Evolutionary Psychology and Economic Theory, Volume 7 (Advances in Austrian Economics)

EVOLUTIONARY PSYCHOLOGY AND ECONOMIC THEORY

ADVANCES IN AUSTRIAN ECONOMICS Series Editor: Roger Koppl Associate Editors: Jack Birner and Peter Kurrild-Klitgaard

ADVANCES IN AUSTRIAN ECONOMICS VOLUME 7

EVOLUTIONARY PSYCHOLOGY AND ECONOMIC THEORY EDITED BY

ROGER KOPPL Department of Economics and Finance, Fairleigh Dickinson University, USA

2004

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CONTENTS LIST OF CONTRIBUTORS

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ADVISORY BOARD

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ECONOMICS EVOLVING: AN INTRODUCTION TO THE VOLUME Roger Koppl

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ECONOMICS AND EVOLUTIONARY PSYCHOLOGY David Friedman

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MOGUL GAMES: IN DEFENSE OF INEQUALITY AS AN EVOLUTIONARY STRATEGY TO COPE WITH MULTIPLE AGENTS OF SELECTION Deby Cassill and Alison Watkins

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AUSTRIAN ECONOMICS, EVOLUTIONARY PSYCHOLOGY AND INDIVIDUAL ACTIONS Geoffrey M. Hodgson

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HAYEK AND MODERN EVOLUTIONARY THEORY Paul H. Rubin and Evelyn Gick

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HAYEK’S THEORY OF THE MIND Brian J. Loasby

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IS HOMO ECONOMICUS EXTINCT? VERNON SMITH, DANIEL KAHNEMAN AND THE EVOLUTIONARY PERSPECTIVE C. Athena Aktipis and Robert O. Kurzban

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AUSTRIAN ECONOMICS, EVOLUTIONARY PSYCHOLOGY AND METHODOLOGICAL DUALISM: SUBJECTIVISM RECONSIDERED Viktor J. Vanberg

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THE NEW FABLE OF THE BEES: MULTILEVEL SELECTION, ADAPTIVE SOCIETIES, AND THE CONCEPT OF SELF INTEREST David Sloan Wilson

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SYMPOSIUM ON GROUP SELECTION GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM: COMPATIBLE AND COMPLEMENTARY Douglas Glen Whitman

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ON GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM – A REPLY TO DOUGLAS GLEN WHITMAN Elliott Sober and David Sloan Wilson

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COMMENT ON “GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM: COMPATIBLE AND COMPLEMENTARY” BY DOUGLAS GLEN WHITMAN Richard N. Langlois

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RECONCILING GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM Todd J. Zywicki

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LEVELS OF SELECTION AND METHODOLOGICAL INDIVIDUALISM Adam Gifford Jr.

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GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM: REPLY TO COMMENTS Douglas Glen Whitman

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LIST OF CONTRIBUTORS C. Athena Aktipis

Department of Psychology, University of Pennsylvania, USA

Deby Cassill

Department of Environmental Science and Policy, University of South Florida St. Petersburg, USA

David Friedman

School of Law, Santa Clara University, USA

Evelyn Gick

Department of Economics, Dartmouth College, USA

Adam Gifford Jr.

Department of Economics, California State University, USA

Geoffrey M. Hodgson

The Business School, University of Hertfordshire, UK

Roger Koppl

Department of Economics and Finance, Fairleigh Dickinson University, USA

Robert O. Kurzban

Department of Psychology, University of Pennsylvania, USA

Richard N. Langlois

Department of Economics, The University of Connecticut, USA

Brian J. Loasby

Department of Economics, University of Stirling, UK

Paul H. Rubin

Department of Economics and School of Law, Emory University, USA

Elliott Sober

Department of Philosophy, Stanford University, USA

Viktor J. Vanberg

University of Freiburg and Walter Eucken Institute, Freiburg, Germany ix

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Alison Watkins

Information Systems and Decision Sciences, University of South Florida St. Petersburg, USA

Douglas Glen Whitman

Department of Economics, California State University, USA

David Sloan Wilson

Departments of Biology and Anthropology, SUNY Binghamton, USA

Todd Zywicki

School of Law, George Mason University, USA

ADVISORY BOARD Don Bellante University of South Florida, USA

Uskali M¨aki University of Helsinki, Finland

James Buchanan George Mason University, USA

Ferdinando Meacci Universit`a degli Studi di Padova, Italy

Stephan Boehm University of Graz, Austria

Mark Perlman University of Pittsburgh, USA

Peter J. Boettke George Mason University, USA

John Pheby University of Luton, UK

Bruce Caldwell University of North Carolina, USA

Warren Samuels Michigan State University, USA

Jaques Garello Universit´e d’Aix-Marseille, France

Barry Smith State University of New York, USA

Roger Garrison Auburn University, USA

Erich Streissler University of Vienna, Austria

Jack High George Mason University, USA

Martti Vihanto Turku University, Finland

Masazumi Ikemoto Senshu University, Japan

Richard Wagner George Mason University, USA

Richard N. Langlois The University of Connecticut, USA

Lawrence H. White University of Missouri, USA

Brian Loasby University of Stirling, UK

Ulrich Witt Max Planck Institute, Germany

Ejan Mackaay University of Montreal, Canada

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ECONOMICS EVOLVING: AN INTRODUCTION TO THE VOLUME Roger Koppl The modern revival of “Austrian economics” dates to the South Royalton conference of 1974 (Vaughn, 1994, pp. 103–111). At that time, neoclassical orthodoxy excluded evolutionary concepts. It was, in Ludwig Lachmann’s memorable phrase, “late classical formalism” (1977, p. 35). Opposition to neoclassical orthodoxy was part of the definition of Austrian economics. It formed part of our identity. Today it is no longer clear what “orthodoxy” is or whether current mainstream economics is “neoclassical” at all (Colander et al., 2004). One of the more salient changes in mainstream economics over the last 30 years is the introduction of evolutionary ideas. Mainstream economics is rich with evolutionary concepts. Evolutionary game theory, for example, is certainly a part of today’s standard toolbox. Thirty years ago, it did not even exist.1 Some of the evolutionary ideas entering mainstream economics are similar or identical to ideas from the Austrian tradition. In this situation, it is no longer clear what the Austrian differentiae are. I hope this volume will help to sort out some of the issues relating to Austrian economics and one group of evolutionary ideas, namely, those of evolutionary psychology. The growth of evolutionary ideas in economics is a challenge and an opportunity for Austrian economists. The challenge is to identify what we have to offer to the new, more evolutionary mainstream. The opportunity is to find in this new mainstream an audience more open to Austrian ideas. The contributors to this volume help us to understand the opportunities and challenges for Austrians considering the modern literature in evolutionary psychology. It is

Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 1–16 Copyright © 2004 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07001-2

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probably true that only a minority of contributors the current volume, however, are Austrian economists. Some might be labeled “ambiguous Austrians.” But all are seriously engaging issues in the crossroads where Austrian economics, evolutionary economics, and evolutionary psychology meet. The term “evolutionary psychology” has a strict meaning and a broad meaning. In the strict sense, “evolutionary psychology” refers to the writers who take as their manifesto Barkow, Cosmides and Tooby (1992). For them, “the mind is a set of information-processing machines that were designed by natural selection to solve adaptive problems faced by our hunter-gatherer ancestors” (Cosmides & Tooby, 1997). Notice that the mind consists of multiple “informationprocessing machines” rather than being one big, all-purpose calculating machine. It is a hodgepodge of different cross-communicating “modules” or “decision algorithms.” Different modules are “specialized to process different kinds of information” (Barkow et al., 1992, p. 599). In the strict sense, the contributions of David Friedman, Geoffrey Hodgson, C. Athena Aktipis & Robert Kurzban, Paul Rubin & Evelyn Gick, and Viktor Vanberg draw on evolutionary psychology. Brian Loasby expresses doubts about evolutionary psychology in the strict sense. David Sloan Wilson is a pioneer of evolutionary psychology in the broad sense, but opposed to important elements of evolutionary psychology in the strict sense. In the broader sense, the term evolutionary psychology applies to any theory or argument that draws conclusions about human psychology from man’s evolutionary history. In this sense, all of the contributions in this volume concern evolutionary psychology. There is an even wider sense of the term employed by Heyes (2000) who favors an “evolutionary psychology” of all sentient life. In this view evolutionary psychology in the strict sense is narrow in its focus on humans. She coins the term “evolutionary psychology in the round” to capture this idea. It is quite normal, however, to use the word “psychology” to refer to human psychology. A university may have a department of psychology, but I am not aware of any departments of “human psychology.”2 The real point of Hayes’s phrase, “evolutionary psychology in the round,” seems to be its potential as a blunt weapon with which to attack evolutionary psychology in the strict sense. This sense of the term will not distract us further. Hayek was an evolutionary psychologist in the broad sense. His book The Sensory Order relies on the concepts of natural science to explain how, in principle, mind could emerge from matter. (He thus commits the phenomenological sin of “naturalizing consciousness.”)3 Mises, by contrast, merely tipped his hat to the evolutionary origins of human reason (1949, pp. 32–36). He seems to have thought that evolution produced in man an animal more rational than the beast described by evolutionary psychologists in the strict sense. As I note below, evolutionary

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psychology contradicts this view, while supporting other vital aspects of Mises’ position. The contributions of Friedman and Vanberg both contain useful primers on evolutionary psychology in the strict sense. Cosmides and Tooby have posted their own primer on the web (http://www.psych.ucsb.edu/research/cep/primer.html). As Friedman notes, evolutionary psychology gives us “some ability to predict what utility functions individuals will have.” This knowledge is limited and indirect. As Friedman notes, evolutionary biology lets us know, metaphorically, “the objective of genes,” namely, “reproductive success, getting as many copies of themselves as possible into future generations.” Combining this central idea with knowledge of our evolutionary past helps us form guesses about what sorts of dispositions people are armed with. As Friedman makes clear, these guesses cannot be too particular. Our guesses are weak in part because “we have found ways . . . to sabotage the objectives of our genes.” We are not endowed with a generalized skill of reproduction, whether of genes or organisms. We are endowed with specialized preferences and dispositions that helped the genes of our ancestors to reproduce. The desire for status is an example. Such desires and dispositions can be satisfied without serving their original evolutionary function. Friedman illustrates by noting that using birth control and keeping pets allow us to have sex and dependent love objects without reproducing. Friedman’s point is consistent with Hayek’s insight that cultural evolution partly overrides the behavioral dispositions produced by biological evolution (Hayek, 1979). Evolutionary psychologists might object to putting Hayek’s point in just this way, which seems to contrast “nature” with “nurture,” and “genes” with “culture.”4 Genes and culture co-evolve. The actions implied by our “nature” vary, sometimes radically, with the particular environments we experience, and thus depend on “nurture.” An evolutionary psychologist would therefore probably express Hayek’s point differently. Because the “modern” conditions of civilized life have “existed for an evolutionarily insignificant amount of time,” Donald Symons explains, “we have no adaptations specifically designed to deal with” them. A given psychological adaptation “may be less adaptive (i.e. less reproductionmaximizing) today than it once was, or perhaps maladaptive” (Symons, 1992, p. 138). Our natural psychology is not well suited to many of the rules we are subject to in modern society. Only in this somewhat attenuated sense does culture “override” biology. Although the supposed dichotomy between “culture” and “biology” is simplistic, the substance of Hayek’s point is good. As Cosmides and Tooby (1997) put it, “Our modern skulls house a stone age mind.”5 Friedman points out that evolutionary psychology also gives us a theory of error. It tells us that people “will make those mistakes that would have led to reproductive success in the environment in which the psychological characteristics

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leading to those mistakes evolved.” This insight deserves some attention. Recently, Gigerenzer and others have put forward the theory of “fast and frugal heuristics,” which builds in part on evolutionary psychology (Gigerenzer & Selten, 2001). They study simple heuristics whose out-of-sample performance beats that of linear regression and other seemingly more rational techniques. At points they seem to take it for granted that people in society use high-performance algorithms. Todd (2001) says, for example, “the vision of ecological rationality,” characterizing the literature on fast and frugal heuristics, “emphasizes that humans use specific simple heuristics because they enable adaptive behaviors, by exploiting the structure of information in natural decision environments” (pp. 52–53, emphasis in original). But as Henrich et al. (2001) note in the same volume, we have clear examples in which cultural evolution produces maladaptive heuristics (pp. 355–357). Evolutionary psychology tells us about the fabric of human nature; social theory tells us what different societies make with that fabric. Different institutions produce different results. Deby Cassill provides a radically new insight into the propensity of people and other animals to fall into hierarchical structures. Her notion of “skew selection” (Cassill, 2002, 2003) is a radically new model of dominance hierarchies. Most traditional models can be lumped into one of two classes: those assuming essentially selfish individuals and those relying on some notion of altruism, whether based on kinship, group selection, or reciprocity. Cassill points out that if group membership has both costs and benefits, and if those costs and benefits vary with one’s position in the hierarchy, then natural selection should tend to favor organisms that know when to support the group and when to exploit their position within the group. In periods of safety and relative abundance, the strong support the weak. In periods of danger or relative want, the agents of death attach themselves to the weak and pass over the strong. This arrangement is clearly good for the strong. They have a buffer between themselves and the agents of death. The weak benefit too, however, since they can reproduce if the good times last long enough. The strong, then, have a selfish incentive to make clever investments in the welfare of others in the group. Natural selection exploits love and its feelings of altruism to serve the selfish genes of the group’s strongest members. Cassill’s simulations suggest that in human societies hierarchy may be natural in at least two senses. First, we may be programmed for life in hierarchical systems. If we are, then our psychology is oriented to groups and may include a deep-seated desire to feel solidarity with others and a natural disposition to rank oneself in relation to others. Second, even in historical time, hierarchies may emerge “naturally” with little planning or foresight by the very individuals who emerge as “moguls.” Both points fit nicely with Hayek’s social theory. The first point resonates with Hayek’s notion of the “atavism of social justice” (Hayek,

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1978) and expands upon it. We are at once selfish and altruistic. We have genuine feelings of solidarity for those within our group. These noble feelings, however, may correspond to fear or hatred of those outside the group. Hayek’s political philosophy seems to have little room for such feelings of solidarity except, perhaps, to suggest we mortify them. The second point suggested by Cassill’s paper, that the emergence of hierarchies and moguls is “natural,” resonates with Hayek’s argument that the very idea “social justice” is incoherent because the distribution of income is not planned in a spontaneous order (Hayek, 1976, pp. 96–97). Geoffrey Hodgson draws attention to an important issue Austrians need to confront. As an expression of thoroughgoing Darwinism, evolutionary psychology invokes the “principle of evolutionary explanation,” which Hodgson defines as “the injunction that any behavioral assumption, including in the social sciences, must be capable of causal explanation in evolutionary terms, or at least be consistent with a scientific understanding of human evolution.” Hodgson’s call to place greater emphasis on habit and to place habit “between instinct and reason” resonates nicely with Hayek’s ideas on cultural evolution. Hayek (1979) places culture, including morality, between instinct and reason. Significantly, Hodgson cites Hayek’s remark that “Man is as much a rule-following animal as a purpose-seeking one” (Hayek, 1973, p. 11). Hodgson is right to note that many Austrians have made “psychologizing” taboo: Economic theory must not consider the content of individual preferences. Hodgson cites passages in Mises, Hayek, Lachmann, and Shackle supporting this position. If evolutionary psychologists are mapping out a universal human psychology that includes “domain-specific cognitive specializations” (Tooby & Cosmides, 1992, p. 71) and “content-specific” problem-solving “mechanisms” (pp. 112–113), then Mises was wrong to associate the content of action with “history” and the pure, content-independent form of action with “theory.” The Misesian project of “praxeology” was built on the idea that the only universals in human action concern its categorical form (Mises, 1949, pp. 32–36). As Hodgson argues, this sort of distinction is inconsistent with Darwinism and evolutionary psychology. Mises modeled man as “rational” in a rather strong sense. “That reason has the power to make clear through pure ratiocination the essential features of action is a consequence of the fact that action is an offshoot of reason” (Mises, 1949, p. 39). Modern psychology, including evolutionary psychology in the strict sense, shows that man is not rational in the strong sense invoked by Mises. Human rationality in the social world is not a set of pure categorical forms, but a collection of pre-programmed decision algorithms supplemented by the idiosyncratic results of individual learning. We can mentally isolate the universal aspects of human thought and action, but only by empirically identifying the design

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architecture of human thought. Austrians would do well to revise pure praxeology along more Darwinian lines. Hayek’s approach to human reason was far more empirical and skeptical than that of Mises. Indeed, Hayek wrote a famous book in “theoretical psychology,” The Sensory Order, which attempted to explain how an earthly central nervous system could produce thought sufficiently rich to generate the sort of “sensory order” each of us knows from direct acquaintance (Hayek, 1952). In other words, Hayek worked out an empirically driven theory of mind. Brian Loasby’s contribution to this volume emphasizes the connectionist aspects of Hayek’s theory, which he shared with Adam Smith and Alfred Marshall. In The Sensory Order, Hayek discusses the formation of “connexions” among brain cells. He explicitly eschews any attempt to sort out what part of the process “takes place in the course of the development of the single individual” and what part “takes place in the course of the development of the species” (1952, p. 102). Evolutionary psychologists in the strict sense emphasize phylogeny, the development of the species. They do not deny the importance of ontogeny, the development of the individual, or of individual differences. Their research project, however, is to seek out the universals of human cognition and trace their operation in the diverse cultures. Loasby is interested in the very differences neglected by evolutionary psychology and in our ability to think up new ways to classify events. He emphasizes “the ability of ‘the development of the single individual’ in some circumstances to override – though not to replace – the results of ‘the development of the species.’ ” Indeed, for Loasby, the “significance of such a capability can hardly be overestimated.” History matters, and so does imagination. Loasby warns us of the dangers of “neoDarwinism,” including its potential to converge with traditional equilibrium theory. He draws our attention to an important criticism of evolutionary psychology in the strict sense, namely, that of Annette Karmiloff-Smith (2002). She criticizes Steven Pinker’s discussion of Williams’ syndrome and his call for “cognitive genetics.” This discussion is useful for any economist interested in evolutionary psychology. Regardless of which party has the better argument, following the dispute helps one to sort out the issues and understand the nature of the sometimes strikingly virulent opposition to evolutionary psychology (Kamiloff-Smith cites Pinker, 1997, 1999; see also Pinker, 2001). Loasby says, “all knowledge is a structure of selected connections.” This insight applies to individual minds. It also applies, if somewhat metaphorically, to super-individual systems, whether orders or organizations (McQuade & Butos, 2004). Thus, “The creation, distribution and selective connection of domainspecific modules within the economy is a central issue for explaining economic

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development and for effective policy at the level of firms and governments.” In other words, “Structures matter.” Loasby shows that Hayek, Adam Smith, and Alfred Marshall all had evolutionary theories, even though he interprets those theories in ways unfavorable to “neoDarwinism.” Rubin and Gick compare Hayek’s work with modern evolutionary theory. Hayek’s work holds up well, according to Rubin and Gick. “Hayek got the basic outline of the problem right.” Nevertheless, “evolutionary science and particularly its applications to human beings have advanced since Hayek wrote, and some of the details of his analysis are no longer consistent with current theories.” Two such details may be worth mentioning here. First, Hayek wrote too early to know of Boehm’s (1999) discovery of “reverse dominance hierarchies,” in which, Rubin and Gick report, “subordinates cooperate to limit the power of dominants.” The existence of reverse dominance hierarchies is clearly important to our understanding of politics as illustrated by Rubin’s study in “Darwinian Politics” (Rubin, 2002). Second, Hayek’s theory of cultural evolution was less subtle and empirically grounded than that of Boyd and Richerson, whom Rubin and Gick describe as “the major authorities on this issue.” Some view the models of Boyd and Richerson as the current industry standard for cultural evolution, including cultural group selection. Their most important work might be Boyd and Richerson (1985). Recently, the Journal of Economic Behavior and Organization devoted a special issue (Vol. 53, No. 1, 2004) to an extensive symposium on a recent product of the Boyd and Richerson tradition, namely, Henrich (2004). Participants included Axelrod, Gintis, G¨uth, Hodgson, Houser, Khalil, Kliemt, McCabe, Sethi, V. Smith, Tullock, and D. S. Wilson. I discuss this important class of models below. Given the importance of group selection in Hayek’s work, this is a literature Austrians should engage. Douglas Glen Whitman’s contribution to this volume is an example. Evolutionary psychologists recognize that their perspective casts doubt on “economic man” in at least some of its standard incarnations (Cosmides & Tooby, 1984). Kurzban and Aktipis ask whether, indeed, homo economicus is extinct. They survey experimental results that challenge the standard theory of expected utility. They look at the work of two groups of scholars, namely, the group around Vernon Smith and the group around Daniel Kahneman and the late Amos Tversky. Their survey includes an evolutionary account of Kahneman and Tversky’s prospect theory. They note, correctly in my view, that “under very particular conditions, such as impersonal exchange,” homo economicus “is a reasonable model.” The contribution of Aktipis and Kurzban may suggest the need for a theory that would help economists to know when to employ homo economicus and when

