristics needed to explain observed behavior.
One obvious example is parental altruism towards children. In some environments it makes sense as a means to narrowly self-interested ends—productive children are better able to take care of their parents in their old age in a society where that is the chief form of old age insurance. But the behavior appears more general than that—as we would expect if our utility functions were shaped by evolution to maximize reproductive success. Children who die young do not produce grandchildren; children who grow up to be able and productive individuals, at least in most past societies, can and do produce and rear more grandchildren as a result.
A less obvious example is concern with status. As Robert Frank has convincingly argued,^[33] humans appear to care about both real income and relative income. While a concern with relative income is not inconsistent with economic rationality, neither is it implied by it. My ability to get most of what I want depends on how much my income can buy, not on how much yours can.
In a hunter gatherer band, however, there is one resource which is in fixed supply and of enormous importance for male reproductive success—women. How many children I can feed depends on my real income. But my ability to persuade one or more women to produce children with me depends on my resources—material and otherwise—relative to those of the other men against whom I am competing. Similarly, the ability of a woman to persuade a man to produce children with her and help support them depends in part on her status vis a vis the other women on whose children that man might spend his limited resources. So we would expect both relative status and real income to play important roles in the individual utility function produced by evolutionary selection.
This explanation has an interesting implication. If it is correct, men ought to be primarily concerned with their status relative to other men, women with their status relative to other women. I do not know whether or not that prediction is empirically confirmed.

I have offered three examples of patterns of behavior apparently inconsistent with the usual account of economic rationality and shown how each may be explained, perhaps even predicted, by evolutionary psychology. Behavior associated with deeply held beliefs about just prices makes sense as a hard-wired commitment strategy designed to give its holder an advantage in the bilateral monopoly bargains that must have been common in the hunter-gatherer societies in which our species evolved. A pattern of apparently inconsistent choices over time makes sense as reflecting the lack of reliable mechanisms for guaranteeing the performance of future obligations in that same society. Endowment effects are the predictable result of commitment strategies that make possible a system of property in a world without public law enforcement.
In all three cases, evolutionary psychology plays the second of the two roles that I described at the beginning of this article—it functions as a theory of mistakes. That is not surprising. Insofar as evolutionary psychology tells us what our utility function is, it improves upon the economic model of rationality but does not contradict it. It is only when it tells us what actions we will take that do not serve our interests that it contradicts the conventional approach and so makes it possible to find evidence for one and against the other.

Barker, Jerome H., Cosmides, Leda, and Tooby, John, The Adapted Mind: Evolutionary Psychology and the Generation of Culture, Oxford University Press, 1992.

Becker, Gary, "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," Journal of Political Economy. v99n5. Oct 1991. p. 1109-1116.

Buss, David M., Evolutionary Psychology: The New Science of the Mind, Allyn and Bacon, 1999.

Dawkins, Richard, The Selfish Gene, Oxford University Press 1990.

De Waal, F. Chimpanzee Politics: Sex and Power Among Apes, Baltimore (1981), Johns Hopkins University Press.

Frank, Robert, Choosing the Right Pond: Human Behavior and the Quest for Status, Oxford University Press 1987

Friedman, David, "In Defense of Thomas Aquinas and the Just Price" in St. Thomas Aquinas (1225-1274), Mark Blaug ed., Elgar (1991), reprinted from History of Political Economy, 12:2 (1980).

“A Positive Account of Property Rights,” Social Philosophy and Policy 11 No. 2 (Summer 1994) pp. 1-16. (http://www.daviddfriedman.com/Academic/Property/Property.html)

Hidden Order: The Economics of Everyday Life, HarperCollins: New York 1996.

Price Theory: An Intermediate Text, South-Western (1990).

(http://www.daviddfriedman.com/Academic/Price_Theory/PThy_ToC.html)

Jones, Owen, Time-Shifted Rationality And The Law Of Law’s Leverage: Behavioral Economics Meets Behavioral Biology, Northwestern University Law Review Vol. 95, No. 4 (2001)

Loewenstein, George and Elster, Jon, Choice Over Time, Russel Sage Foundation, N.Y. 1992.
Lorenz, Konrad, On Aggression, translated by Marjorie Kerr Wilson, 1963.

Marshall, Alfred, Principles of Economics. Macmillan (1920)

Packer, C. "Reciprocal Altruism in Papio anubis," Nature, 265, 441-443.

Samuelson, Paul, “A Note on Measurement of Utility,” Review of Economic Studies 4, (1937): pp. 155–161.

Symons, D., The Evolution of human Sexuality, New York: Oxford 1979. (check pages)

Thaler, Richard H. , Quasi-Rational Economics , Russell Sage Foundation, 1992.