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to employ other models of man. In this spirit, Glen Whitman and I (Koppl & Whitman, 2004) have argued for a “rational-choice hermeneutics” that would introduce a kind of realism to our models of economic actors, but without abandoning the strong points of rational-choice theory. I have argued that homo economicus is most suited to competitive markets under conditions of “atomism” and “stability” (Koppl, 2002). I concur with the remark of Aktipis and Kurzban, who favor “acknowledging that our actual species, Homo sapiens, is an amalgam of Homo reciprocans, Homo prospectus, Homo nepotismis, and no doubt many other interesting subcomponents.” Viktor Vanberg also wants economists to forsake narrow models of rationality in favor of a more empirically grounded understanding of human action (2004). In his contribution to this volume, Vanberg argues that if we adopt an evolutionary perspective and view action as “program-based behavior,” the Austrian doctrine of methodological dualism must be abandoned. Vanberg rejects the dualist position of Mises and of hermeneutical Austrians such as Lavoie and Boettke. He defines methodological dualism as “the claim that the nature of its subject matter, namely purposeful and intentional human action, requires economics to adopt a methodology that is fundamentally different from the causal explanatory approach of the natural sciences.” In Vanberg’s interpretation, methodological dualism requires us to apply methods in the human sciences that are “fundamentally different from the causal explanatory approach of the natural sciences.” In this sense, Vanberg is surely right to claim that Hayek’s methodology violates methodological dualism. Vanberg’s criticism of hermeneutics is directed at the “universal hermeneutics” of Gadamer and others. Vanberg correctly notes the reliance of most hermeneutical Austrians on Heidegger and criticizes Lavoie’s “reinterpretation of what ‘subjectivism’ is about,” away from the view that meanings are internal to individual minds and toward the view that they are inter-subjective. I share Vanberg’s perplexity when he says “it is by no means easy to decipher what such reorientation of subjectivism is exactly meant to be about.” The “hermeneutics” I have defended is the more modest “classical hermeneutics,” which does not make the extravagant and perplexing claims of universal hermeneutics (Koppl, 2002; Koppl & Whitman, 2004). In its classical version, hermeneutics “claims only that human actions can be understood in much the same way we understand a poem or the instructions on a tube of toothpaste: we attempt to understand the purpose of the act (whether written or otherwise) in terms of the internal perceptions and beliefs of the person who performed it” (Koppl & Whitman, 2004). Caldwell’s excellent recent intellectual biography of Hayek raises some of the same issues Vanberg raises (Caldwell, 2004). In this important work, Caldwell, like Vanberg, repudiates hermeneutics and holds that Hayek was

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not a methodological dualist. I have already suggested that the repudiation of hermeneutics is appropriate only for universal hermeneutics. Similarly, a more mild definition of “methodological dualism” might be called for. If the doctrine is meant only as a counter to extreme forms of reductionism, then Hayek probably was a methodological dualist. Indeed, the final chapter of Hayek’s The Sensory Order, “Philosophical Consequences,” can be read as a scientific defense of methodological dualism in the mild sense of the term. Hayek defends “verstehende psychology” and says we “will never be able to bridge the gap between the realm of the mental and the realm of the physical” (1952, p. 192). For the “understanding of human action” the “last determinates to which we can penetrate” are “familiar mental entitities” not “physical facts” (1952, p. 192). This is not a rejection of causal reasoning and is not, therefore, methodological dualism in Vanberg’s sense. It is instead a perfect example of Vanberg’s claim that “Hayek advocates what one may describe as ‘naturalistic subjectivism.’ ” Caldwell employed the term “scientific subjectivism” to convey the same general idea (Caldwell, 1994). In my view both terms are elegant expressions that capture vital aspects of Hayek’s thought. Regarding the existence of somewhat Kantian “categories” of thought, Hayek said “in so far as we have been led into opposition to some of the theses traditionally associated with empiricism, we have been led to their rejection not from an opposite point of view, but on the contrary, by a more consistent and radical application of its basic idea” (1952, p. 172). Similarly, Hayek was led to a rigorous defense of “verstehende psychology,” not from an anti-scientific point of view, but on the contrary, by a more consistent and radical application of scientific ideas to the understanding of human action. Hayek was a subtle thinker who found ways to consistently combine elements of seemingly contradictory theories. Hayek’s treatment of empiricism and rationalism is one example. His treatment of science and Verstehen is another. His treatment of group selection and individualism is a third example. Outside the orbit of Austrian economics, group selection is associated with somewhat anti-individualist opinion. Political and methodological individualists tend to reject group selection. Hayek might easily seem to have fallen into contradiction by advocating both individualism and group selection. If Whitman is right, however, there is no contradiction. In biology, the theory of group selection was revised and reasserted by D. S. Wilson and Elliott Sober (see especially Sober & Wilson, 1998). The rehabilitation of group selection has been a major event in biology. Wilson’s contribution to this volume draws conclusions for political economy from his defense of group selection. If humans and other organisms exist in groups, natural selection may operate on groups as well as individuals. If these

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groups are subject to periodic dissolution and reformation, one of the results of natural selection may be “altruism,” making sacrifices for others. (Biologically, the organism’s actions raise the fitness of others and lower its own fitness.) In humans altruism may be accompanied by feelings of solidarity. “Selfishness” may be variously defined, but reasonable definitions should probably exclude the sort of altruism that group selection may produce. But then, Wilson suggests, standard economic notions of selfishness should probably be rejected. If we take an evolutionary approach to economics and accept the elements of Wilson’s “multi-level selection theory,” then, Wilson urges, we should give up the individualism of standard theory. For many species, including us, groups evolve into adaptive units and natural selection produces a psychology that fits them to such groups. This psychology sometimes includes altruistic impulses. Wilson cites Bowles and Gintis (1998), Henrich (2004), Hodgson (1993, 2001), and Rubin (2002) as examples of the social theory that takes multi-level selection seriously. Wilson claims, “multilevel selection theory is sufficiently general as an accounting method for evolutionary change, and sufficiently focused on the question of how groups evolve into adaptive units, to provide a theoretical framework for the study of human society.” Bowles (2004) is a recent synthesis of the sort of work Wilson is pointing to. Austrian economists will be interested to note that Bowles makes several favorable references to Hayek. In his highly Austrian treatment of the socialist calculation debate, Bowles says, “by focusing attention on which institutions more effectively utilize the information that is available [to economic actors], Hayek’s paper (Hayek, 1948), like Mandeville’s Fable, counts as a landmark work in the theory of economic institutions” (Bowles, 2004, p. 476, emphasis suppressed). At the beginning of the Austrian movement thirty years ago, the profession was mostly deaf to the very Austrian arguments that Bowles has now woven seamlessly into his important new synthesis. This event marks an opportunity for Austrians to make more frequent and substantial contributions to the mainstream economics literature. Whitman suggests a way for Austrians to retain their specific difference within the profession while making contributions that non-Austrians may value. He suggests that the evolutionary framework of Wilson and others can be integrated with the “Schutzian methodological framework of Koppl and Whitman (2004).” If this is possible, as I believe, then Austrians can contribute to literature in the Boyd and Richerson tradition, for example, while explicitly drawing on the Verstehen tradition of Wilhelm Dilthey, Max Weber, and Alfred Schutz. Drawing on evolutionary psychology, I have outlined an evolutionary explanation for “Verstehen,” defined as the “human ability to understand human meanings” (Koppl, 2002, p. 207). Recently, functional imaging studies, which use brain scans, such

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as McCabe et al. (2001) are giving support to the view that humans have a biologically programmed “theory of mind mechanism,” defined as “our ability to explain and predict other people’s behaviour by attributing to them independent mental states, such as beliefs and desires” (Gallagher & Frith, 2003, p. 77). In the language of classical hermeneutics, this mechanism is our capacity for “understanding.” I believe Whitman’s paper is important, however, for a different reason. Whitman gives us an argument that is sufficiently important and innovative to warrant the symposium on it contained in this volume. Whitman shows that methodological individualism and group selection are, as his title says, “compatible and complementary.” This conclusion is probably uncomfortable for advocates of both positions. The most common view in the secondary literature on Hayek is probably that Hayek’s advocacy of group selection was a deviation from methodological individualism. Whitman’s argument to the contrary is a major statement of a claim that has, until now, been a distinctly minority opinion. In their comment on Whitman, Elliott Sober and D. S. Wilson express carefully qualified agreement. They give reasons other than group selection for doubting that methodological individualism is an appropriate methodological principle. They suggest that his argument may not carry implications for their previous work. In his comment on Whitman, Todd Zywicki suggests why Hayek, a methodological and political individualist, would be led to group selection. In Hayek’s theory, the objects filtered by group selection are rule sets. Contrary to common opinion, the rules of just conduct were not chosen by powerful men. They are “chosen” by an anonymous process of group selection. It makes sense, therefore, to contrast the rule of law with the rule of men. Whitman’s achievement is no meager thing. He has taken on in one paper two issues that are separately the object of great controversy. As Richard Langlois correctly says, Whitman argues that “methodological individualism is not what you think it is.” Hayek scholars should take seriously Langlois’ comment on group selection, as well. In current theories, group selection creates altruism and solves the problem of too little solidarity. “For Hayek, ” however, “the problem is too much group solidarity, not too little.” Our prehistoric ancestors had a problem of too little solidarity. Group selection solved this problem by selecting for altruism. With a relatively large fraction of altruists in its population, biologically modern humans thrived as a species of hunters and gatherers living principally in small loosely formed bands. Civilization, however, required that we learn to live by a rather different set of rules. A different process of cultural group selection sufficiently overrode our innate fear of strangers to permit the evolution of an extensive division of labor.

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Modern theories of multi-level selection do not always distinguish between the evolutionary processes that formed our basic psychology, which is suited to band-level society, and the evolutionary processes that later partially overrode our innate psychology and fitted us for cooperation with strangers. Henrich, for example, focuses on the problem of “prosocial emotions” from an imagined baseline without them. He argues that “By systematically altering the social environment in favor of prosocial phenotypes, cultural processes create the conditions for natural selection to favor prosocial genes that could not otherwise be favored in mammalian social species because non-humans lack the requisite social learning capacities” (Henrich, 2004, p. 20). Wilson recognizes the distinction between biological and cultural evolutionary processes. Citing his recent book on religion (Wilson, 2002) he makes the Hayekian claim that “Human history and current events can be regarded as an ongoing process of cultural multilevel selection, whose dynamics are influenced by psychological traits that evolved by genetic multilevel selection in the distant past.” It is probably fair to say, however, that Sober and Wilson have not considered the Hayekian problem of excess solidarity to which Langlois alerts us. As David Lahti notes, “The thesis that morality did not evolve to curb the selfish course of human behavior is perhaps counterintuitive” (Lahti, 2003, p. 648). Austrian economists should consider adapting models in the Boyd and Richerson tradition to the Hayekian problem of two-stage group selection. In so doing, however, they should be aware of a possible difficulty not shared by the multilevel selection theory of Sober and Wilson. Henrich and others argue that cultural group selection and gene-culture interaction have produced prosocial emotions in humans. These models depend on phenotypes such as “conformist transmission,” which Henrich defines as “a psychological propensity to preferentially copy high frequency behaviors” (2004, p. 22). Such mechanisms are supposed to help explain “large-scale cooperation,” but large-scale cooperation requires a division of labor and diversity in who does what. In this sense, we are not conformists in society, but individualists. It is not clear in what dimensions we are supposed to be programmed for conformity and in what dimensions we are psychologically free to innovate or, at least, act out our unique roles in the social production process. It is not clear what mechanism would keep us conformist in only the right dimensions. Perhaps the answer has to do with language and ideology, but as far as I know, the issue has not been raised in this literature. Whitman’s colleague, Adam Gifford, gives an extended commentary on the issues raised by Whitman’s paper. Gifford argues that methodological individualism is consistent with the new group selection of Sober and Wilson, but not with the sort of group selection model Hayek seems to have had in mind. Gifford points out that Hayek’s model of group selection was not well worked out.

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He calls it “folk” group selection, and notes that it “does not provide, apart from positing the group as the unit of selection, much detail about the actual evolutionary process involved.” Gifford’s paper raises an issue for historians of economic thought. To what extent are Hayek’s written comments on group selection consistent with the new group selection and to what extent do they commit him to old-fashioned versions of group selection, versions that have been definitively repudiated? Gifford’s paper raises a second question as well. Can we substitute new group selection for old group selection in Hayek’s system and come out with a consistent system? The answer to the first question is probably that Hayek had in mind old group selection. After all, he did not cite any literature in the new group selection, which begins with Wilson (1975). The answer to the second question is probably yes, although modifications of the new theory seem required, as I have suggested above. Austrian economists should view the need for such modifications as an opportunity. This volume places Austrian economics in the context of modern developments in evolutionary psychology and, therefore, current debates about group selection, altruism, and cultural evolution. These modern developments from outside economics have been having an increasingly important influence on economics, as Bowles (2004) illustrates. Indeed, some economists are involved in research and debate in evolutionary biology and psychology (see, e.g. Robson, 2001). As I have argued above, Austrians have a comparative advantage in bringing the Verstehen tradition to evolutionary thinking. To do so, however, they will have to study Hayek’s scientific defense of methodological dualism, which he first clearly articulated in the concluding chapter of The Sensory Order (see Koppl, 2002, pp. 68–69, 204–207). Today, Austrian economists have an opportunity to bring a somewhat different set of evolutionary ideas to the table, a set derived largely from the work of F. A. Hayek. They also have the opportunity to modify existing Austrian theory with results from modern evolutionary theory. Thirty years ago, Austrian economists were so many voices, crying in the wilderness. If exchange is the foundation of society, the reciprocal exchange of ideas with modern evolutionary thought promises to return Austrian economists from the wilderness to the society of the sciences, natural and social.

NOTES 1. Maynard-Smith (1982, p. 2) suggests that the first contribution to evolutionary game theory was Maynard-Smith and Price (1973). Note that this is the same Price of the Price equation discussed below. 2. A Google search reveals only a department of “Human Psychology & Philosophy” at the Russian Christian Institute for the Humanities, founded in 1989.

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3. Roughly, you “naturalize consciousness” when you study the human mind as you would study the behavior of insects or falling rocks. See Husserl (1965), especially pages 188–190. 4. I thank Robert Kurzban for alerting me to the problem at issue. 5. They thank William Allman for suggesting the phrase, “which is a very apt summary of our position.”

ACKNOWLEDGMENTS For helpful comments I thank Robert Kurzban, Brian Loasby, Thomas McQuade, Glen Whitman, and Leland Yeager.

REFERENCES Barkow, J., Cosmides, L., & Tooby, J. (1992). The adapted mind: Evolutionary psychology and the generation of culture. New York and Oxford: Oxford University Press. Boehm, C. (1999). Hierarchy in the forest: The evolution of egalitarian behavior. Cambridge: Harvard University Press. Bowles, S. (2004). Microeconomics: Behavior, institutions, and evolution. Princeton and Oxford: Princeton University Press. Bowles, S., & Gintis, H. (1998). Is equality passe? Boston Review, 23, 4–26. Boyd, R., & Richerson, P. J. (1985). Culture and the evolutionary process. Chicago, IL: University of Chicago Press. Caldwell, B. (1994). Hayek’s scientific subjectivism. Economics and Philosophy, 10, 305–313. Caldwell, B. (2004). Hayek’s challenge: An intellectual biography of F. A. Hayek. Chicago and London: University of Chicago Press. Cassill, D. (2002). Yoyo-bang: A risk aversion investment strategy by a perennial insect society. Oecologia, 132, 150–158. Cassill, D. (2003). Skew selection: Nature favors a trickle-down distribution of resources in ants. J. Bioeconomics (in press). Colander, D., Holt, R., & Rosser, J. B. (2004). Introduction. In: D. C. Colander, R. Holt & J. B. Rosser (Eds), The Changing Face of Economics: Conversations with Cutting Edge Economists. Ann Arbor: University of Michigan Press. Cosmides, L., & Tooby, J. (1984). Better than rational: Evolutionary psychology and the invisible hand. American Economic Review, 84, 327–332. Cosmides, L., & Tooby, J. (1997). Evolutionary psychology: A primer. http://www.psych.ucsb.edu/ research/cep/primer.html. Gallagher, H. L., & Frith, C. D. (2003). Functional imaging of ‘theory of mind’. Trends in Cognitive Science, 7, 77–83. Gigerenzer, G., & Selten, R. (2001). Bounded rationality: The adaptive toolbox. Cambridge, MA: MIT Press. Hayek, F. A. (1948). The use of knowledge in society. In: Individualism and Economic Order (pp. 77–91). Chicago: University of Chicago Press.

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Hayek, F. A. (1952). The sensory order. Chicago: University of Chicago Press. Hayek, F. A. (1973). Law, legislation and liberty, Volume 1: Rules and order. Chicago: University of Chicago Press. Hayek, F. A. (1976). Law, legislation and liberty: The mirage of social justice (Vol. 2, pp. 153–176). Chicago: University of Chicago Press, . Hayek, F. A. (1978). The atavism of social justice. In: F. A. Hayek (Ed.), New Studies in Philosophy, Politics, Economics and the History of Ideas (pp. 57–68). Chicago: University of Chicago Press. Hayek, F. A. (1979). The three sources of human values. In: F. A. Hayek (Ed.), Law, Legislation and Liberty: The Political Order of a Free People (Vol. 3, pp. 153–176). Chicago: University of Chicago Press. Henrich, J. (2004). Cultural group selection, coevolutionary processes and large-scale cooperation. Journal of Economic Behavior and Organization, 53, 3–35. Henrich, J., Rapporteur, W. A., Boyd, R., Gigerenzer, G., McCabe, K., Ockenfels, A., & Young, H. P. (2001). Group report: What is the role of culture in bounded rationality? In: G. Gigerenzer & R. Selten (Eds), Bounded Rationality: The Adaptive Toolbox (pp. 343–359). Cambridge, MA: MIT Press. Heyes, C. M. (2000). Evolutionary psychology in the round. In: C. M. Heyes & L. Huber (Eds), The Evolution of Cognition. Cambridge, MA: MIT Press. Hodgson, G. M. (1993). Economics and evolution. Cambridge, UK: Polity Press. Hodgson, G. M. (2001). How economics forgot history. New Brunswick, NJ: Routledge. Husserl, E. (1965). Phenomenology and the crisis of philosophy. New York: Harper & Row. Karmiloff-Smith, A. (2002). Elementary, my dear Watson, the clue is in the genes . . . or is it? In: Proceedings of the British Academy (Vol. 117, pp. 525–543). Oxford University Press for the British Academy, Oxford. Koppl, R. (2002). Big player and the economic theory of expectations. London and New York: Palgrave Macmillan. Koppl, R., & Whitman, D. G. (2004). Rational-choice hermeneutics. Journal of Economic Behavior and Organization (forthcoming). Lachmann, L. (1977). Austrian economics in the present crisis of economic thought. In: W. Grinder & L. Lachmann (Eds), Capital, Expectations, and the Market Process: Essays on the Theory of the Market Economy (pp. 25–41). Kansas City, KS: Sheed Andrew and Mcmeel. Lahti, D. (2003). Parting with illusions in evolutionary ethics. Biology and Philosophy, 18, 639–651. Maynard-Smith, J. (1982). Evolution and the theory of games. Cambridge: Cambridge University Press. Maynard-Smith, J., & Price, G. R. (1973). The logic of animal conflict. Nature, 246, 15–18. McCabe, K. D., Houser, L. R., Smith, V., & Trouard, T. (2001). A functional imaging study of cooperation in two-person reciprocal exchange. Proceedings of the National Academy of Sciences, 98, 11832–11835. McQuade, T., & Butos, W. (2004). The sensory order and other adaptive classifying systems. Journal of Bioeconomics, 6, 1–24. Mises, L. (1949). Human action: A treatise on economics. New Haven, CT: Yale University Press. Pinker, S. (1997). How the mind works. New York: W. W. Norton. Pinker, S. (1999). Words and rules: The ingredients of language. New York: Basic Books. Pinker, S. (2001). Talk of genetics and vice versa. Nature, 413, 465–466. Robson, A. J. (2001). The biological basis of economic behavior. Journal of Economic Literature, 39, 11–33. Rubin, P. H. (2002), Darwinian politics: The evolutionary origin of freedom. New Brunswick, NJ: Rutgers University Press.

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Sober, E., & Wilson, D. S. (1998). Unto others: The evolution and psychology of unselfish behavior. Cambridge, MA and London: Harvard University Press. Symons, D. (1992). On the use and misuse of Darwinism in the study of human behavior. In: J. Barkow, L. Cosmides & J. Tooby (Eds), The Adapted Mind: Evolutionary Psychology and the Generation of Culture (pp. 137–159). New York and Oxford: Oxford University Press. Todd, P. M. (2001). Fast and frugal heuristics for environmentally bounded minds. In: G. Gigerenzer & R. Selten (Eds), Bounded Rationality: The Adaptive Toolbox (pp. 51–70). Cambridge, MA: MIT Press. Tooby, J., & Cosmides, L. (1992). The psychological foundations of culture. In: J. Barkow, L. Cosmides & J. Tooby (Eds), The Adapted Mind: Evolutionary Psychology and the Generation of Culture (pp. 19–136). New York and Oxford: Oxford University Press. Vanberg, V. (2004). The rationality postulate vs. program-based behavior – alternative theoretical approaches and their relevance for the study of instutions. Rationality and Society, 14, 7–54. Wilson, D. S. (1975). A theory of group selection. Proceedings of the National Academy of Sciences, 72, 143–146. Wilson, D. S. (2002). Darwin’s cathedral: Evolution, religion and the nature of society. Chicago: University of Chicago Press.

ECONOMICS AND EVOLUTIONARY PSYCHOLOGY夽 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: THE SHORT VERSION Evolutionary psychology2 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. 夽 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. Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 17–33 © 2004 Published by Elsevier Ltd. ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07002-4

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DAVID FRIEDMAN 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

WHAT EVOLUTIONARY PSYCHOLOGY ADDS 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 genes5 – 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 (philoprogenitive) 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

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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 philoprogenitive 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 philoprogenitive 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

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reproductive success in the environment in which the psychological characteristics leading to those mistakes evolved.9

ECONOMIC PUZZLES 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.

Behavioral Consequences of the Belief in Just Prices 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 serve10 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.

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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 longrun 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 10% 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

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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.

Evolutionary Psychology and the Just Price Now shift the analysis back twenty thousand years. As a member of a huntergatherer 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

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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.

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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.

Primitives, Prices and Exchange 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

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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.

A Bird in the Hand: Evolutionary Psychology and Preferences Over Time 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 Marshall24 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=

U3 U1 + U2 + +··· (1 + r) (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.

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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

ENDOWMENT EFFECTS 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

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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 experiment30 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.

Territorial Behavior 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

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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

FILLING IN THE UTILITY FUNCTION 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

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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.

CONCLUSION 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

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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.

NOTES 1. The argument is summarized in Friedman (1996, pp. 3–9). A webbed version can be found in Friedman (1990), 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, The Adapted Mind see Barkow, Cosmides, and Tooby (1992). For a discussion of 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 (1990); 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.

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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 analysis 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 (Friedman, 1990) Price Theory Chap. 17 (webbed at http://www.daviddfriedman.com/Academic/Price Theory/PThy Chapter 17/ PThy Chapter 17.html) and Hidden Order Chap. 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 Friedman (1991) “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.

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21. Buss (1999, 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. De Waal (1983) 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 (1999, 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: Laura Betzig, Monique Bogerhoff Mulder & Paul Turke (Eds), Human Reproductive Behaviour: A Darwinian Perspective (pp. 283–284), 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 (1920), Principles of Economics, Bk III Chap. V §3, 4. 25. Samuelson (1937). 26. For an extensive discussion of the experimental evidence and various attempts to interpret it, see Loewenstein and Elster (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 nonperformance, 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., Knetsch, J., & Thaler, R. (1991). Experimental Tests of the Endowment Effect and the Coase Theorem. Journal of Political Economy, 98 (1990), 1325–1348; Reprinted in Richard Thaler (1992, pp. 167–188). 31. For an early description of such behavior, see Konrad Lorenz (1963, Chap. 3, pp. 23–48).

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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 Friedman (1994). Jones (2001, pp. 1183–1185) also links endowment effects to territorial behavior, but offers a different explanation. 33. Frank (1987). 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.

REFERENCES Barkow, J., Cosmides, L., & Tooby, J. (1992). The adapted mind: Evolutionary psychology and the generation of culture. New York and Oxford: Oxford University Press. Becker, G. (1991). A note on restaurant pricing and other examples of social influences on price. Journal of Political Economy, 99(5), 1109–1116. Buss, D. M. (1999). Evolutionary psychology: The new science of the mind. Needham Heights, MA: Allyn & Bacon. Dawkins, R. (1990). The selfish gene. Oxford University Press. De Waal, F. (1983). Chimpanzee politics: Sex and power among apes. Baltimore: Johns Hopkins University Press. Frank, R. (1987). Choosing the right pond: Human behavior and the quest for status. Oxford University Press. Friedman, D. (1991). In defense of Thomas Aquinas and the just price. In: M. Blaug (Ed.), St. Thomas Aquinas (pp. 1225–1274). Elgar. Reprinted from History of Political Economy, 12(2) (1980). Friedman, D. (1994). A positive account of Property Rights. Social Philosophy and Policy, 11(2, Summer) 1–16 (http://www.daviddfriedman.com/Academic/Property/Property.html). Friedman, D. (1996). Hidden order: The economics of everyday life. New York: HarperCollins. Friedman, D. (1990). Price theory: An intermediate text. South-Western (http://www.daviddfriedman. com/Academic/Price Theory/PThy ToC.html). Jones, O. (2001). Time-shifted rationality and the law of law’s leverage: Behavioral economics meets behavioral biology. Northwestern University Law Review, 95(4). Loewenstein, G., & Elster, J. (1992). Choice over time. New York: Russell Sage. Lorenz, K. (1963). On aggression. M. K. Wilson (Trans). Marshall, A. (1920). Principles of economics. Macmillan. Packer, C. (1977). Reciprocal altruism in Papio anubis. Nature, 265, 441–443. Samuelson, P. (1937). A note on measurement of utility. Review of Economic Studies, 4, 155–161. Symons, D. (1979), The Evolution of human sexuality. New York: Oxford (check pages). Thaler, R. H. (1992). Quasi-rational economics. New York: Russell Sage. Trivers, R. L. (1971). The evolution of reciprocal altruism. Q. Rev. Biol., 46, 35–57. Zywicki, T. (2000). Evolutionary psychology and the social sciences. Humane Studies Review, 13(1) (http://www.theihs.org/libertyguide/hsr/hsr.php/36.html).

MOGUL GAMES: IN DEFENSE OF INEQUALITY AS AN EVOLUTIONARY STRATEGY TO COPE WITH MULTIPLE AGENTS OF SELECTION Deby Cassill and Alison Watkins . . . this is the oldest story in America: the struggle to determine whether ‘we, the people’ is a spiritual idea embedded in a political reality – one nation, indivisible – or merely a charade masquerading as piety and manipulated by the powerful and privileged to sustain their own way of life at the expense of others. Bill Moyers, 4 June, 2003 Take Back America Conference Sponsored by the Campaign for America’s Future.

ABSTRACT In this paper, we propose that the “powerful and privileged” sustain their way of life through greed and they sustain the lives of others through trickledown sharing. Greed provides the powerful and privileged a buffer against famine. Trickledown sharing provides them a buffer against predation or war. The inspiration for this integration of greed and trickledown sharing as self-preservation strategies is a multi-selection model called skew selection. According to skew selection, when perennial organisms are subjected to cycles of famine and predation, greed and trickledown sharing increases Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 35–59 Copyright © 2004 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07003-6

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the organism’s survival relative to a greed-only strategy. Skew selection is extended to explain greed and trickledown sharing among humans through the introduction of mogul games. The results of mogul games reported herein suggest that inequality is an emergent property of self-organizing systems and potentially an essential precursor to the evolution of social behavior. In the future, it is our hope that mogul game simulations will be employed by others to explore the effect of variation in cycles of predation and resource abundance on the rules of greed (resource acquisition) and trickledown sharing (resources redistribution).

INTRODUCTION In modern humans, greed is ubiquitous. Every family has its wealthy relative, every religion its wealthy spiritualist, every corporation its wealthy CEO, every bureaucracy its wealthy supervisor, every court its wealthy judge, every government its wealthy leader. Paradoxically, sharing is ubiquitous too – a person offers a seat in a crowded bus to a stranger, another cooks a meal for a sick neighbor, another donates money to help the poor in a continent on the other side of the world, yet another stops to help a stranger change a flat tire. If greed is essential for survival and reproduction (Darwin, 1859), why do so many humans share resources so often in the form of time, money, food and shelter? A large number of mathematical models has been constructed to address the redistribution of wealth among kin – in small increments through sharing or in large increments through altruism (Bergstrom, 1995; Dawkins, 1976; Hamilton, 1964; Hofbauer & Sigmund, 1998; Maynard-Smith, 1964; Trivers, 1985; West-Eberhard, 1975). In addition, a number of game theory and other group selection1 models have been published to address the redistribution of wealth among strangers – through sharing or altruism (Axelrod, 1984; Bergstrom, 2003; Bergstrom & Stark, 1993; Lewontin, 1970; Ridley, 1996; Sober & Wilson, 1998; Trivers, 1971; Wade, 1985). In our opinion, there are several problems that limit the applicability of kin selection, game theory and group selection models to explain sharing or altruism. First, although most games provide mechanistically efficient models for greed or sharing among players within the same generation, none that we know of explains the persistence of greed and sharing among players among generations over evolutionary time. Second, most models lack a sound heritable mechanism, either biological or cultural, by which sharing or altruism would be reproduced into the next generation (for exceptions, see Hofbauer & Sigmund, 1998; Packer et al., 1990; Weibull, 1995). Third, most models assume maximal or optimal efficiency rather than effectiveness (e.g. Alcock, 1979; Axelrod, 1984; de Waal,

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1996; Drickamer & Vessey, 1982; Ghiselin, 1974; Hirshleifer, 2001; H¨olldobler & Wilson, 1990; No¨e et al., 2001; Sober & Wilson, 1998; Stearns, 1992; Stephens & Krebs, 1986; Wilson, 1975). In a brilliant accounting of selection, Hull et al. (2001) noted that one striking feature of selection processes was that they were “incredibly wasteful.” In this paper, we outline a model and a game that focus on the effectiveness of selection (maintaining diversity) rather than the efficiency of selection (maintaining optimality). The model we employ to explain the social behavior of humans is skew selection (Cassill, 2003). Skew selection integrates greed and trickledown sharing as complementary strategies for self-preservation against famine and predation. In the following sections, we describe skew selection, and then apply the model in the form of simulated mogul games to test the patterns of greed and trickledown sharing against the patterns of famine and war.

SKEW SELECTION Skew selection was first proposed to explain the evolution of sterile workers in ants. By directing the allocation of resources among their offspring in a trickledown pattern, fire ant queens produce sterile offspring and fertile offspring (Cassill, unpublished data). Sterile offspring (workers) are small, cheap and therefore disposable (Cassill, 2002). The job of sterile offspring is to shield the queen and her more expensive fertile offspring from agents of death such as winter famine, spring floods and summer territorial battles (Adams & Tschinkel, 2001; H¨olldobler & Wilson, 1990; Macom & Porter, 1996; Porter, 1988; Porter & Tschinkel, 1993; Tennant & Porter, 1991; Tschinkel, 1993). Allocating a significant portion of their resources toward the production of disposable offspring is the way queens ensure the next generation of queens. We are applying skew selection to humans because, at a basic level, ants and humans share a number of social traits. Ant societies are families consisting of a single parent and her offspring; or, a tribe consisting of a number of unrelated parents and a multitude of cooperating kin and non-kin offspring. Ants construct stable domiciles in which the young are reared. Ants gather and hunt in the surrounding territory, then return to the domicile to feed the young and other nestmates. Ants send soldiers to defend territories surrounding the domicile from invading neighbors. Ants increase the carrying capacity of their territories through division of labor and economies of scale (H¨olldobler & Wilson, 1990). Most importantly, ants employ greed, competition, cooperation and philanthropy to survive a complex, multi-selection environment (Cassill, 2003). Skew selection extends Darwin’s natural selection model (1859) by integrating greed, competition, cooperation and philanthropy into an organism’s fitness

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Fig. 1. Conditions that Favor Greed, Sharing or a Combination of Greed and Trickledown Sharing. (a) Greed produces the greatest good – largest body size for surviving famine – but not the greatest number. (b) Sharing produces the greatest number – largest group size for surviving predation – but not the greatest good. (c) A combination of greed and trickledown sharing produces the greatest good for the greatest number when both famine and predation are selective agents.

equation. According to skew selection, greed, competition, cooperation and philanthropy represent multiple social strategies that co-evolve when players in the game of life are faced with multiple agents of selection such as famine and predation (Fig. 1). Cycles of famine (for example, winter scarcity) select for greed. Greed consolidates resources into stockpiles. Stockpiled resources attract other players. The cluster of players attracts predators. Players who support freeloaders at a marginal level as bait for predators do better than players who do not support freeloaders. What may seem “wasteful” from one point of view (Hull et al., 2001) may in fact be rational. Freeloaders (which could include the young, inexperienced, sick, disabled, aged) might turn out to be the least expensive way to gain safety in numbers (Carr & Landa, 1983; Hamilton, 1971; Landa, 1998). Hence, predation pressure selects for philanthropy. Another benefit to supporting freeloaders is that they stabilize predators at lowlevels of ability. Given a choice between a low-ability freeloader and a high-ability donor, predators will select the easy prey – the freeloader (Zahavi & Zahavi, 1997). If the predator need only evolve to be fast enough to catch a freeloader, it follows

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then that philanthropy might be one of nature’s clever countermeasures to runaway selection (i.e. the ratchet effect) in which faster predators select for faster prey which then select for even faster predators (Pianka, 1988). The mechanism for maintaining a large number of freeloaders and also maintaining a central position within the group of freeloaders is trickledown sharing (Cassill, 2003). By retaining more than he donates to others, the donor maintains his position of status in the center of the group, away from the vulnerable edge. Trickledown sharing is also called competitive cooperation. In the final analysis, a shrewd combination of greed and trickledown sharing provides four

Fig. 2. Why do Moguls share? By sustaining players of lesser ability, moguls not only gain efficiencies from division of labor and economics of scale, they also gain a buffer against agents of death such as predation or war. In addition, by sustaining marginal individuals, moguls keep predators at relatively low levels of virulence. Source: Figure reprinted with permission from the Journal of Bioeconomics.

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types of indemnity against famine and predation: (1) stockpiled reserves; (2) safety in numbers; (3) safety in position; and (4) low-ability predators. The mechanisms for the inheritance of inequality are through parents and offspring. Nature will select for parents who invest unequally in their offspring, producing many disposable, low-ability offspring to buffer the parents and their high-ability offspring from predation. Hence, skew selection integrates individual selection (the parent) and group selection (the offspring) into a single model of self-preservation. The next generation of surviving offspring become parents who invest unequally among their offspring. Mogul games, introduced for the first time in this paper, extends the skew selection model by framing the social behavior of humans into a natural selection context. Skew selection predicts that, when faced with cycles of resource scarcity and predation, moguls who employ a combination of greed (resources acquisition) and trickledown sharing (resource redistribution) are more likely to survive than moguls who employ only greed. According to skew selection, if a mogul shares a portion of his resources to feed the masses during periods of famine, then the masses will aggregate around the mogul, buffering him from death during periods of high predation (Fig. 2). We think that future mogul games will demonstrate that moguls do not sustain their own way of life “at the expense” of others. To the contrary, it is the moguls who sustain the masses at a modicum of expense to themselves. Because the expense of sharing comes from vast excesses, there is no appreciable short-term or long-term cost to a mogul’s survival or reproduction.

SIMULATED MOGUL GAMES There are five ingredients to the mogul games: (1) players; (2) resources such as currencies; (3) territories; (4) rules for resource acquisition (greed); and (5) rules for resource redistribution (trickledown sharing). There are five phases to these mogul game simulations. The first three phases explore how inequality in the form of moguls and masses might emerge from self-organizing processes. The final two phases explore why inequality might be sustained to benefit moguls and masses given cycles of famine and predation. In this paper, we play the game through the first four phases of resource acquisition. Future games can focus on the benefits of certain patterns of resource redistribution under different conditions of famine and predation (i.e. war). Phase I: Initial Conditions. Our mogul game simulations consisted of twenty players, a hundred units of currency (100 U.S. dollars), a territory consisting of four-hundred (400) cells and a set of rules by which each player could

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acquire currency. Players began the game with no currency. Each simulation ended when all currencies had been collected. The initial distribution of dollar bills within the territory was random, uniform or clustered. At the beginning of each game, players were placed randomly within the territory. Thereafter, players traveled within the territory according to the rules in the next section. When a player landed in a cell containing a dollar bill, he collected it and carried it with him. Phase II: Rules for Resource Acquisition: Players moved within the territory according to three parameters: (1) the direction of each step; (2) the number of steps each turn; and (3) the duration of sleep between turns. Direction: A random direction was selected each move. If a random direction could not be made (i.e. a player was at the edge of the grid), then another random direction was selected until a move could be made. Number of Steps Per Turn: The number of steps per turn per player was either randomly assigned per game (1–10 steps) or was constant per game (5 steps). When the numbers of steps was randomly assigned, that number was fixed per player until the end of the game. For example, a player who was assigned 9 steps would move 9 steps each turn until the game ended. Players who moved more steps per turn were considered more “able” than players who moved fewer steps per turn. Duration of Sleep Per Turn: Players were assigned either a random duration of sleep between turns (10–250 minutes) or a constant duration of sleep between turns (50 minutes). In each case, once the sleep was assigned, it was fixed for each player for the duration of the game. Players who slept shorter periods of time were considered more motivated than players who slept longer periods. Players started their turns in random order. Players who slept less, had more turns. Phase II ended when the last of the dollar bills in the territory had been collected. In these games, the number of dollars a player needed to survive one day was $1. Any amount above that number was considered a reserve for surviving days when resources were scarce or luck was bad. Other rules are possible. Phase III: The three players who accumulated the largest number of dollar bills during Phase II were designated moguls. Once the moguls were identified, the remaining seventeen players were programmed to cluster around the mogul nearest to them. Other rules are possible. Phase IV: After the players had clustered around the moguls, dollars were tallied within and among mogul groups. Tallies included each mogul’s personal capital, each mogul’s group size (group capital) and each mogul’s gross capital – the sum of his capital and that of the other players in his group. For example, if a mogul collected $10 and his group consisted of five other players each of whom had collected $1, then the mogul’s personal capital was $10, his group size was 6; and

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his gross capital was $15. Depending on the goal of the game, any one of these tallies could be used to determine the winning mogul. Phase V: Mogul survival over time depends on his capital investments (personal and group capital) and the agents of selection under study. A mogul’s gross capital at the end of a game would depend on the amount of resources within the territory, how often those resources are replenished, the rules by which players collect dollars, the rules for player aggregation and the rules for redistributing dollars to maintain mogul status and group size. Depending on the game, dollars can trickle up from player to mogul to win entrance into a different mogul’s group, or dollars can trickle down from mogul to player to increase group size. The intent of Phase V is to test which mogul strategy results in the greatest good for the greatest number in a given environment in which cycles of resource abundance (summer glut and winter paucity) and predation (war) vary over time.