Trivers, Robert L., "The Evolution of Reciprocal Altruism," Q. Rev. Biol. 46, pp. 35-57 (1971).
Zywicki, Todd, Evolutionary Psychology and the Social Sciences, Humane Studies Review Vol. 13, No. 1, (2000), webbed at:
http://www.theihs.org/libertyguide/hsr/hsr.php/36.html



* An earlier version of this article was published, in English, Catalan, and Castilian in the 4/2001 issue of the webbed journal Indret. It is a first pass at a large problem. I hope others will find it sufficiently interesting to want to both extend the analysis to other economic puzzles and sharpen the tests it generates so as to provide something more like evidence and less like anecdote to help us choose between the alternative approaches to human behavior offered by economics and evolutionary psychology.

^[1] The argument is summarized in D. Friedman, Hidden Order: The Economics of Everyday Life, HarperCollins: New York 1996, pp.  3–9. A webbed version can be found in D. Friedman, Price Theory,

http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_1/PThy_CHAP_1.html

^[2] For a description and defense of evolutionary psychology, along with a number of interesting applications, see The Adapted Mind by Toobey, Cosmides, and Barkow. For a discussionof its relevance to social sciences in general, including economics, see Zywicki (2000).

^[3] It is logically possible for traits that benefit a group at the expense of the group members who carry them to produce an increase in success for the group large enough to make up for the decreased success of the member relative to other members of the group, but that is usually viewed as an unusual special case.

^[4] Owen Jones uses the term "time shifted rationality" to express this idea.

^[5] “Objective of genes” is, of course, a metaphor. Genes do not have minds, hence do not have objectives. But the organisms we observe are constructed by those genes that succeeded, in past generations, in constructing organisms that got those genes passed down. Hence genes are shaped, as by an invisible hand, to construct organisms whose characteristics result in reproductive success for the genes that constructed them.

^[6] "Inclusive fitness" includes both increasing the frequency of your genes through your own reproduction and increasing their frequency by aiding the survival and reproduction of kin, who share some of your genes.

^[7] A point dramatically made by Richard Dawkins in The Selfish Gene; he describes human beings as the real world equivalent of science fiction robots who have revolted against their makers. The clearest evidence that couples in modern societies could produce and successfully rear substantially more than two children is that many do so, despite having no more resources available to them than the much larger number who do not.

^[8] Reproductive success includes both producing offspring and successfully rearing them—successfully enough to give them, in turn, the opportunity for successful reproduction. While it is an important way of increasing the frequency of your genes in future generations it is not the only way, so would not be the sole objective of an organism perfectly designed for that purpose. My full siblings are as closely related to me as my children, so keeping a brother or sister alive and able to reproduce is another way of increasing the frequency of my genes in future population, hence of achieving inclusive fitness.

In developed societies most couples have about two children but could produce and successfully rear eight—if doing so were their highest priority—as demonstrated by some who do. A gene that resulted in its carrier doing so would increase its frequency in the population a billion fold in a mere fifteen generations.

^[9] Readers interested in a much longer and more detailed exposition of the basic ideas of this and the preceding section of this essay—what evolutionary psychology is and what it implies about rationality—will find it in Jones (2001), pp. 1161-1173. The later parts of the article in part overlap with ideas of this chapter as well as offering additional applications of the evolutionary approach, in particular ones relevant to the design of legal institutions.

^[10] A short line would increase the number served, since it provides an inventory of customers that allows the restaurant to produce at full capacity in the face of unpredictable demand. My anlysis is of the effect of any additional wait beyond that necessary to achieve that effect.

^[11] Patrons are not identical, but for my present purposes it is not necessary to discuss the differing effects on patrons with differing value for time.

^[12] This pattern fits the explanation I propose below.

^[13] There have been a variety of attempts by economists to explain lines within a conventional economic framework, none of which appears to me entirely satisfactory. See, for instance, Becker (1991).

^[14] For an analysis of reasons this is true, see Price Theory Chapter 17 (webbed at http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_17/PThy_Chapter_17.html) and Hidden Order Chapter 17.

^[15] This is a slight oversimplification; there are costs associated with the mechanics of pricing, such as revising price tags and prices in advertisements, which are incurred if price control forces prices down but avoided if it prevents prices from going up.

^[16] For a discussion of that doctrine and the function it served, along lines related to the argument of this essay, see D. Friedman “In Defense of Thomas Aquinas and the Just Price.” For some evidence of similar attitudes in modern consumers, see Richard H. Thaler, Mental Accounting and Consumer Choice, Marketing Science, 1985. For a more extensive discussion of modern behavior patterns inconsistent with the usual economic account of rationality, along with a good deal of evidence, see Quasi-Rational Economics by Richard H. Thaler.

^[17] “For one thing, the recent tripling of oil prices followed a sharp drop. In real terms, prices are still one-third below their level in 1990, when Iraq invaded Kuwait, and half their level in 1981.” The Economist, Sept. 9, 2000, p. 17.

^[18] Strictly speaking the distinction is meaningless here, since we are talking about barter transactions, but it is still useful for expository purposes.

^[19] More realistically, to insist on a price a little below your reservation price, so as to reduce risks from error. Since the distinction is not important to my general argument I will ignore it below in order to simplify the discussion.

^[20] The original article is Trivers (1971). The author speculates about rates of exchange among humans engaged in reciprocal altruism (p. 46) but offers no evidence.

^[21] Buss, pp. 259-264. Packer (1977) describes the observed pattern of reciprocal support among olive baboons; his data are not adequate to determine whether there is an implicit one for one exchange. DeWall (1982) is primarily concerned with behavior (among chimpanzees) more nearly analogous to human political behavior than to human market behavior. Nonetheless, he describes behavior that appears to be "direct payment for services rendered" (p. 203) and writes: "For the time being I should like to sum up as follows: Chimpanzee group life is like a market in power, sex, affection, support, intolerance and hostility. The two basic rules are 'one good turn deserves another' and 'an eye for an eye, a tooth for a tooth.'" (p. 207)

^[22] Buss, pp. 174, 177. Symons (1979) pp.158-162,253-261.

^[23] Kim Hill and Hillard Kaplan,"Tradeoffs in male and female reproductive strategies among the Ache: part 1" in Human Reproductive Behaviour: A Darwinian Perspective, Laura Betzig, Monique Bogerhoff Mulder and Paul Turke eds., esp. pp. 283-4, where the authors also discuss alternative explanations for their observations. Triver (1977, p. 47) writes: "An individual in a subgroup who feels that another member is subtly cheating on their relationship has the option of .... Attempting to join another subgroup ... . ... There is evidence in hunter-gatherers that much movement of individuals from one band to another occurs in response to such social factors as have just been outlined."

^[24] Alfred Marshall, Principles of Economics, Bk III chapter V §3, 4.

^[25] Samuelson, Paul, “A Note on Measurement of Utility,” Review of Economic Studies 4, (1937): pp. 155–161.

^[26] For an extensive discussion of the experimental evidence and various attempts to interpret it, see George Loewenstein and Jon Elster, Choice Over Time, Russel Sage Foundation, N.Y. 1992.

^[27] The observed pattern is sometimes described as “hyperbolic discounting,” since it fits a hyperbolic function better than it fits the exponential implied by the conventional economic model of intertemporal choice.

^[28] This would not be true if we modeled contract non-fulfillment as the result of a stochastic process where each week there was a certain probability that the other party would decide to renege on his obligation. That would yield the same result—expected value declining exponentially with time—as the conventional model. But there are at least two more plausible models that work better:

Fulfillment depends on the relations between the two parties at the time the obligation comes due. Relations each week have some probability of switching from friendly to unfriendly, and also some probability of switching from unfriendly back to friendly. They are friendly when the agreement is made. As time goes on, the expected state of relations moves towards its equilibrium level.

Fulfillment depends not on future events but on the present plans of the other party. The longer it is until the obligation comes due, the easier it is for him to get out of it—to be somewhere else, or to have acquired allies to use against any retaliation by your for non-performance, or to claim to have forgotten it (this is, after all, a world without writing). Hence the fact that the offer is well into the future signals that he probably does not intend to fulfill it.

^[29] An explanation along generally similar lines can be found in Jones (2001), pp. 1177-1179.

^[30] Kahneman, D., J. Knetsch and R. Thaler, 1991, "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, 98, 1990, pp:1325-1348; Reprinted in Richard Thaler, Quasi Rational Economics, (Russell Sage Foundation, New York), pp:167-188.

^[31] For an early description of such behavior, see Konrad Lorenz, On Aggression, Chapter 3 (pp. 23-48).

^[32] A willingness to fight unreasonably hard to defend what is yours is still sometimes useful even in a society where the government plays a role in protecting property. For a general discussion of commitment strategies as a foundation for social order in general and property in particular, see David Friedman, “A Positive Account of Property Rights,” Social Philosophy and Policy 11 No. 2 (Summer 1994) pp. 1-16.

Jones (2001) pp. 1183-1185 also links endowment effects to territorial behavior, but offers a different explanation.

^[33] Frank, Robert, Choosing the Right Pond. The book is an extensive discussion of the economic consequences of the fact that individuals value status. On page 19 the author mentions competition for food, mates and other desiderata as one explanation of that taste but does not point out the special significance of the fixed supply of potential mates for the importance of relative rather than absolute outcomes.