METHODS These simulated mogul games were developed in Java using the Math class random number generator and multithreading. Each game was replicated 10 times to determine the robustness of the final distribution of dollars among players. Other programs and other rules might produce different results from those reported below. Player clusters in Phase III were formed using Euclidean distance. There was no overlap of players or dollars in the initial distributions – random or clustered. We began with twelve games generated by three distributions of dollar-bills in the territory × four sets of player rules. Analysis: Regression and nonparametric tests (Wilcoxon-Kruskal-Wallis Tests with chi square approximations for the p values) were used to analyze trends or differences in player income based on player acquisition rules or on the distribution of dollars in a territory. Data were analyzed using a software program by Sall and Lehman (1996). The initial order of play was not a significant predictor of the final distribution of income among players (Regression: R 2 = 3.4%, p = 0.588).

RESULTS Regardless of the initial conditions, the distribution of dollars among players at the end of the games was highly unequal or skewed (Fig. 3). In other words, regardless

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Fig. 3. Player income. At the conclusion of twelve different kinds of simulated games player income was, in every case, unequally distributed (skewed). Note: Even when the initial conditions were uniform (Game 3), the final distribution of dollars among players was skewed.

of the randomness or uniformity of conditions, a few players gained significant wealth relative to the other players. It should be noted, however, that the degree of inequality in the distribution of dollars was less for games with uniform parameters than for games with one or more randomized parameter (Fig. 4a–d ). In games with uniform parameters, moguls averaged $10.20 and the masses averaged $4.60. In games with random parameters, moguls averaged $17.30 and the masses averaged $3.15. Of note is the fact that clustered resources generated the greatest skew in the distribution of resources (Fig. 4c). Cycles of famine and predation would determine the winning distribution over time. It is the goal of future mogul games to explore the evolution of different types of distributions of wealth from different patterns of famine and predation. Four games were analyzed in detail to show how future mogul games might be played. When the distribution of dollars was random and the rules of resource acquisition were random (Fig. 5), Mogul 1 acquired $18, Mogul 2 acquired $14 and Mogul 3 acquired $12. Mogul 1 had the greatest personal wealth and therefore would be the least vulnerable to famine than the other moguls and non-mogul players. However, Mogul 1 had the smallest group size and therefore would be the most vulnerable to predation. Conversely, although Mogul 3 would be the most vulnerable to famine relative to the other moguls, he would be the least vulnerable to predation because of his large group size. Mogul 2 had moderate wealth and moderate group size and might improve his survival by merging or warring with another mogul. Patterns of resources scarcity (famine) and predation would

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Fig. 4. Four Games were Detailed. These Histograms Show the Degree of Variation within Games (10 Replicated Runs Per Game), and the Descriptive Statistics for Each Game. Note: The descriptive statistics are the means of the ten replicates. For example, the maximum income acquired by a player was the mean of ten replicates. The greatest inequity (skew) of income among players was in the clustered distribution of dollars with random rules of play (c). The least inequity (skew) was in the uniform distribution with uniform rules of play (d).

determine which hierarchical pattern of resource acquisition and redistribution would be most likely to survive long-term – more personal wealth with smaller group size or less personal wealth with larger group size. When the distribution of dollars was uniform and the rules of resource acquisition were random (Fig. 6), Mogul 1 acquired $17, Mogul 2 acquired $14

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Fig. 4. (Continued )

and Mogul 3 acquired $9. In this game, Mogul 1 had a group of intermediate size; Mogul 2 had the largest group and Mogul 3 the smallest group. The only player to join Mogul 3 had acquired no dollars during the search. This player would therefore be dead the next day unless Mogul 3 was willing to donate a dollar to keep him alive. In this case, the mogul and the player might both do better by joining another mogul. When the distribution of dollars was clustered and the rules of resource acquisition were random (Fig. 7), Mogul 1 acquired $18, Mogul 2 acquired $17 and Mogul 3 acquired $11. In this game, Mogul 1 had the largest group, Mogul 2 the intermediate group size and Mogul 3 the smallest group. Hence,

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Fig. 5. Random Distribution of Dollars and Random Rules of Play. Note: Grids show the initial distribution of dollars and location of players (Phase I), the final distribution of income among players (Phase II) and the cluster of subordinates about the mogul (Phase III).

Mogul 3 and his group might be doomed depending on the intensity and duration of famine and predation. Their best option might be to join forces with another mogul. When both the distribution of dollars and the rules of resource acquisition were clustered (Fig. 8), moguls acquired less money relative to other game parameters. Mogul 1 acquired $9 and a group size of 2. Mogul 2 acquired $8 and a group size of 4. Mogul three acquired $7 and a group size of 14. Relative to moguls in the other games, these moguls might all die if there was an extended famine. Hence,

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Fig. 6. Uniform Distribution of Dollars and Random Rules of Play. Note: Grids show the initial distribution of dollars and location of players (Phase I), the final distribution of income among players (Phase II) and the cluster of subordinates about the mogul (Phase III).

these data suggest that equality might leave groups more vulnerable to extinction than inequality! Player Ability versus Motivation: Recall that number of steps per player per turn and the duration of sleep time per player between turns were proxies for player ability and player motivation respectively. In addition, we assumed that variation in player income at the end of the game that was not accounted for by motivation or ability was attributed to player luck.

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Fig. 7. Clustered Distribution of Dollars and Random Rules of Play. Note: Grids show the initial distribution of dollars and location of players (Phase I), the final distribution of income among players (Phase II) and the cluster of subordinates about the mogul (Phase III).

We found that player luck accounted for 59% of the observed variation in player income at the end of the game, player motivation accounted for 25% and player ability accounted for 16% (Multiple Regression: unexplained variation, R 2 = 59%, p < 0.0001; sleep duration, R 2 = 25%, p < 0.001; number of steps, R 2 = 16%, p < 0.001). This finding supports the idea that motivation is a better predictor of success than raw talent.

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Fig. 8. Uniform Distribution of Dollars and Uniform Rules of Play. Note: Grids show the initial distribution of dollars and location of players (Phase I), the final distribution of income among players (Phase II) and the cluster of subordinates about the mogul (Phase III).

FUTURE MOGUL GAMES In this section, we describe how future mogul games can be played to explore effective survival strategies (i.e. the rules for resource acquisition and redistribution) given different patterns in the cycles and intensity of famine and predation. Mogul Survival: The heuristic element of this game begins with Phase V where moguls anticipate cycles of famine and predation and act accordingly. Moguls balance the benefits of group size gained through trickledown sharing with the benefits of their own personal capital gained through greed. We think mogul games

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offer an opportunity to explore the underlying conditions that shape inequalities among humans facing complex environments. In the following three sections, we describe other ways to play mogul games. Experimental Mogul Games: Experimental mogul games are best imagined as a television game show with two moguls on stage and an audience of players on which the moguls bid to establish their group. Each mogul begins the game with the same amount of personal capital (for example, $1,000). The game consists of “n” number of rounds in which “m” number of players from the audience will be introduced to the moguls. There is no Phase I–IV in this game as players begin with a pre-set amount of dollars. The goal of Phase V is to test the rules for the redistribution of dollars among moguls and players against different agents of selection. Each mogul spins an income wheel or presses an income button to determine the amount of income he receives for that round (the range and frequency distribution of income amounts is set by the experiment designer). The starting income of a mogul is not revealed to the other mogul and vice versa. Thereafter, as moguls earn income, the amounts are visible to each other. A mogul can keep the income as personal capital, or spend any portion of it to “buy” a player to gain group capital. A player is introduced to the moguls simultaneously. Players signal their economic status directly by displaying their value or indirectly through other signals such as clothes, hairstyles, jewelry, grooming, and posture. Initially, no player has higher economic status than the moguls. For example, in this game, the personal capital of players could range from $10 to $990. Each mogul bids for a player. The bids can be open and repeated – like an auction. Or bids can be one-time and silent. In either case, the mogul with the higher bid wins the player. The player moves from the audience and sits behind the successful mogul. The winning bid is debited from the winning mogul’s income (or personal capital if the mogul wishes to spend more than the amount of income he just received) and is credited as personal income for the player. The game continues with multiple rounds of spinning for income, and bidding for players. The personal capital of each player (their initial value plus the bids) becomes part of the mogul’s group capital. At the conclusion of the bidding rounds, the personal capital of each mogul and all players in each mogul’s group is revealed and their economic ranking determined. If any player’s personal capital is greater than that of the mogul, that player usurps the current mogul and emerges as the new mogul. Hence, a mogul competes first with a potential “mogul from within” for leadership of the group before he competes with the opponent mogul. A mogul might get usurped if he has depleted his personal capital during the bids to gain large group size in anticipation of a predatory threat from another mogul.

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After within-group rankings are tallied and the reigning mogul for each group is determined, the personal capital and group capital investments of each of the two moguls are displayed to the other mogul. At this point, the income wheel disappears and a selection wheel appears. The selection wheel contains good times and bad times. The ratio of each would vary according to the experimental question. Different agents of selection such as disease, war, predation, accident, famine, drought, natural disasters and so on would cost the mogul either personal capital or group capital. For example, if the agent of selection is disease, the disease deducts “x” amount of dollars from the mogul. The mogul can pay the amount himself or he can designate a player (or players) within his group to pay the amount. When a player’s personal capital goes to zero, that player dies and group size shrinks. Each mogul takes a turn spinning the selection wheel and losing dollars or players in his group. When the game ends, the mogul with the largest gross personal capital wins (a total of all personal capital including the mogul and the remaining players in his group). Because experiments must come to an end, this game has a constructed end point – the final spin of the selection wheel. In real life, moguls have two choices in the disposal of the “spoils” of the losing mogul – he can compete to gain personal capital or cooperate to gain group capital. If the winning mogul decides to compete with the losing mogul, 100% of personal capital is debited from each member in the losing group and credited to the mogul. The mogul can keep 100% of the losing group’s total person capital or he can systematically distribute the losing group’s personal capital among his group members (a fixed or disproportional distribution). One example of a distribution pattern would have the individual with the most personal capital in the winning group (the winning mogul) acquiring the personal capital of the individual with the most personal capital in the losing group (the losing mogul) and so on down the economic rank ladder until all paired debit-credits have been made. In this case, if group size is larger for the winning mogul, then the members with the lowest economic rank in his group will not gain personal capital from the losing group. If group size is smaller for the winning mogul, then the personal capital of the remaining members of the losing group is credited to the mogul’s personal capital. When players lose 100% of their personal capital, they “die” and are removed from the game permanently. Hence, when a winning mogul competes against a losing mogul, the losing group goes extinct. If the winning mogul decides to cooperative with the losing mogul, the groups merge to form a larger unit. Each member of the losing mogul’s group has “x” % of his personal capital debited; this amount (which can be fixed or variable according to economic rank) is then credited to the personal capital of each member of the winning mogul’s group. The merger is systematic, according to economic rank.

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Hence, there is a major reshuffling of economic rank among group members as they merge. Once the merger occurs, there is the possibility that the losing mogul can usurp the winning mogul if his personal capital is greater of the two. The “mean personal capital” of a group or “group size” can be used to break a tie between two moguls with the same “gross personal capital,” although other rules are possible. Experimental versus Simulated Mogul Games: Experimental versus simulated mogul games test the investment decisions of human players against the decisions of simulated players. There are a number of ways to play this game. For example, the human player is designated as Mogul 1. The simulated player is designated as Mogul 2. In addition, there are “m” number of simulated players. A player is randomly selected and is introduced to the moguls. Moguls can see, but not converse, with the player. Mogul 1 is given an amount of income that he can keep, divide equally with the player or give it all to the player. If Mogul 1’s investment decision agrees with Mogul 2’s prediction of what Mogul 1 will invest, then Mogul 1 wins and advances to another player. The predictions of Mogul 2 follow the investment rules set by the simulation designer. The game ends when Mogul 1 completes “n” number of rounds or when the decision by Mogul 1 mismatches the prediction of Mogul 2 “x” number of times (i.e. three strikes and he’s out). The modeler or experimenter determines the allowed number of rounds or the allowed number of mismatches before the game ends. The magnitude of income per turn, and whether income is variable or fixed with each turn, is determined a priori depending on the question the game is designed to address. Complex Simulated Mogul Games: Following are examples of more complex mogul games. This list is by no means comprehensive. As long as currencies and visual assessment of player status are maintained, game rules and parameters can be modified any number of ways to illuminate the nature of social decisions – greed or sharing. Multiple Group Members: In complex games, moguls and players can join more than one group. For example, let us say a player’s personal capital is $100. Mogul 1 bids $15 to attract him; Mogul 2 bids $20 to attract him. If the player joins both moguls, his personal capital is greater and therefore each mogul’s group capital is greater, than if the player joined only one mogul. Moguls can become members of other mogul groups as well. A mogul might pay a premium price in personal capital as membership dues to gain a portion of the group capital belonging to another mogul. Two-Way Income Flow: In complex games, income can flow, not only from mogul to player, but from player to mogul. Moguls can purchase players for their groups; or players can pay to join a mogul’s group. Player payment is debited from his personal capital and credited to the mogul’s personal capital. In this version of

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the game, the economic rank of players counts. For example, if a player’s personal capital is $100 and he pays the mogul $20 to join the group, the player’s personal capital is now $80. However, the player gains a portion of the group capital of players in the group who are lower in economic rank than he. Hence, high-status players have more incentive to join multiple groups than low status players. In addition, high-status players have more incentive to join large groups with lowerstatus individuals than small groups with higher-status players. As in simple games, the economic motives behind investment decisions are always self-preservation2 over time. Income for Players and Moguls: Players can spin to acquire income at the same time that moguls spin for income, increasing the possibility of a “mogulwithin” emerging into the leadership role or a “lieutenant mogul” forming a group within the group by purchasing members himself. With players acquiring income, positions of economic rank (status) among players will shift on a regular basis. Rules on the magnitude of income per player would be determined by the question the game designer is addressing. Super Complexity: The more complex a game, the more the games might resemble the economic exchanges of modern humans. Moguls are allowed to visually assess each player’s status before an investment decision is made. Hence, each mogul can estimate a player’s gender (Bergstrom, 1996), age, race and other variables (e.g. health, symmetry, height, weight) and his or her potential economic value (i.e. personal capital) before the mogul decides to invest. Signals of a player’s economic value are assumed to be honest.

DISCUSSION In the abstract, inequality (i.e. diversity) is not a bad thing (Hull et al., 2001). Low-ability individuals with great motivation are productive people; and highability individuals are productive people. Hence, those with high motivation or high ability are likely to be the greatest sources of innovation and productivity in a changeable environment. Highly productive people aggregate resources faster and more effectively than others. Once wealth is accumulated, it becomes a significant resource for the less-abled or the less motivated by way of jobs, consumption and charity (Demsetz, 1988; Hill & Cassill, 2004). Even though, in the abstract, inequality is not a bad thing, there are examples throughout history of abuses by the “powerful and privileged” (Ehrlich & Lui, 1999; Haile et al., 2003). Therefore, it is important to differentiate between benign greed and malignant greed (Hill & Cassill, 2004; Vehrencamp, 1983). Benign greed involves stockpiling when resources are super-abundant – that is

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when resource availability exceeds the survival and reproductive needs of all organisms within the local environment. On the other hand, malignant greed is the acquisition of resources during periods of resource scarcity. Malignant greed reduces the stockpile of capital collected by others within the local environment – it is an anti-Robin Hood strategy of “taking from the poor and giving to the rich.” Whereas malignant greed increases the probability of survival at the expense of others, benign greed increases the probability of survival, but not at the expense of others. In nature, malignant moguls are probably the exception rather than the rule which may explain why war is a relatively rare event in human history worldwide. Eventually, malignant moguls are executed by the suffering masses, or they perish when the suffering masses defect or die off, leaving the mogul vulnerable to predation. Shrewd moguls can prevent death by rebellion or predation by sharing a portion of their resources to appease the masses. The degree of trickledown sharing and the resulting level of inequality that evolves depend on the complexity of the environment (Fig. 9). The important point is that, from a mogul’s point of view, sharing is an investment into group capital to enhance his own survival. Because sharing comes from gross excesses, it usually does not diminish the mogul’s survival or reproduction long-term. In some cases however, sharing may incur a small short-term loss of productivity. But, if the mogul gains in long-term survival, then his total lifetime productivity is greater than if he did not share. For example, in ants, low-quality subordinate queens paid a price of ten eggs per unit time to cohabitate with a highquality dominant queen (dominants suppress egg production of subordinates by 10–20%). But, because subordinate queens lived twice as long in cooperative nests with the dominant queen, the lifetime egg production of subordinates was greater than if they established their own nest independent of other queens (Cassill et al., unpublished data). As a second example, if a solitary company makes 100 cars in one year and then goes extinct, its lifetime productivity is 100. If a cooperative company makes 50 cars per year for three years, its lifetime productivity is 150. From a biological “fitness” point of view, the cooperative company is the winner even though its annual “fitness” is lower than that of the solitary company. A shrewd combination of greed and trickledown sharing can increase lifetime production in a complex, multi-selection environment relative to greed only. The important point here is that game models that measure only short-term production losses or gains from cooperation (e.g. Bergstrom, 2003; Reeve & Keller, 2001) miss the boat for perennial species such as ants and humans. The more important parameter of biological success is lifetime production, not annual production. The paradox of Darwinian selection is this: evolution requires variation; natural selection reduces variation (Price, 1995). Skew selection offers a solution

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Fig. 9. Environmental Conditions that Favor Greed and Trickledown Sharing (Inequality) for Perennial Species. (a) When predation is low and resources are homogenous in time, space and composition (a steadystate), organisms do not share or stockpile resources. (b) When predation is low and resources cycle in time, space or composition, organisms do not share, but they do stockpile resources. (c) When predation is high and resources are homogenous, organisms aggregate (often by cloning), but do not stockpile resources. (d) When predation is high and resources cycle in time, space or composition, organisms stockpile and share. Note: The degree and direction of sharing (one-way philanthropy or multiple-way cooperation) depends on the degree of resource cycles and diversity.

to this paradox by revealing what might be a fundamental law of nature: inequality is an emergent property of self-organizing systems coping with complex environments (Fig. 9). In an irony that biologists and economics alike might appreciate, nature’s “most normal (as in most common) distribution may be skewed! As we show in Fig. 10, inequality is homologous to diversity. Stating that complex environments select for offspring inequality is the same as stating that complex environments select for offspring diversity. Nature generates new diversity by selecting parents who invest unequally in their offspring (Cassill, 2003). Thereafter, nature maintains or reshapes diversity among offspring as they mature into parents in their own right. Another way to view skew selection is as a parental r-K selection strategy (Cassill, 2003). Parents produce many low-ability offspring (r-selection) as well as a few high-ability offspring (K-selection). Depending on the species, low-ability offspring may serve as helpers, dispersers,

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Fig. 10. Understanding Skew Selection from Three Points of View. (a) From a sociological point of view, trickledown sharing produces inequality. Like Robin Hood, sociologists are the middlemen and women who advocate taking from the rich and giving to the poor. (b) From an animal behavior point of view, trickledown sharing produces a hierarchy. Biologists, economists and political scientists understand the economic benefits of hierarchies via chain of command, division of labor and economies of scale. (c) From a bioeconomic point of view, trickledown sharing produces diversity. Note: The important point is that each shape in this figure is functionally identical to the other – the only difference is in the emotional response that each shape elicits which is often based on a cultural/political/educational biases. When equated to diversity, inequality is not a social evil, it is the engine upon which evolution runs. Source: Figure reproduced with permission from the Journal of Bioeconomics.

innovators or buffers against predation depending on the complexity of the local environment. In conclusion, without the redistribution of wealth by the powerful and privileged, the masses would never have been born; even if they had been born, they would not have survived periods of famine on their own. On the other hand, without the masses, the powerful and privileged would not survive periods of high predation (i.e. war). Thus, greed and trickledown sharing are reciprocal, not opposing, strategies by which moguls maintain personal capital and sustain group size at the same time. Contrary to Rousseau’s “Discourse on the Origin of Inequality” (translation of the 1755 monograph by Cress & Miller, 1992), in which he states

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that “. . . inequality is practically non-existent in the state of nature . . .,” inequality might be one of nature’s shrewdest strategies for producing the greatest good for the greatest number in multi-selection environments over evolutionary time.

NOTES 1. Games such as prisoner’s dilemma that offer a payoff for player consensus in addition to a payoff for independent decisions by players is a group selection game. In other words, the payoff for the group differs from the sum of payoffs by each individual. 2. Selfishness and self-preservation are not the same things. Selfishness implies never sharing. Self-preservation often entails sharing.

ACKNOWLEDGMENTS We thank Brian Woodhouse, Timothy Travis and an anonymous reviewer for critical comments that vastly improved this work. We thank Roger Koppl for encouragement and invaluable advice during the submission of this manuscript to the Advances in Austrian Economics.

REFERENCES Adams, E. S., & Tschinkel, W. R. (2001). Mechanisms of population regulation in the fire ant Solenopsis invicta: An experimental study. Journal of Animal Ecology, 70, 355–369. Alcock, J. (1979). Animal behavior: An evolutionary approach. Sunderland, MA: Sinauer Assoc. Axelrod, R. M. (1984). The evolution of cooperation. New York: HarperCollins. Bergstrom, T. C. (1995). On the evolution of altruistic ethical rules for siblings. The American Economic Review, 85, 58–81. Bergstrom, T. C. (1996). Economics in a family way. Journal of Economic Literature, 34, 1903–1934. Bergstrom, T. C. (2003). The algebra of assortative encounters and the evolution of cooperation. International Game Theory Review, 5, 211–228. Bergstrom, T. C., & Stark, O. (1993). How altruism can prevail in an evolutionary environment. AEA Papers and Proceedings, 83, 149–155. Carr, J. L., & Landa, J. T. (1983). The economics of symbols, clan names, and religion. Journal of Legal Studies, 12, 135–156. Cassill, D. L. (2002). Yoyo-bang: A risk aversion investment strategy by a perennial insect society. Oecologia, 132, 150–158. Cassill, D. L. (2003). Skew selection: Nature favors a trickle-down distribution of resources in ants. Journal of Bioeconomics, 5, 83–96. Cress, D. A., & Miller, J. (1992). Jean-Jacques Rousseau: Discourse on the origin of inequality. Indianapolis, IN: Hackett Publishing. Darwin, C. (1859). The origin of species (1968 ed.). Penguin Books.

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Dawkins, R. (1976). The selfish gene. Oxford, UK: Oxford University Press. de Waal, F. (1996). Good natured: The origins of right and wrong in humans and other animals. Cambridge, MA: Harvard University Press. Demsetz, H. (1988). Ownership, control, and the firm: The organization of economic control. Oxford, UK: Basil Blackwell. Drickamer, L. C., & Vessey, S. H. (1982). Animal behavior: Concepts, processes, and methods. Boston, MA: Willard Grant Press. Ehrlich, I., & Lui, F. T. (1999). Bureaucratic corruption and endogenous economic growth. Journal of Political Economy, 107, S270–S293. Ghiselin, M. T. (1974). The economy of nature and the evolution of sex. Berkeley, CA: University of California Press. Haile, D., Sadrieh, A., & Verbon, H. A. A. (2003). Self-serving dictators and economic growth. CEFifo Working Paper No. 1105 www.CESifo.de. Hamilton, W. D. (1964). The genetical evolution of social behavior, I & II. Journal of Theoretical Biology, 7, 1–52. Hamilton, W. D. (1971). Geometry for the selfish herd. Journal of Theoretical Biology, 31, 295–311. Hill, R. P., & Cassill, D. L. (2004). The naturological view of the corporation and its social responsibility: An extension of the Frederick model of corporation-community relationships. Business and Society (in press). Hofbauer, J., & Sigmund, K. (1998). Evolutionary games and replicator dynamics. Cambridge, UK: Cambridge University Press. H¨olldobler, B., & Wilson, E. O. (1990). The ants. Cambridge, MA: Harvard University Press. Hull, D. L., Langman, R. E., & Glenn, S. S. (2001). A general account of selection: Biology, immunology, and behavior. Behavioral and Brain Sciences, 24, 511–573. Landa, J. T. (1998). Bioeconomics of schooling fishes: Selfish fish, quasi-free riders, and other fishy tales. Environmental Biology of Fishes, 53, 353–364. Lewontin, R. C. (1970). The units of selection. Annual Review of Ecology and Systematics, 1, 1–18. Macom, T. E., & Porter, S. D. (1996). Comparison of polygyne and monogyne red imported fire ant (Hymenoptera: Formicidae) population densities. Annals of the Entomological Society of America, 89, 535–543. Maynard-Smith, J. (1964). Group selection and kin selection. Nature, 201, 1145–1147. No¨e, R., van Hooff, J., & Hammerstein, P. (2001). Economics in nature. Cambridge, UK: Cambridge University Press. Packer, C., Scheel, D., & Pusey, A. E. (1990). Why lions form groups: Food is not enough. American Naturalist, 136, 1–19. Pianka, E. R. (1988). Evolutionary ecology. New York, NY: HarperCollins. Porter, S. D. (1988). Impact of temperature on colony growth and developmental rates of the ant, Solenopsis invicta. Journal of Insect Physiology, 34, 1127–1133. Porter, S. D., & Tschinkel, W. R. (1993). Fire ant thermal preferences: Behavioral control of growth and metabolism. Behavioral Ecology and Sociobiology, 32, 321–329. Price, G. (1995). The nature of selection. Journal of Theoretical Biology, 175, 389–396. Reeve, H. K., & Keller, L. (2001). Tests of reproductive-skew models in social insects. Annual Review of Entomology, 46, 347–385. Ridley, M. (1996). The origin of virtue: Human instincts and the evolution of cooperation. Auckland, New Zealand: Penguin Books. Sall, J., & Lehman, A. (1996). JMP start statistics: A guide to statistical and data analysis using JMP and JMP IN software. Albany, NY.

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Sober, E., & Wilson, D. S. (1998). Unto others: The evolution and psychology of unselfish behavior. Cambridge, MA: Harvard University Press. Stearns, S. C. (1992). The evolution of life histories. NY: Oxford University Press. Stephens, D. W., & Krebs, J. R. (1986). Foraging theory. Princeton, NJ: Princeton University Press. Tennant, L. E., & Porter, S. D. (1991). Comparison of diets of two fire ant species (Hymenoptera: Formicidae): Solid and liquid components. Journal of Entomological Science, 26, 450–465. Trivers, R. L. (1971). The evolution of reciprocal altruism. Quarterly Review of biology, 46, 35–57. Tschinkel, W. R. (1993). The fire ant (Solenopsis invicta): Still unvanquished. In: B. N. McKnight (Ed.), Biological Pollution: The Control and Impact of Invasive Exotic Species. Indianapolis, IN: Indiana Academy of Science Press. Vehrencamp, S. L. (1983). A model for the evolution of despotic versus egalitarian societies. Animal Behaviour, 31, 667–682. Wade, M. J. (1985). Soft selection, hard selection, kin selection and groups selection. American Naturalist, 125, 61–73. Weibull, W. J. (1995). Evolutionary game theory. Cambridge: MIT University Press. West-Eberhard, M. J. (1975). The evolution of social behavior by kin selection. Quarterly Review of Biology, 50, 1–33. Wilson, E. O. (1975). Sociobiology: The new synthesis. Cambridge, MA: Harvard University Press. Zahavi, A., & Zahavi, A. (1997). The handicapped principle: A missing piece of Darwin’s puzzle. NY: Oxford University Press.

AUSTRIAN ECONOMICS, EVOLUTIONARY PSYCHOLOGY AND INDIVIDUAL ACTIONS Geoffrey M. Hodgson ABSTRACT Friedrich Hayek, Ludwig von Mises, Ludwig Lachmann and George Shackle upheld that investigations of the causes of purposes, preferences, beliefs or behaviors by the social scientist were unwarranted. Shackle proposed that human agency is an “uncaused cause.” Others admitted that human volitions and actions are caused, but ruled out explanations of these causes from social science. By considering Darwinian insights from modern evolutionary psychology, this essay criticizes the view that causal investigations of human volitions and actions are beyond social science. These insights also point to the role of habit and instinct in human behavior.

1. INTRODUCTION This paper critically examines a theme that has been prominent, but not universal, in Austrian School writing, and scrutinizes it the light of some of the key theoretical underpinnings of modern evolutionary psychology. The theme is found in the writings of Friedrich Hayek, Ludwig von Mises, Ludwig Lachmann, George Shackle and others, and it involves the claim that it is not the concern of the economist to examine the causes of individual motives, purposes or beliefs. Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 61–78 Copyright © 2004 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07004-8

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Evolutionary psychology draws from the well of Darwinism. Some of the Darwinian underpinnings of evolutionary psychology are examined here, including the insistence that all phenomena should be susceptible to causal explanation. The upshot of this critique does not undermine all Austrian theoretical arguments, but shows that the aforementioned attempts to restrict the purview of economic enquiry are misguided. It is argued that principles underlying evolutionary psychology point to the role of both habit and instinct in human behavior, in a manner redolent of earlier instinct-habit psychologists, such as William James (1892). The paper is organized in four sections. Section 1 reviews the arguments of Hayek, von Mises, Lachmann and Shackle to the effect that causes of individual motives or behavior are not within the purview of social science. Section 2 briefly discusses the foundations of Darwinism including, by contrast, the unrestricted Darwinian commitment to causal explanation. Section 3 explores some of the implications for social science of insights from evolutionary psychology concerning the human mind. Section 4 extends these insights by adding the role of habit within the same evolutionary framework and arguing for its relevance within social science. Section 5 concludes the essay.

2. ON AUSTRIAN ECONOMICS AND INDIVIDUAL PURPOSES The internal diversity within the Austrian School, in both theoretical and policy terms, is widely recognized. We here consider an aspect of the writings of Hayek, von Mises, Lachmann and Shackle, and no claim is made that their stance is necessarily representative of the Austrian School as a whole. What does unite members of the Austrian School, and indeed many other economists, is a recognition of the reality of human agency and the fact that individual action is powered by purposes and framed by perceptions that are seated in the mind of the agent. Accordingly, to understand human action it is vital to understand this subjectivity, and processes by which he or she may make choices that are consistent with subjective goals and perceptions. Personally, I endorse the standpoint in the preceding paragraph.1 Elsewhere I have argued additionally that the social and institutional enablers of individual cognition have also to be taken into account (Hodgson, 1988). I do not want to go into the details of my auxiliary argument here; I firstly wish to raise the general question of the causal determination of the goals and perceptions of each individual. How are individual purposes and cognitive processes caused? I first examine some selected Austrian answers to this question.

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Hayek alluded to this issue in an essay of 1943, reprinted in his Individualism and Economic Order. Hayek (1948, p. 67) here wrote of a “common misunderstanding” concerning the individual in the social sciences: The misunderstanding is that the social sciences aim at explaining individual behavior . . . If conscious action can be ‘explained,’ this is a task for psychology but not for economics . . . or any other social science.

Here Hayek separated the social sciences from psychology: psychology should not aim at explaining individual behavior, while the social sciences can and should do that job. It is not that Hayek denied that human characteristics or behavior are determined by circumstances. In another essay of 1946, reprinted in the same volume, Hayek (1948, p. 6) wrote of “men whose whole nature and character is determined by their existence in society” but then goes on to assert that “there is no other way toward an understanding of social phenomena but through our understanding of individual actions directed toward other people and guided by expected behavior.” He omitted the explanation of individual actions and expectations themselves. To summarize, Hayek freely admitted that individual character, goals and expectations are caused and variable, but regarded the explanations of such phenomena as unnecessary for, and beyond the purview of, social science.2 Ludwig von Mises gave slightly different reasons for neglecting the explanation of human motives. While, Hayek establishes his position with a dogmatic demarcation of the social sciences from psychology, von Mises pointed more reasonably to the complexity of the causal relations involved. Von Mises (1966, p. 18) argued that: Concrete value judgments and definite human actions are not open to further analysis. We may fairly assume or believe that they are absolutely dependent upon and conditioned by their causes. But as long as we do not know how external facts – physical and physiological – produce in a human mind definite thoughts and volitions resulting in concrete acts, we have to face an insurmountable methodological dualism. . . . Reason and experience show us two separate realms: the external world of physical, chemical, and physiological phenomena and the internal world of thought, feeling, valuation, and purposeful action. No bridge connects – as far as we can see today – these two spheres. . . . Human action is one of the agencies [that] bring about change. . . . As – at least under present conditions – it cannot be traced back to its causes, it must be considered as an ultimate given and must be studied as such.

The argument here is that we do not know the highly complex causes of human action and therefore we “must” take value judgments and actions as given. While von Mises was right in surmising the complexity of the causal process involved, his argument would begin to dissolve once any significant single causal explanation of some judgments or actions were established. Another position is found in the works of Ludwig Lachmann. For him, “methodological individualism” meant “that we shall not be satisfied with any

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type of explanation of social phenomena which does not lead us ultimately to a human plan.” But he insisted, on reaching this point, that we should be led no further into exploring the causes of the plans themselves. As Lachmann (1969, p. 94) put it: Such analysis of observed phenomena in terms of pre-existent plans has nothing to do with psychology. We are here concerned with purposes, not with motives, with plans, not with the psychic processes which give rise to them, with acts of our conscious minds, not with what lies behind them.

This stance is very similar to that of Hayek: both agreed that it is not the task of the social sciences to examine the causes that lie behind purposes and plans. In a nearby passage, Lachmann distances himself from behaviorist psychology, consequently proclaiming: “Spontaneous mental action is not a ‘response’ to anything pre-existent” (p. 93). But it is not clear whether Lachmann was saying that “spontaneous mental action” was literally uncaused – which is one interpretation of the word “spontaneous” – or it is not caused by a “response to stimulus” in the particular manner described by behaviorist psychology. While Hayek and von Mises did not propose an “uncaused cause,” and Lachmann was unclear on this point, George Shackle adopted the notion. Shackle is often regarded as an Austrian economist, despite his attempts to synthesize Austrian insights with Keynesian theory. In particular, Shackle and Lachmann had a particularly close intellectual relationship. In a Festschrift for Lachmann on his eightieth birthday, Shackle (1986, pp. 281–282) argued that if choice is “predetermined” then the “notion of choice would be empty and the act of choice sterile.” Consequently, we are required “to suppose that choice can be in some respects exempt from governance by antecedent thought or contemporary circumstance, that choice can be in some respects an uncaused cause.” This indeed was a persistent theme in Shackle’s writing. In a preceding and more complete account, Shackle (1976, pp. 33–34) wrote of “randomness, of inspiration” and that they “would free us from the fetters of complete determinate causation of thoughts” and “from the abolition of inceptive choice, of choice in the sense of an origin of the new.” For Shackle, “the new” was “the unforeknowable” and it was beyond the bounds of reason. “Reason is analysis” and “there must be some practical limit to its useful pursuit.” From this Shackle drew the conclusion that “the notion of the uncaused” has a “place in scholarly discourse.” This argument was further developed elsewhere (Shackle, 1979). Many, including myself, have been seduced by Shackle’s beguiling prose, only to see later its flaws. He conflated knowledge of cause with existence of cause; to say that there are limits to knowledge, reason, understanding, or explanation has no bearing on the existence or non-existence of any causal relation or determination.

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Phenomena may be causally determined without being knowable or predictable. He conflated doctrines of “determinism” in the sense of claiming predictability, with notions of “determinism” in the sense of proposing causal determination. Furthermore, neither “randomness” nor “inspiration” undermines an ontology of causal determination. Random or stochastic causation is itself a form of causal determinacy (Bunge, 1959). And inspiration is itself a cause, and arguably itself caused. A problem with Shackle’s position is that it involves an investigatory closure. Once we affirm an “uncaused cause” we say that science should explain this much, but no more. We may move so far down the causal chain, but no further. We arrive at a causal and explanatory roadblock, policed by the adherents of the “uncaused cause.” Admittedly, all ontological commitments involve dogma in the sense that they cannot be directly verified by experience. But the principle of determinacy is preferable to the “uncaused cause” because it does not place dogmatic bounds on the scope of scientific enquiry and explanation. Accordingly, the preferable ontological commitment is one that rules out miracles and denies any no-go zones for science. The roadblock must be opened, even if the road ahead is treacherous and complex. Hence a remarkable contrast is present within this segment of the Austrian tradition, between Hayek at one extreme and Shackle at the other. When Hayek (1948, p. 6) admitted “men whose whole nature and character is determined by their existence in society” he suggested that individual purposes and preferences could themselves be molded or caused. Similarly, Von Mises (1966, p. 18) accepted that judgments and actions are “dependent upon and conditioned by their causes.” In contrast, Shackle argued repeatedly that choices were themselves “uncaused.” Significantly, both authors denied that social scientists should investigate the causes of choices, purposes or behaviors, but on entirely different grounds. While Hayek ruled out such investigations because they were beyond the domain of social science, Shackle’s “uncaused cause” meant that such causal explanations were impossible. I shall argue below that the shared conclusion, plus the two very different reasons for reaching it, are all incompatible with the letter and spirit of modern evolutionary psychology. Before we move towards this goal, however, I wish to reaffirm that I am not attempting to describe any stance that is characteristic of the Austrian School as a whole. To do this I quote from the eminent Austrian economist Eugen von B¨ohm-Bawerk (1890, p. 247 n.) who wrote: the ‘isolating’ method . . . its essence consists in, first of all, observing different aspects of complex phenomena separately, but let it be understood, what is often forgotten, that it should not content itself with a partial view, or mistake the part isolated in thought for the whole, but, as far as possible, should construct out of the clearly grasped parts a complete whole.3

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B¨ohm-Bawerk here referred to what some methodologists call “abstraction” and others “isolation,” meaning that for the purpose of science it is impossible to deal with every aspect and causal relation, and it is necessary to focus on those which are deemed to be typical or most important. Accordingly, in the social sciences, it is quite legitimate in many circumstances to take the goals or preferences of the agent as given, thus isolating them within the theory from their complex and often elusive causes. B¨ohm-Bawerk insisted, however, that we should never be satisfied with any abstraction or isolation, and we should look further in an attempt to build up a more complete picture. This would imply that the causes of choice, purposes or behaviors should themselves come under investigation. As Anthony Endres (1997) has shown, and in contrast to Hayek, von Mises, Lachmann and others, Austrian School members such as Friedrich von Wieser and B¨ohm-Bawerk saw it as legitimate for economists to explore the formation of preferences, using insights from psychology if needed. Furthermore, they included endogenous preference changes precipitated by learning as part of their theory. Just as significantly, Carl Menger, the founder of the Austrian School, based his theory of value on determinate physiological and other needs rather than strictly subjective values. This standpoint is clear in his Grunds¨atze der Volkwirtschaftslehre (Principles of Economics) of 1871. In working on later editions of this work, Menger turned increasingly to the study of biology and physiology, with the aim of formulating a theory of human needs as a foundation to his theory of value. Hence the propositions under critical scrutiny are not found in the writings of all members of the Austrian School. They concern both matters of causality and the contested domain of legitimate enquiry for the social sciences. The claim that evolutionary psychology has a bearing on these issues is established by first considering its Darwinian underpinnings and then its impact on considerations of individual purposefulness or intentionality.

3. ON THE DARWINIAN UNDERPINNINGS OF EVOLUTIONARY PSYCHOLOGY Charles Darwin did not only proclaim that species had evolved, but also pointed to the processual, causal mechanisms of evolution. He extended the realm of causal explanation into areas that were deemed taboo by religious doctrine. He rejected explanations of natural phenomena in terms of design, to focus instead on the detailed causes that had cumulated in the emergence of elaborate phenomena over long periods of time. He believed that relatively simple mechanisms of cause and effect could lead to amazingly complex and varied results; complicated outcomes

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could be explained in terms of a detailed succession and accumulation of stepby-step causal mechanisms. This doctrine applied to the most sophisticated and complex outcomes of evolution, such as the eye and human consciousness. Accordingly there were neither sudden nor miraculous leaps in the evolution of human intentionality. Like all human attributes, they must have been prefigured in the species from which humans are descended. In this way the causal origin of these features is susceptible to explanation. Darwin (1859, p. 208) thus wrote: “A little dose . . . of judgement or reason often comes into play, even in animals very low in the scale of nature.” His devoted follower, Thomas Henry Huxley, had similar views concerning causality and the aims of science. For Huxley the idea of uncaused and spontaneous event was absurd and unacceptable. Science was nothing less than an ongoing endeavor to reveal the causes behind phenomena. Huxley (1894, Vol. 1, pp. 158–159) opined that the progress of science meant “the extension of the province of what we call matter and causation.” Similarly, George Romanes (1893, p. 402) – an academic friend of Darwin and Huxley – argued that Darwinism seeks to bring the phenomena of organic nature into line with those of inorganic; and therefore to show that whatever view we may severally take as to the kind of causation which is energizing in the latter we must now extend to the former . . . the theory of evolution by natural selection . . . endeavours to comprise all the facts of adaptation in organic nature under the same category of explanation as those which occur in inorganic nature – that is to say, under the category of physical, or ascertainable, causation.

The causal mechanisms of evolution identified by Darwin concerned variation, inheritance and selection. He argued that natural populations were characterized by slight variations in key features. However, he was largely unaware of the biological mechanisms through which variety is created and sustained, other than upholding a belief that characteristics were likely to be inherited from parents to offspring. Such inheritance created the possibility that some characteristics might survive for significant periods of time. If so, their viability in enhancing the fitness of the organisms involved would be tested by natural selection in their environment. These ideas of variation, inheritance and selection are quite abstract, and might apply to a number of systems in which there is a variety of replicating units. Hence Darwin (1859, pp. 422–423; 1871, Vol. 1, pp. 59–61, 106) himself proposed that they might apply to the evolution of language, as well as organisms. When he formulated these principles, the detailed mechanisms immediately became matters of further scientific exploration and controversy. Darwinism involves an unrelenting commitment to causal explanation. At the same time, Darwinism does not provide a complete theory of everything, from cells

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to human society. Darwinism provides an over-arching framework of explanation, but without claiming to explain every aspect or detail. Explanations additional to natural selection are always required to explain any evolved phenomenon. For example, natural selection alone cannot explain why some birds have dull, and others colorful, plumage. Different auxiliary explanations such as camouflage or competition for mates are required. The theory of natural selection was Darwin’s supreme achievement. Nevertheless, the underpinning of this theory is an ontology where every event has a cause, and he upheld the role of science to search out causal explanations. This applies to human motivation, as well as to other phenomena. Hence Darwinism brought not only human evolution, but also the human mind and consciousness within the realms of science (Richards, 1987). Evolutionary psychology applies these Darwinian principles to the human brain, and to the mind it sustains. Darwin himself predicted that his theory would have major implications for psychology. Darwin (1859, p. 488) wrote: “Psychology will be based on a new foundation, that of the necessary acquirement of each mental power and capacity by gradation.” In this domain Darwinism implies that instinct and reason are, to use Darwin’s phrase, differentiated “by gradation.” It is a task of psychology to explain characteristic aspects of the human psyche, including the acquisition of reason and deliberative behavior, in terms of natural selection. Darwinism thus brought the frontier of scientific enquiry to the inner workings of the human mind. In contrast, Hayek, von Mises, Lachmann and Shackle declared that it is not the role of the social scientist to examine such matters. Shackle’s “uncaused cause” is inconsistent with Darwinism. While Hayek and von Mises admitted the causation of beliefs, they declared investigation of such causes as beyond social science. Of course, even if causation is present, the social scientist does not have to investigate all causes, such as the laws of physics, for example. But such abstraction would be valid only if knowledge of the particular evolution of the human mind had no impact on our understanding of social phenomena. On the contrary, the next section argues that there is a significant cost to social science for such an exclusion, in terms of understanding how individuals reason and behave in social contexts.

4. ON EVOLUTIONARY PSYCHOLOGY AND INDIVIDUAL REASON Evolutionary psychologists Leda Cosmides and John Tooby (1994a, p. 68) argued that human intentionality must be studied in an evolutionary context: “The human

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brain did not fall out of the sky, an inscrutable artefact of unknown origin, and there is no longer any sensible reason for studying it in ignorance of the causal processes that constructed it.” This has led to a critique of prevailing versions of rationality and intentionality in the social sciences. Among these is the separation of thought from its neural and material context. As Denise Cummins (1998, p. 31) put it: “The Cartesian fantasy is that mind is pure intellect, the engagement in pure thought for its own sake. But evolution doesn’t work that way.” Cosmides and Tooby (1994b, p. 327) rejected the widespread assumption “that rational behavior is the state of nature, requiring no explanation.” They went on to criticize what they call the Standard Social Science Model, where the mind harbors general cognitive processes that are “context-independent” or “context-free.” The key argument in this modern literature is that postulates concerning the rational capacities of the human brain must give an explanation of their evolution according to established Darwinian principles of evolutionary biology (Cummins & Allen, 1998). However, some evolutionary psychologists have gone too far by arguing that psychology must be reduced to evolutionary biology and suggesting that psychological and social phenomena are explicable largely in biological terms. In contrast, another group of evolutionary psychologists has upheld that psychology must be consistent with our understanding of human biological evolution and have developed evolutionary psychology in an explicitly non-reductionist manner.4 The “principle of evolutionary explanation” is the injunction that any behavioral assumption, including in the social sciences, must be capable of causal explanation in evolutionary terms, or at least be consistent with a scientific understanding of human evolution (Hodgson, 1998, 2004a). Other sciences are not mere extensions of biology: but they must be consistent with an acceptable version of it. In particular, if there are biological constraints or influences on human capacities or behaviors, then they should be neither contradicted nor negated by assumptions at the psychological or social levels. I am responsible for giving the principle of evolutionary explanation a name, but I am not the originator of the idea. It is found in the writings of Darwin, and suggested by others, including Thorstein Veblen (1898). Modern evolutionary psychologists have revived the idea. For example, as noted below, they have provided evidence that human beings are not particular good at abstract logical arguments. Reflecting the fact that humans have evolved in social groups, our rational capacities are greater when logical rules are placed in a social context. More generally, our knowledge makes use of “modular” intelligence or “fast and frugal” heuristics, rather than extended, intricate computations that consume as much as possible of the available information. The human mind bears the marks of its evolutionary context and origins.5

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The principle of evolutionary explanation requires that theories and assumptions in psychology and the social sciences should be consistent with our knowledge and understanding of human evolution. The operationalization of this principle is controversial, but it does seem to point to some key results. For example, the celebrated Wason tests suggest that humans are much better at logical problems when they are concretized in terms of social rules (Cosmides, 1989). In the Wason experiments, subjects were given the rule: if a card has a vowel on one side, then it must have an even number on the other. It was found that many people are unable to find the best way of checking for violations of this rule. In contrast, given the problem: if you are under 21 years old then you may not drink alcohol in a public bar; significantly more people can readily determine who or what has to be checked to see if the rule is being followed. However, the two problems have a logically identical structure. Our capacity to reason logically improves greatly when the logical problem is situated in a social context, particularly concerning the adherence to social rules. The argument is that humans have evolved to deal with social rules and social rule violations over millions of years of existence as a social species. These arguments, even if from psychology, would seem to have enormous implications concerning the assumptions that social scientists might make concerning human rationality. When making assumptions concerning human rule-following capacities we should take account of insights from evolutionary psychology. This would be especially the case in the later works of Hayek (1982, Vol. 1, p. 11) who wrote: “Man is as much a rule-following animal as a purpose-seeking one.” Is it relevant to ask: what sustains the rule and gives it some durability through time? Hayek did not provide a sufficiently clear answer, but in discussing the process of cultural transmission he put emphasis on the role of imitation (Hayek, 1967, pp. 46–48; 1982, Vol. 3, pp. 155–157; 1988, pp. 21, 24). This might help to explain how behavioral regularities are reproduced but we still lack a causal explanation of imitation and rule-following itself. What are the mechanisms involved in the genesis of action: the transformation of a rule into an act? Hayek (1967, p. 69) wrote vaguely of the “external stimulus” and the “internal drive,” without giving us much more to go on. There is a gap in his theory, which could usefully be filled partly by using insights from evolutionary psychology. If there are “internal drives” – or “instincts” as others would say – then some knowledge of them is entirely relevant for the social scientist. While fully accepting that any such inherited predispositions do not themselves determine human behavior, and for any individual the weight of enculturation is paramount, it is nevertheless important to understand the what those predispositions are, and how ceteris paribus they might bias human behavior in one direction rather than another. Human purposes are a result of our individual enculturation and unique

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personal history, on the one hand, and the mental structures and basic drives that we have inherited over millions of years of human evolution. The relevance of this perspective is beginning to be appreciated by some economists. Experimental economists have long faced allegedly “irrational” results, such as in trust games and ultimatum games, where human subjects do not play the optimal strategies predicted by game theory. Consequently, some leading experimental economists have attempted to explain some “irrational” cooperative behavior in terms of inherited dispositions towards social reciprocity. Elizabeth Hoffman, Kevin McCabe and Vernon Smith (1998) cite arguments from evolutionary psychologists, that humans have evolved mental algorithms for identifying and punishing cheaters in social exchange, to explain some “irrational” outcomes in experimental settings. Consequently, while we must accept that many of these arguments are controversial, it should be clear that the Darwinian and evolutionary perspective on the human mind and behavior does have major implications for the social sciences. Any hermetic compartmentalization of social science from psychology means a rejection of knowledge that is significant for our understanding of social and economic phenomena.

5. PLACING HABIT BETWEEN INSTINCT AND REASON Understanding how the mind works is vital for the social scientist in building up a picture of human agency, while at the same time we must acknowledge human individuality and diversity. Consider, for example, the role of habit. I have argued elsewhere that habits are central dispositions, and are indispensable for human action and reason (Hodgson, 1988, 2003, 2004a).6 This perspective dovetails with modern evolutionary psychology and complies with the principle of evolutionary explanation. At the present time, modern evolutionary psychology is in its infancy, and it has stressed the evolution of instincts rather than habits. The burden of its argument is that the human psyche is characterized by instincts that have evolved over the last few hundred thousand years or more. In contrast, while habits can be formed as a result of instinct-driven behavior, habits themselves are not inherited genetically, and depend critically on the social and cultural environment. But the rehabilitation of the concept of instinct has also led to the return of an understanding of habit. Modern evolutionary psychologists widely acknowledge that their approach is highly redolent of that of William James (1892). James saw instinct and habit as complementary, and both as the foundation of human deliberation and reason. In

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Britain, Conwy Lloyd Morgan (1896) developed a similar approach. In the modern context, there is a literature in several respects allied to evolutionary psychology that links acquired dispositions or habits with instincts. For instance, Arthur Reber (1993) has argued that implicit learning of an unconscious character is ubiquitous even in humans and higher animals. This is partly because higher levels of deliberation and consciousness are recent arrivals on the evolutionary scene and came after the development of more basic mechanisms of unconscious learning in organisms. Reber (1993, p. 85) proposed that: “Once successful forms are established, they tend to become fixed and serve as foundations for emerging forms.” In addition: “earlier appearing, successful, and well-maintained forms and structures will tend towards stability, showing fewer successful variations than later appearing forms.” In other words, the more basic structures, once established, stabilise and become less changeable than the layers that are built upon them.7 Accordingly, there was no cause or possibility for evolution to dispense with habits and instincts once human reasoning emerged. It built upon them, just as human bipedal physiology built upon the modified skeletal topology of a quadruped. Earlier structures and processes, having proved their evolutionary success, are likely to be built upon rather than removed. Hence earlier evolutionary forms can retain their use and presence within the organism. They will do this when they form the building blocks of complex further developments. That being the case, we retain unconscious mental processes that can function independently of our conscious reasoning. Our layered mind, with its unconscious lower strata, maps our long evolution from less deliberative organisms. Consistent with the evolutionary doctrine of continuity, habits and instincts are highly functional evolutionary survivals of our pre-human past. A central principle of evolutionary psychology is that assumptions concerning the human psyche have to be at least consistent with, and if possible grounded on, our theoretical and empirical knowledge of human evolution. Accordingly, if the focus of evolutionary psychology were widened from instincts alone to the psychological intermediations between instinct and reason, then the principles in the previous two paragraphs come into play. Just as evolutionary psychology insists that we should consider how our inherited dispositions or instincts have evolved over generations, social scientists have a similar obligation to consider how acquired dispositions or habits have evolved in individuals and groups in a social setting. Evolutionary psychology points to, and is consistent with, a social science that takes habit as well as instinct into account.8 A heuristic test of this broader perspective has been carried out using a computer simulation (Hodgson & Knudsen, 2004). The simulations show that strength of habit and processes of habituation can play a vital role alongside rational

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deliberation and selection pressure. In our model we chose one of the most straightforward of conventions: whether the rule is to drive on the right or on the left of the road. In this model, artificially intelligent “drivers” in “cars” are programmed to negotiate a circular road configuration along with a number of other, similar vehicles. To negotiate the road and avoid collision, it would seem to be rational for each driver at least to consider conformity with the perceived distribution of traffic to the left and right, and avoidance of cars that are close ahead. In the model these particular dispositions are fixed at birth, like instincts or a given preference function. Instincts vary from driver to driver, but are fixed for life. To these factors, our model adds habit. All drivers in turn make a (subjective) decision based on the (objective) information about the traffic ahead. The driver looks a bounded distance ahead and counts the number of cars in each lane and the number of cars going in each direction. The decision algorithm combines decision elements that vary according to the cognitive personality of the driver and the global parameter weights. Based on this information, and given its behavioral and cognitive dispositions, the driver decides on which side of the ring to drive in its next move. The final element to be taken into consideration is the possibility of error. An error probability variable is fixed at the beginning of the simulation. A random number generator determines whether each car makes the move opposite to its subjective evaluation. At this final stage, the left or right inclination of the car in the upcoming move is determined. Obviously, error can disturb this process of convergence to a left/right convention. If two cars collide, then they are removed and replaced with two new cars with randomly chosen characteristics in a random location on the circular road. Accordingly, the instinct profile of the surviving cars plays no part in determining the instincts of the replacement cars. While there is evolutionary selection of both habits and instincts in our model, the lack of generational transmission means that instinctive evolution is limited. The reason for this is to isolate the role of habit – rather than instinct – in aiding convergence in the model. Many simulations were performed, with many different parameter weights. Generally, as the strength of habit increases from zero, mean convergence levels improve, for all levels of error. Increases in the levels of error have a significant and opposite effect. No other variable emerged to generally improve convergence in our simulations. In these boundedly rational situations, where drivers are unable to see the whole ring, habit emerged as the single most significant factor improving convergence. The most important result of these simulations concerns the effect of introducing processes of habituation into the modeling of agent behavior. In a substantial region of parameter space, strength of habit can increase the systemic rate of convergence

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towards a left/right convention. In some circumstances it can also enhance systemic resistance to error. In short, habit helps agents to deal with uncertainty, complexity and change. The model suggests that a crucial role played by habit is to build up and reinforce an enduring disposition in each agent, concerning the appropriate side of the road on which to drive, especially in a situation where information concerning the traffic ahead is limited. The development of habits amounts to an element of endogenous preference formation. A sequence of similar and repeated behaviors creates in each agent a habitual predilection, which can stimulate a “belief” or “conviction” that a particular behavior is appropriate. Again this is reminiscent of the arguments of the pragmatists, who saw acquired habits as the basis of firmly held beliefs. For Charles Sanders Peirce (1878, p. 294) the “essence of belief is the establishment of habit.” Pragmatist philosophy and psychology see action as forming preferences and purposes, at least as much as preferences and purposes lead to action (Joas, 1996; Kilpinen, 2000). Similarly, in our model, habit differs from mere inertia, in that it creates stubborn “beliefs” in the appropriateness of an action, that weigh heavily in the decisionmaking process of each agent. The evolution of an equilibrium convention depends largely on one set of stubborn “beliefs” triumphing over the other. Once a stable convention forms, it is encoded in the dispositions of the majority and it can resist the intrusion of a substantial amount of erratic behavior. Accordingly, habit is more than a means of economizing on decision-making for individuals, it is a means by which social conventions and institutions are formed and preserved. These arguments suggest that for the social scientist is it not good enough to take the purposes, preferences or behaviors of individuals as given. Although such an assumption is legitimate in some contexts, it cannot be adequate for economics as a whole. The full understanding of central social phenomena such as rulefollowing and the formation and institutions – to which Austrian writers from Menger to Hayek have made a substantial analytical contribution – requires some understanding of human psychology and the mechanisms of human calculation and cognition.

6. CONCLUSION The above arguments undermine the proposition upheld by Hayek, von Mises, Lachmann and Shackle that the explanation of individual purposes and behaviors is beyond the scope of social science. Shackle’s more extreme position is undermined by a Darwinian denial of an “uncaused cause.” The positions of Hayek and von

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Mises are very different and cannot be dismissed in such a manner. Instead, what undermines the exclusion arguments of Hayek, von Mises and Lachmann is the demonstration that evolutionary psychology has something relevant to say concerning particular features of the human mind that are relevant to understanding individual actions and interactions in a social context. To repeat, this does not mean that abstraction from explanations of human purposes or preferences is unwarranted in some contexts. What it does mean is that fuller explanations may require the crossing of the boundary between the social sciences and psychology that Hayek and others have been so keen to police. Accordingly, the position proposed here, in the light of modern evolutionary psychology, is consistent with the general methodological argument of B¨ohmBawerk. This involves temporarily “isolating . . . different aspects of complex phenomena” from one another, but without being “content . . . with a partial view,” without mistaking “the part isolated in thought for the whole,” and moving “as far as possible” towards a view of the “complete whole.” In particular, not being “content . . . with a partial view” it is incumbent on the social scientist to look further into the structures and recesses of the human mind, appreciating the long evolution of this mind in an interactive social setting over millions of years, bringing in insights how the mind is mould in specific cultural contexts, and developing explanations that are relevant for the understanding of social and economic behavior.

NOTES 1. However, this does not mean that I endorse methodological individualism, or an exclusively subjectivist approach. See Hodgson (1988, 2004a). 2. See my dispute with Caldwell on this point. Caldwell fails to acknowledge my appreciation that Hayek accepted that tastes and preferences were variable. But the causal explanation of such formation or variation was for Hayek beyond any social science; it is on this point of disciplinary demarcation that I differ with Hayek. Causal explanations of tastes and preferences are not only within economics, but also essential to it (Caldwell, 2001, 2004; Hodgson, 1993, 2004b). 3. This is redolent of Lawson (1997, p. 236) who wrote that “there is literally a world of difference between leaving something (temporarily) out of focus and treating it as though it does not exist. The achieving of an abstraction and treating something as though it existed in isolation are not the same thing at all.” However, Lawson prefers to use the word abstraction rather than isolation in this context. 4. For instance, Plotkin (1994, p. 176) wrote: “What saves intelligent behaviour from such a reductionistic account is the presence of selectional processes in the mechanism of intelligence.” In sum, “intelligent behaviour . . . cannot be reductively explained by genetics or genetics and development.” Plotkin and other evolutionary psychologists recognize a major role for culture, as well as genetic make-up, in human development. Ben-Ner and

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Putterman (2000) also argue that evolutionary psychology does not lead us to the biological reductionism that some of the popularizers have promoted. 5. See Buss (1999), Cosmides and Tooby (1994a, b), Cummins (1998), Gigerenzer et al. (1999), Plotkin (1994, 1997), Sperber (1996), Todd and Gigerenzer (2000), Weingart et al. (1997). 6. My position on this issue has affinities with earlier writers such as James (1892), Morgan (1896), Veblen (1914) and Dewey (1922), and later writers such as Margolis (1987) and Joas (1996). James, Dewey and Veblen reflect the American pragmatist tradition and the later writers are part of its modern revival. 7. See also Schank and Wimsatt (1987). 8. Boyd and Richerson (1985) are pioneers of a “dual inheritance” approach that involves cultural as well as genetic transmission. This is an example of such a joint consideration of both instinctive and cultural evolution.

ACKNOWLEDGMENTS The author is very grateful to Roger Koppl and an anonymous referee for remarks on an earlier version of this paper. This article makes use of some material from Hodgson (2004a).

REFERENCES Ben-Ner, A., & Putterman, L. (2000, September). Some implications of evolutionary psychology for the study of preferences and institutions. Journal of Economic Behavior and Organization, 43(1), 91–99. von B¨ohm-Bawerk, E. (1890). The historical versus the deductive method in political economy. Annals of the American Academy of Political and Social Science, 1(October), 244–271. Boyd, R., & Richerson, P. J. (1985). Culture and the evolutionary process. Chicago: University of Chicago Press. Bunge, M. A. (1959). Causality: The place of the causal principle in modern science. Cambridge, MA: Harvard University Press. Buss, D. M. (1999). Evolutionary psychology: The new science of the mind. Needham Heights, MA: Allyn & Bacon. Caldwell, B. J. (2001, July). Hodgson on Hayek: A critique. Cambridge Journal of Economics, 25(4), 539–553. Caldwell, B. J. (2004, March). Hayekian evolution reconsidered: A reply to Hodgson. Cambridge Journal of Economics, 28(2), 301–305. Cosmides, L. (1989). The logic of social exchange: Has natural selection shaped how humans reason? Studies with the Wason selection task. Cognition, 31, 187–276. Cosmides, L., & Tooby, J. (1994a, April–June). Beyond intuition and instinct blindness: Towards an evolutionary rigorous cognitive science. Cognition, 50(1–3), 41–77. Cosmides, L., & Tooby, J. (1994b, May). Better than rational: Evolutionary psychology and the invisible hand. American Economic Review (Papers and Proceedings), 84(2), 327–332.

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Cummins, D. D. (1998). Social norms and other minds. In: D. D. Cummins & C. Allen (Eds), The Evolution of Mind (pp. 30–50). Oxford and New York: Oxford University Press. Darwin, C. R. (1859). On the origin of species by means of natural selection, or the preservation of favoured races in the struggle for life (1st ed.). London: Murray. Darwin, C. R. (1871). The descent of man, and selection in relation to sex (1st ed., 2 vols). London: Murray; New York: Hill. Dewey, J. (1922). Human nature and conduct: An introduction to social psychology (1st ed.). New York: Holt. Endres, A. M. (1997). Neoclassical microeconomic theory: The founding Austrian version. London and New York: Routledge. Gigerenzer, G., & Todd, P. M. et al. (1999). Simple heuristics that make us smart. Oxford and New York: Oxford University Press. Hayek, F. A. (1948). Individualism and economic order. London: George Routledge; Chicago: University of Chicago Press. Hayek, F. A. (1967). Studies in philosophy, politics and economics. London: Routledge & Kegan Paul. Hayek, F. A. (1982). Law, legislation and liberty (3 vol. combined ed.). London: Routledge & Kegan Paul. Hayek, F. A. (1988). The fatal conceit: The errors of socialism. In: W. W. Bartley III (Ed.), The Collected Works of Friedrich August Hayek (Vol. I). London: Routledge. Hodgson, G. M. (1988). Economics and institutions: A manifesto for a modern institutional economics. Cambridge: Polity Press; Philadelphia: University of Pennsylvania Press. Hodgson, G. M. (1993). Economics and evolution: Bringing life back into economics. Cambridge, UK: Polity Press; Ann Arbor, MI: University of Michigan Press. Hodgson, G. M. (1998, March). The approach of institutional economics. Journal of Economic Literature, 36(1), 166–192. Hodgson, G. M. (2003, March). The hidden persuaders: Institutions and individuals in economic theory. Cambridge Journal of Economics, 27(2), 159–175. Hodgson, G. M. (2004a). The evolution of institutional economics: Agency, structure and Darwinism in American institutionalism. London and New York: Routledge. Hodgson, G. M. (2004b, March). Hayekian evolution reconsidered: A reply to Caldwell. Cambridge Journal of Economics, 28(2), 291–300. Hodgson, G. M., & Knudsen, T. (2004). The complex evolution of a simple traffic convention: The functions and implications of habit. Journal of Economic Behavior and Organization, 54(1), 19–47. Hoffman, E., McCabe, K. A., & Smith, V. L. (1998). Behavioral foundations of reciprocity: Experimental economics and evolutionary psychology. Economic Inquiry, 36(3), 335–352. Huxley, T. H. (1894). Collected essays (9 vols). London: Macmillan. James, W. (1892). Psychology: Briefer course. New York: Holt; London: Macmillan. Joas, H. (1996). The creativity of action. Chicago: University of Chicago Press. Kilpinen, E. (2000). The enormous fly-wheel of society: Pragmatism’s habitual conception of action and social theory. Helsinki: University of Helsinki. Lachmann, L. M. (1969). Methodological individualism and the market economy. In: E. W. Streissler (Ed.), Roads to Freedom: Essays in Honour of Friedrich A. von Hayek (pp. 89–103). London: Routledge & Kegan Paul. Reprinted in Lachmann, L. M. (1977). Capital, expectations and the market process. Introduction by W. E. Grinder (Ed.). Kansas City: Sheed Andrews and McMeel. Lawson, T. (1997). Economics and reality. London and New York: Routledge. Margolis, H. (1987). Patterns, thinking and cognition: A theory of judgment. Chicago: University of Chicago Press.

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Menger, C. (1871). Grunds¨atze der Volkwirtschaftslehre (1st ed.), J. C. B. Mohr, T¨ubingen. Published in English in 1981 as Principles of Economics, J. Dingwall (Ed.), B. F. Hoselitz (Trans). New York: New York University Press. Mises, L. von (1966). Human action: A treatise on economics (3rd ed.). Chicago: Henry Regnery. Morgan, C. L. (1896). Habit and instinct. London and New York: Edward Arnold. Peirce, C. S. (1878). How to make our ideas clear. Popular Science Monthly, 12, January, 286–302. Reprinted in J. Buchler (Ed.), Philosophical Writings of Peirce (1955). New York: Dover Publications. Plotkin, H. C. (1994). Darwin machines and the nature of knowledge: Concerning adaptations, instinct and the evolution of intelligence. Harmondsworth: Penguin. Plotkin, H. C. (1997). Evolution in mind: An introduction to evolutionary psychology. Harmondsworth: Penguin. Reber, A. S. (1993). Implicit learning and tacit knowledge: An essay on the cognitive unconscious. Oxford and New York: Oxford University Press. Richards, R. J. (1987). Darwin and the emergence of evolutionary theories of mind and behavior. Chicago: University of Chicago Press. Romanes, G. J. (1893). Darwin and after Darwin: An exposition of the Darwinian theory and a discussion of post-Darwinian questions (Vol. 1, 2nd ed.). London: Longmans Green. Schank, J. C., & Wimsatt, W. C. (1987). Generative entrenchment and evolution. In: A. Fine & P. Machamer (Eds), PSA 1986: Proceedings of the Meeting of the Philosophy of Science Association (Vol. 7. pp. 33–60). East Lansing, MI: Philosophy of Science Association. Shackle, G. L. S. (1976). Time and choice. Proceedings of the British Academy, 66, 309–329. Reprinted in Shackle, G. L. S. (1990). Time, expectations and uncertainty in economics: Selected essays of G. L. S. Shackle. J. L. Ford (Ed.). Aldershot: Edward Elgar. Shackle, G. L. S. (1979). Imagination and the nature of choice. Edinburgh: Edinburgh University Press. Shackle, G. L. S. (1986). The origination of choice. In: I. M. Kirzner (Ed.), Subjectivism, Intelligibility and Economic Understanding: Essays in Honour of Ludwig M. Lachmann on his Eightieth Birthday (pp. 281–287). London: Macmillan. Reprinted in Shackle, G. L. S. (1988). Business, time and thought: Selected papers. S. F. Frowen (Ed.). London: Macmillan. Sperber, D. (1996). Explaining culture: A naturalistic approach. Oxford: Blackwell. Todd, P. M., & Gigerenzer, G. (2000, October). Pr´ecis of simple heuristics that make us smart. Behavioral and Brain Sciences, 23(5), 727–741. Veblen, T. B. (1898, September). The instinct of workmanship and the irksomeness of labor. American Journal of Sociology, 4(2), 187–201. Reprinted in Veblen, T. B. (1934). Essays on our changing order. L. Ardzrooni (Ed.). New York: Viking Press. Veblen, T. B. (1914). The instinct of workmanship, and the state of the industrial arts. New York: Macmillan. Weingart, P., Mitchell, S. D., Richerson, P. J., & Maasen, S. (Eds) (1997). Human by nature: Between biology and the social sciences. Mahwah, NJ: Lawrence-Erlbaum.

HAYEK AND MODERN EVOLUTIONARY THEORY Paul H. Rubin and Evelyn Gick INTRODUCTION Hayek was a firm believer in the effect of evolution on human behavior. This was a real advance since he wrote in a time when most social scientists believed in the “blank slate” (Pinker, 2002) and denied the influence of biology on human actions. Moreover, Hayek got the basic outline of the problem right. Most of human existence has been spent in small groups (25–250 members) and many of our tastes and preferences have evolved in that setting. These tastes and preferences are not always adapted for modern mass societies with market economies and extensive division of labor and exchange. However, evolutionary science and particularly its applications to human beings have advanced since Hayek wrote, and some of the details of his analysis are no longer consistent with current theories. In this paper we consider some areas where Hayek wrote and compare his writing with more modern theories. We consider specifically: the Original Society; the Evolution of Society; the “New Social Order”; Individual and Group Selection; Religion; and Political Decisions. In all cases we consider first Hayek’s views, and then modern views on the same topic.

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THE ORIGINAL SOCIETY Hayek Hayek’s analysis of the evolution of human societies starts with a historic view of mental and societal developments. For a better understanding of social phenomena as described in Hayek’s works we summarize his cognitive theory.1 This theory shows the relationship between stimulus and response on an individual plane. Every perceived stimulus or bunch of stimuli must fit into “categories.” These categories work as a filter in that only categorized or classified stimuli may lead to an action. After stimuli have passed the process of classification, the human mind is able to perceive them because they belong to a certain set of categories the brain processes. Categories, the filters themselves, are formed by “dispositions.”2 Dispositions and categories share the same features: they are genetically inherited but also the result of individual and societal experience. Dispositions are “general rules” or “patterns of action” which are usually superimposed by other dispositions that refer to the current situation of the individual and evoke the individual’s response. In the very beginning of humankind, as human brains developed a certain structure and also certain dispositions of behavior, the instincts, developed. Humans during this stage developed similar dispositions since they shared the same perception of the environment and its aims, risks, and threats. Dispositions are closely connected to knowledge: because individuals know their environment, they know what they perceive (stimuli pass certain categories) and they know how to react. Thus, dispositions store knowledge. It is necessary to stress that knowledge is not only knowledge of a specific individual but also knowledge of the society itself. We observe this kind of knowledge when looking at societal traditions such as how group members usually act. Dispositions are therefore not only genetically inherited but also the result of individual and societal experiences which the individual is part of. At the time when instincts became genetically fixed, the predominant pattern of society was a “face-to-face society.” Small groups with 10–15 members, usually groups of relatives, such as gatherers and hunters, emerged together with strong links between one another. Instincts played the decisive role in ensuring the best available adaptation to the prevailing environment.3 Insofar as group members had similar knowledge about their environment, they shared similar needs and expectations about the behavior of their group members.4 The dispositions to act “instinctively” were therefore the best response to the stimuli that reached the individual. Instincts, the “moral rules” of small groups or the “natural morality”5 also helped control and ensure cooperation among group members. This form of cooperation had been established by trust; the behavior among the members was

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dominated by altruism,6 solidarity, sympathy, and group decisions. The regularity of their actions which were grounded on similar perceptions brought about an order of the society: the order of the small group.

Modern Theories Much of Hayek’s argument is congruent with modern theories, but much is not. In particular, while individuals were more closely genetically related than is true of societies now, nonetheless, there was more conflict in these societies than Hayek seems willing to admit. There is both theoretical and empirical evidence of conflict in early societies. Empirically, Keeley (1996) and Knauft (1991) have documented high rates of homicide among contemporary societies that are analogous to these societies. Moreover, many students of human evolution believe that the only selective force with sufficient power to generate our level of intelligence was competition with other humans (e.g. Byrne & Whiten, 1988; Humphrey, 1976; Rubin, 2002; Whiten & Byrne, 1997). This is because such competition can have positive feedback, and so can generate any level of intelligence that the organism can support. Hayek discusses the “herald” or leader. The best evidence is that in early societies, while there is a leader, he (and it is always a man) is often severely restricted in power. Boehm (1999) discusses a “reverse dominance hierarchy,” meaning that subordinates cooperate to limit the power of dominants. If dominants try to amass too much power (those whom Boehm calls “upstarts”) then subordinates use tools ranging from ridicule to exit to homicide to constrain him. Decisions are generally made through consensus, with all adult males participating in the process. Of course, some dominants will sometimes be successful in obtaining power. However, it is generally thought that this is an exceptional situation. Hayek is probably correct in discussing the evolved nature of moral rules and morality. There is evidence that even chimpanzees, our closest relatives, have some moral rules (De Waal, 1996) and presumably our common ancestor also had such rules. They are crudely associated with the common law rules of property, contract, and crime. For example, in experiments, a chimpanzee will reward another chimpanzee who helped him acquire some fruit. Monkeys such as baboons do not behave in this way. Chimps also recognize property rights, and presumably early humans did as well. Of course there was little property, but, for example, in chimps an animal that has killed some game has the right to the game, and generally distributes it in various ways, including giving some to those who helped in the hunt. A point that Hayek missed is the role of competition over women. Among early humans, this is an important driving force. Our ancestors were generally

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mildly polygynous, based on relative size of males and females. Thus, dominant males would have more than one mate. This meant that some subordinate males had no formal access to females. This was a source of tension in early societies, and remains so in those modern societies that allow more than one wife. Unlike economic competition, which is positive sum, competition over women is essentially negative sum, and so this form of competition will not have the beneficial effects of competition over economic goods. One of the major features associated with the rise of the West has been the outlawing of polygamy.

THE EVOLUTION OF SOCIETY Hayek In a changing environment the old patterns of behavior, the instincts, were not the best response any more. Gradually trade started playing a crucial role. Trade developed in the very early stages of mankind (e.g. 30,000 years ago, in the Paleolithic) even before agriculture (Leakey, 1981, quoted in Hayek, 1988). Nevertheless, the greatest expansion of trade occurred around 750 to 550 BC in the Mediterranean region. This expansion would not have been possible without a certain population density, the key to specialization and division of labor. The emergence of property rights, which are linked to the division of labor, was closely connected to trade as the motor of social development. “The crucial point,” notes Hayek, “is that the prior development of several property is indispensable for the development of trading, and thereby for the formation of larger coherent and cooperating structures, and for the appearance of those signals we call prices” (1988, p. 31). He sets the beginning of property rights in the stage of human development when hand-crafted tools appeared. Separate ownership on perishable goods was only a later issue, “as the solidarity of the group weakened and individuals became responsible for more limited groups such as a family” (Hayek, 1988, p. 31). The possibility to trade with non-members of their own group led to the “division of labor, which implies the mutual adjustment of activities of people who do not know each other . . . and thus to the division of knowledge” (Hayek, 1979, p. 158). To explain how establishment of trade changes the original society we return to Hayek’s cognitive theory and to his concept of knowledge in particular. As we have seen, members of a society will tend to act in a specific way because of the social quality of their dispositions. However, final individual actions cannot be predicted because of the individual quality of the dispositions. Dispositions are therefore responsible for what is perceived by the individual, and perception and action have

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a subjective character. In the age of hunter-gatherers the individual dispositions are very similar. We can link this approach to the concept of knowledge. The key element of Hayek’s theory is that human knowledge is limited. The reason that individuals have only a limited knowledge about their environment and are able to act only by referring to a small part of it lies in the fact that the social system, the marketplace in economic systems, and the nervous system are all complex phenomena. There are so many variables or circumstances that bring about a result that one cannot take them all into account (Weimer & Palermo, 1982). But again, what holds for the dispositions of the members of a small group in early stages of human development holds also for the knowledge of these individuals: because the environment is not very complex, individual’s knowledge is very similar. Nonetheless, we should take in account that dispositions and knowledge could vary from individual to individual because of the characteristics of dispositions pointed out earlier: individual experience colors individual dispositions. It is not just the limited capacity of the brain to perceive and process knowledge which is important, but also the fact that knowledge is necessarily tied to individual perceptions and interpretations of how to act: knowledge is memorized in rules of perception and in rules of conduct. In other words, knowledge will always have a subjective quality since all information that reaches the mind depends on individual categories and individual dispositions. Knowledge is also largely dispersed in a society. Every individual will acquire only so much knowledge as he needs for his own interpretation of the world and for his own actions. In a more complex world with contacts to individuals not belonging to their own group, an individual will build up more individual experience and therefore different knowledge compared to the other group members. Knowledge, varying from person to person, leads to a different perception and to different individual cognitive frameworks. Taking that into account, it follows that trade cannot be based on collective knowledge.7 It needs the establishment of conditions that permit these activities to flourish. There is a need for a new mechanism. Private property rights emerge as a substitution for common ownership. Hayek, following Hume and Smith, points out that private property is the fundamental principle of cultural evolution (Hayek, 1988, Ch. 2–3). These new phenomena are responsible for a faster growth of the group, but one of the most important consequences of this process was the separation of goals for different members. The group and its behavior changed and a new social order could arise. The gradual replacement of innate responses by new rules, perceived and learned from outside the group, accounts largely for human evolution. The instincts themselves did not lead to a more beneficial life. Their gradual suppression, together with their replacement by new rules of conduct, led to a new order.

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Modern Theories Hayek gets much of this wrong. He places more weight on economics as the driving force for social change than it can bear.8 Anthropologists separate human existence into two fundamental periods. The major division is between “mobile” and “sedentary” societies, also called “simple” and “complex” (Knauft, 1991) or “egalitarian” and “nonegalitarian” hunter-gatherers, or foragers (Kelly, 1995). Mobile hunter-gatherers are also called “immediate-return” hunter gathers, meaning that “no surplus is created and resources, especially food, are consumed on a daily basis” (Kelly, 1995, p. 31). By far the longest period of our existence as humans was the time spent as mobile foragers. During this period, human groups were small, there was little social structure, little food storage, and little division of labor or specialization. The only “occupational specialization” was by age (Kelly, 1995, Table 8–1, p. 294). However, even in early societies, property rights were approximately efficient (Bailey, 1992). Such people traveled light, and did not burden themselves with belongings (Kelly, 1995, p. 296, citing Woodburn, 1980). This was also the pattern of our pre-human ancestors during the EEA, when they evolved to become Homo sapiens. The study of mobile hunter-gatherers is germane because this way of life is similar to the lifestyle in which we evolved, and so we are adapted to this way of living. Thus, insights into the period of nomadic hunter-gatherers would be applicable for understanding the hardwired pattern of the mind. Of course, there were many changes during the EEA. For example, there were alternating periods of glacial advance and retreat. However, the social environment seems to be more important in explaining human evolution than the physical environment, and this would have been more constant. Complex hunter-gatherers differ in many dimensions; specifically, occupational specialization is “common.” Thus, this distinction (which Kelly attributes to changing from a mobile to a sedentary life style) is the boundary between specialized and unspecialized roles for individuals in societies. By the time of large agricultural societies and the beginning of written history, specialization and division of labor were common and significant among humans. But this came late in our existence as humans – probably too late to have left a major mark on our evolved preferences or intellects. There are several economically relevant features of the EEA. Societies were small – about 25–150 individuals. This means that possibilities for specialization and division of labor were quite limited. Adam Smith’s admonition that “The division of labour is limited by the extent of the market” has always been true, and small societies imply highly limited possibilities for division of labor (Smith, 1776/1904, Bk 1, Ch. 3). While division of labor by gender is universal among humans (Brown, 1991) there was little in the way of more complex forms of specialization.

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Many anthropologists make the same point regarding specialization among mobile hunter-gatherers. With respect to warfare, Keeley (1996, p. 46) indicates that: “[S]ocieties without specialization in the economic realm were unlikely to develop specialized warriors or units.” Conflict in ancestral societies was unorganized and was usually a small raiding party attacking an individual in the rival group (Keeley, 1996; Wrangham & Peterson, 1996). Carneiro (2000, p. 12929) indicates, “[F]ulltime craft specialists come into being only when the aggregate demand for their products has reached a certain threshold.” Maynard-Smith and Szathmary (1999, p. 148) believe that division of labor was uncommon until relatively recent times: “Populations of, at the most, a few hundred individuals, with little division of labour, except, probably, that between the sexes, have been replaced by societies of many millions, dependent on extensive division of labour.” This limited amount of specialization is consistent with the conclusion of Stiner et al. (1999, p. 193) that “Low human population densities during most of the Middle Paleolithic imply that group sizes and social networks were small, which certainly limited the numeric scope of individual interactions. Under these conditions the possibilities for evolution of complex sharing and exchange behavior as ways to counter the effects of unpredictable resource supplies would have also been quite limited.”9 Because societies were mobile, all possessions had to be portable and there was little capital accumulation. Our ancestors used wood, stone or bone tools and perhaps some other simple implements, but all of these had to be moveable. “They tend to use portable, utilitarian, easily acquired, replaceable artifacts . . . and avoid those which are fixed in one place, heavy, elaborately decorated, require prolonged manufacture, regular maintenance, joint work by several people, or any combination of these” (Woodburn, 1980, p. 99, quoted in Kelly, 1995, p. 296). Since there was little capital, there was little value to developing an ability to understand the productivity of capital – which may explain the intuitive appeal of various “labor theories of value” that Marxists and others have adopted. There was very little technological advance. The pace of technological change in early societies seems amazingly slow by current standards. For example, the Acheulean hand axe tradition lasted for more than one million years in Africa, Asia and Europe. In the Upper Paleolithic, about forty thousand years ago (when Homo sapiens had evolved), “major technological change” is defined as taking place when a change in stone techniques transpired over “a few thousand years.” The Gravettian tradition in Europe lasted from about 27,000 to about 12,000 years ago (all data from Gowlett, 1992). This slow rate of technological change may have been due to relatively less intelligent pre-human ancestors in the early periods. More recently, it can be explained as being due to low levels of population and hence fewer individuals to create new technologies (Jones, 2001; Kremer, 1993; Simon, 1981/1996) and perhaps poorly defined property rights in innovations

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(Jones, 2001). Given this low rate of technical change and innovation, there was no benefit to evolving a mental mechanism for understanding or rewarding innovation. There was little growth – so little that no individual would observe any growth over his/her lifetime (Kremer, 1993). Each person would live and die in a world of constant technology and income. Thus, there was no incentive to evolve a mechanism for understanding or planning for growth. The crucial change occurred when population density became sufficiently large to induce humans to cease moving and settle in one location. This had numerous effects, both economic and political. Formal farming began. Population density began to increase more rapidly. Specialization became important and the amount of trade, within and between societies, increased. There was storage of goods. However, this was also the beginning of the era of kings, and of wars and conquest. Many of these early rulers engrossed very large numbers of females as wives and concubines (Betzig, 1986). This period describes most of human “history” – the time when there were written records. It began about 10,000 years ago. We are still in this period, although recently (perhaps within the last 500 years) the power of governments in the west has begun to decrease. But the driving force was population density, which led to increased trade; trade, specialization, and division of labor were results; they did not drive the process.

THE “NEW SOCIAL ORDER” Hayek The more complex a society became the more it had to replace innate responses with new rules, which were perceived and learned from outside the group. The instincts themselves no longer led to a beneficial life, but instead it was their gradual suppression combined with their replacement by new rules of conduct that brought about a new order. Hayek (1979, p. 164) makes the differences between the old and new patterns of behavior clear: The conduct required for the preservation of a small band of hunters and gatherers, and that presupposed by an open society based on exchange, are very different. But while mankind had hundreds of thousands of years to acquire and genetically to embody the responses needed for the former, it was necessary for the rise of the latter that he not only learned to acquire new rules, but that some of the new rules served precisely to repress the instinctive reactions no longer appropriate to the Great Society.10

These new rules on which the evolved society is grounded form the “morality of the large group” or the “morality of the open society.” They include frugality, fairness, property rights, trade and competition. Hayek’s writing follows David Hume’s

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thoughts about the morality of property and honesty, which, in an extended order, ensures cooperation. Only over time these rules have had become increasingly established inside societal tradition and had to be transmitted through the cultural process of socialization. These new rules of morality therefore shaped a part of culture and are, in contrast with the rules of morality of the small group, constantly in change. At this point Hayek refers to the concept of altruism. He rejects the idea that altruism in connection with small groups is “morally good.” As he points out (1979, p. 167), there is no thing such as ‘natural goodness,’ because with his innate instincts man could never have build the civilization on which the numbers of present mankind depend for their lives. To be able to do so, he had to shed many sentiments that were good for the small band, and to submit to the sacrifices which the discipline of freedom demands but which he hates. The abstract society rests on learnt rules and not on pursuing perceived desirable common objects: and wanting to do good to known people will not achieve the most for the community, but only the observation of its abstract and seemingly purposeless rules. Yet this little satisfies our deeply engrained feelings, or only so long as it brings us the esteem of our fellows.

Instead of speaking about altruism in the sense of doing good to known people or, to put it differently, acting in a way to induce certain outcomes, Hayek sees altruism in the developed society as acting according to rules which enhance the extended order. It is not the result of an action that is important, but rather the adherence to abstract rules, the morality of the large group. Again, his cognitive theory can help to explain this view: Since in a world of complex phenomena it is impossible to know all the circumstances which influence the outcome of an action, only the observation of rules underlying the extended order which has already been proven to benefit this order makes an action good. “Observing these rules,” Hayek (1988, p. 81) argues, “enables us to confer benefits beyond the range of our concrete knowledge.” Hayek’s critique of socialist reasoning about “social justice” and therefore redistribution of wealth and income appears to be straightforward. Socialism seems to have a strong impact on the altruistic feelings which were predominant in the small groups. Therefore he calls socialism a form of atavism which in the long run will undermine and destroy the extended order.11

Modern Theories Hayek is correct in arguing that evolved moral principles are not always in agreement with moral principles needed to operate a market economy. However, in some instances he exaggerates the differences. But it is important to keep in

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mind the purpose of an economy or a society. This is to satisfy human tastes and preferences. It is true that these tastes evolved in different situations, and if we were to design tastes for a market economy with millions of inhabitants, we would probably design different preferences. But we do not have that option. We have an evolved set of preferences, and those are the preferences we strive to satisfy. Many have made this point with respect to food preferences. We evolved in a world where fat and sugar were scarce, and our ancestors who ate as much of them as feasible were more likely to survive to be our ancestors (Burnham & Phelan, 2001). Today we might do better if we had different tastes, but we do not. The result is that modern Americans spend as much time and effort discussing and considering food as did our hunter-gatherer ancestors, but, while they discussed ways to get it, we discuss ways to avoid it. Hayek is concerned with our taste for altruism. We did evolve such tastes; humans are much less selfish than economic theory normally supposes. But our altruistic preferences are more constrained than Hayek seems to believe. In particular, it has been argued that the competitive conditions of the evolutionary environment would have allowed only “efficient altruism” – altruism aimed at solving a prisoner’s dilemma or similar situation (Rubin, 2002, Ch. 3). Preferences such as those required for Marxism or for the Rawls system could not have evolved in this environment, and indeed, we do not have those preferences. For evidence about Marxist preferences, we need only look at the fate of the Marxist societies, which seemed to be thriving when Hayek was writing but which we have now seen to be inconsistent with human preferences. In addition to generalized altruism towards kin, two specific forms of altruism would have been particularly important in evolutionary times. One would have been to provide medical assistance to a person who was hurt but would likely survive with such assistance. The world in which we evolved was much more dangerous than the world in which we now live, and injuries would have been much more common. Nursing someone through an injury or illness would have been an efficient behavior, in the sense that it would have served to increase the strength and survival ability on one’s band. Thus, today, we treat medical care as being different from other goods, and this creates dilemmas in a world where the amount that can be spent on such care is boundless. Second, it is likely that people innately dislike those who accumulate wealth. But the main source may be the general nature of zero-sum thinking, rather than the specific mechanisms identified by Hayek. The popular view of business is generally negative (Rubin, 2002). Stein (1979) shows that movies generally portray business in a negative light. A more recent example is from the 1987 movie, Wall Street, in which a financier engaged in efficiently moving assets from lower to higher valued uses is depicted as evil. Jobling (2002) has argued that in nineteenth century novels,

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characters did not become successful through business practices because audiences would have viewed success through business as reflecting harmful social behavior. If wealth in the evolutionary environment was limited and if the main way to be wealthy was to avoid one’s obligation to share, then attitudes viewing the wealthy as evil could be part of our mental structure. This is consistent with some religious beliefs; consider Jesus’ saying that “It is easier for a camel to pass through the eye of a needle than for a rich man to enter the kingdom of God” (Matthew 19:24). Ayn Rand did portray businessmen in a favorable light, but her novels, while appealing to some, have not been major popular successes.

TWO SELECTION PROCESSES: INDIVIDUAL SELECTION AND GROUP SELECTION Hayek Let us give an insight in the selection processes discussed by Hayek. The important contribution of Hayek, as already discussed in the historical perspective, is that the individual predisposition to perceive rules from outside the group (society or subgroups) allows for a process of individual selection as well as group selection. The development of the society starts on an individual level. The first evolutionary process is an individual selection process that refers to the perception of rules that are slightly different from already existing ones and hence leads to the creation of new rules. It is seen in Hayek’s cognitive framework, a process that operates on a subjective plane. The decision to act according to a certain disposition is the answer to an individual process of trial and error; it is a process in which the individual responds to an outside stimulus referring or not to the dispositions that reflect group behavior. If the individual deviates from the “common” rules of action because of his awareness of a better rule or because of his increased subjective knowledge and he is shown to be more successful than when he acted in common, he will be imitated by other members of the society or his group. The more individuals follow this process of problem solving, the faster this rule becomes a part of the group’s dispositions: a new rule which changes the existing social order has emerged. Vromen (1995) calls this kind of imitation “within-group-imitation.” Likewise, moral rules may also be accepted directly from other groups. But there are set limits to individual deviation. The individual selection process is subject to the degree to which an individual may deviate from rules, which in turn depends largely on his reputation.12 If the individual cannot change his behavior inside his

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group, he may still migrate to a group that either already practices the new rule in question or offers more tolerance toward deviators. This process, according to Vromen (1995), is called “between-group-migration.” A second step in the historical interpretation of cultural development is the working of a group selection mechanism. Group selection occurs in a process in which the set of new rules or, to put it differently, in which the changed order, may lead to more beneficial outcomes for the group as a whole, enhancing the group’s fitness, compared to the situation before the individual selection process took place. Hence, the key criterion in the process of individual selection is individual fitness, in the case of group selection it is the fitness and thus the growth and survival of the group.13

Modern Theories The issue of individual or group selection is a major theme of modern biology and sociobiology, or evolutionary psychology. While the standard view has been that group selection is impossible because of free riding, there are more recent theories that indicate that it may after all be possible (Sober & Wilson, 1998). Zywicki (2000) has written a lengthy and thoughtful paper about the relationship between Hayek and this work, and we will not address it further here. One issue is worth addressing, however. This is the issue of cultural evolution. The major authorities on this issue are Boyd and Richerson, who have written voluminously on this issue and on the relationship between cultural and individual selection. A recent example is Richerson and Boyd (2002). A key point in their analysis is the role of multiple equilibria. There are infinite numbers of options available for many cultural artifacts. Humans are imitative animals; imitation is a useful tool and we are very good at it. Thus, if everyone around us adopts some cultural practice, most of us will adopt it as well. Then many cultural options could each be an equilibrium, and individuals will selfishly adopt the particular culture in which they live. In this sense, there is no conflict between individual and group selection. But nonetheless group selection can occur because some cultures are more “fit” than others. That is, individuals can adapt to the culture in which they live but some cultures will out compete others. Soltis, Boyd and Richerson (1995) indicate that such evolution might be quite slow, but it can still exist. Moreover, their critics believe that their estimates may be low. For example, we have recently observed that western capitalist culture is superior (in the sense of fitness) to communist culture. This sort of group selection is important in human culture and is consistent with Hayek’s notion of group selection.

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RELIGION Hayek As we have mentioned, there are limits to individual rule-setting in the sense of individual selection processes. We find such limitations in legal settings that come with costly enforcement. Limitations may also occur on an informal level through taboos, totems, or religions. Hayek (1988, p. 136) stresses the importance of these rules because they ensure that “[c]ommon practices . . . have a chance to produce their beneficial effects on a group on a progressive scale before selection by evolution can become effective.” Religions therefore make sure that the actual societal order cannot be corroded by individual trial and error processes. The fear for punishment, by humans or by God, is a huge obstacle for many individuals. This fear turns out to be beneficial because only a relatively stable societal order can undergo the slow process of group selection. A stable social order, a result of religious beliefs, enables “beneficial traditions [to be] preserved and transmitted at least long enough to enable those groups following them to grow, and to have the opportunity to spread by natural or cultural selection” (Hayek, 1988, p. 136). Group selection also plays a role for the survival of the religions themselves. As Hayek points out, only those monotheistic religions survived, which supported property rights and highlighted the importance of the family. Societies practicing those religions developed further and prospered. Hayek does not trace back this impact to religion per se, although he speaks in favor of specific religions.14 Would he do so, he would accept immutable divine rules. Religions in his view are a means to ensure societal stability for a sufficiently long period to enable selection processes. Societies and their underlying rules have naturally evolved; they are not the product of human or supernatural will. All these rules are in constant change.

Modern Theories Rubin (2002, Ch. 6) addresses the role of religion in human behavior; see also Guthrie (1993), Boyer (2001) and Wilson (2002). Since religious theories are untestable, societies can have any set of beliefs. However, some belief systems will be more successful than others, in that societies holding some beliefs will do better than societies holding other beliefs. This is an example of the sort of cultural group selection discussed above. Religions were originally tribal. Members of a tribe would share beliefs in the same set of gods. Some religions taught that gods would punish individuals for certain behaviors. If these punished behaviors were economically inefficient, then

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the tribe would prosper. For example, if a religion taught that theft (violation of property rights) and contract breach (violation of an oath) were bad, then the tribe with this belief would do better than a tribe with the opposite set of beliefs, or with no beliefs on such issues. Over time, religions with relatively efficient teachings should have come to dominate. Religion is also a marker for tribal membership. That is, in original religions, those in the tribe were also members of the religion, and outsiders were looked down upon. Moreover, the moral and efficient principles discussed above would generally apply only to fellow tribe members. The next major change in religions was that some religions became more inclusive. They began allowing (or forcing) conversions, and treated converts as members of the tribe. The two great surviving religions, Islam and Christianity, both had this characteristic: both allowed conversion.15 By expanding the set of those with whom trade and commerce were possible, these more inclusive religions provided net benefits. Moreover, while there have been religions wars both between members of the same religion but different branches (Sunnis and Shiites, Catholics and Protestants) and between different religions, nonetheless, the greater inclusiveness of the modern religions has probably net reduced the amount of conflict in the world.

POLITICAL DECISIONS Hayek Until now, we have limited our observation to individuals acting with respect to the development of the societal order. We have described societal evolution as a result of individual selection as well as of group selection. We have so far largely neglected the importance of governmental action and collective acting regarding evolutionary processes. In order to understand the role of government from a classical liberal viewpoint, we need again to refer to the knowledge problem. Knowledge is widely dispersed in societies. Every individual, though being able to use more knowledge than he knows by adhering to traditional rules, utilizes only the amount of knowledge necessary to achieve his plans. This raises the question of whether there is a mechanism that gathers all the dispersed information in a society. There are two answers: the government or the market process. Hayek strongly rejects the first choice and clearly prefers the latter. A market is a spontaneous order that through prices delivers to individuals all the information they need; it helps “to utilize the knowledge of many people without the need of first collecting it in single body” (Hayek, 1952/1979, p. 177). A market is therefore a transmitting system for dispersed knowledge – “an instrument

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for communicating to all those interested in a particular commodity the relevant information in an abridged and condensed form” (Hayek, 1952/1979, p. 177). This statement has following implication: if the market system is an instrument of knowledge transfer and therefore an instrument for achieving additional subjective knowledge, it should be protected from any interference which distorts the price mechanism. Here exactly lays the main task of a government. In order to fulfill this task properly, a government may provide and protect a legal framework. Legal frameworks offer the “rules of the game” that are valid for every member in a society and are intended to last for long periods. The framework consists of the Rule of Law, general principles laid down beforehand that enable the members of society “to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge” (Hayek, 1944/1994, p. 80). These rules determine the conditions under which the available resources may be used. They do not, however, tell the individual for what ends they should be used. Examples of such rules are those governing private and criminal law; they also apply to constitutional codes and the Bill of Rights. Moreover, there are rules in a society that are not legally fixed. These are called the moral rules and customs of a society. All these rules, together with public law, form the framework for individual and governmental action. The proper task of government in a classical liberal society consists largely of assisting individuals to achieve their plans and goals based on individual knowledge. To this end, a government should seek to improve the legal framework wherever possible. However, it implies that government should not suppress the selection process that leads to a new framework. The danger behind is that governments are likely to be much more in favor of an intervention. The results of a selection process are largely unpredictable since neither politicians nor a majority of voters may act without cognitive limitations. Whenever government is not acting as a “government under the law,” its actions may turn out to be a means of coercion and of suppression of market processes. Interventionism as a political principle that pursues well-specified outcomes contradicts the mechanism of any spontaneous order and has therefore been rejected by Hayek. Though Hayek speaks in favor of interventions designed for well-defined and exceptional cases, he fears that such policies will eventually lead to an expansion of governmental action. Governmental interventions themselves bring forth new situations that need further intervention, leading to a vicious circle. Political reality shows that the idea of a “government under the law” is an illusion. Modern democracies are not bound to the will of the voters but they are “bound to serve the several interests of a conglomerate of numerous groups” (Hayek, 1979, p. 99). Hayek argues in favor of limiting governmental power,

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whether of democratic nature or not. Democracies are usually prone to become the playground for the many interest groups. Many of today’s existing democracies are not subject to the division of powers between legislative and government and thus there is no “government under the law.” Unlimited power usually helps to ensure reelection and to buy “the votes of particular interests, including those of some small groups or even powerful individuals” (Hayek, 1979, p. 101). Together with these concerns, Hayek speaks about the reemergence of primordial instincts, already explained in the “morality of the small group.” Those seem to take over the “morality of the large group” which results from selection processes. As we have seen before, these instincts have been gradually suppressed during the different stages of societal evolution. However, since people show more interest in terms like “social justice,” redistribution, and a secure income for everybody, connected with a deep distrust of unintended outcomes from a market system, and especially for the market as a knowledge-transmitting system, the “morality of the small group” could gain more and more power. The danger of eroding the social order of developed societies is huge. He criticizes a system in which individuals earn their income not in the market but are part of large organizations and did therefore not submit themselves to the rules governing the extended order. He observes (Hayek, 1979, p. 165) that “to them the market economy is largely incomprehensible; . . . and its results seem to them irrational and immoral.” As a consequence they call for a “just redistribution” based on what “everybody deserves”: the seemingly immoral result of group selection is corrected by government, which in turn is now empowered to fulfill these expectations.

Modern Theories Political decision making in large scale societies makes use of many of the mechanisms evolved in smaller societies. This often leads to political mismatches (Rubin, 2002, Ch. 7). For only one example, the political process pays excessive attention to identifiable individuals. For example, we may spend large amounts saving the life of one identified person when the same amount could save the lives of many more “unidentified” individuals. In the evolutionary environment, our ancestors lived in small groups of related individuals who would have known each other as individuals. In a hunting-gathering economy, there would have been ample scope for fitness enhancing income transfers. For example, if one individual had a successful hunt, then there might have been more food than he and his immediate family could consume. In this case, transfers would have benefited recipients more than they would have harmed donors. Moreover, in a society where storage of wealth was difficult or impossible, there would have been few incentives for

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accumulation, again increasing the benefits of many transfers. In this environment, there would have been fitness increasing incentives for charity or contributions to welfare of others. Members of the group with whom an individual came into contact would generally have been relatives, so that any transfer increasing the fitness of the recipient would have been selected for by kin selection. Moreover, since individuals would have known each other personally, “reciprocal altruism” (Trivers, 1971) would have been relevant. Note that any individual with whom one was familiar would have likely been a relative; there would have been no need to distinguish familiar strangers from relatives. Both of these factors mean that there would have been selection pressure for income transfers to known, identifiable individuals. That is, those of our predecessors who transferred resources to those they knew within the local group would have left more genes in the gene pool from which we are now selected. On the other hand, as Moore (1996) points out, there is no reason to expect that we would have evolved to perform appropriate calculations to maximize fitness for a large amorphous group of unknown individuals. Such groups would not have existed in the EEA, and so there would have been no evolutionary incentive to learn how to maximize for such a group. The result is that we might expect contemporary humans to be adapted to providing benefits to recognizable, identifiable individuals rather than to anonymous or statistical individuals, even if the net benefit of the latter type of transfer is greater than the benefit of transfers to identifiable individuals. Moore has made the argument that this explains the emphasis of modern medicine on patient care rather than on prevention, and this argument seems correct. There are other implications as well. Many policies provide concentrated benefits to a small number of citizens but impose diffuse costs on many. In many cases, the aggregate benefits to the few are much smaller than the sum of the costs to the many. Tariffs generate large incomes for import competing firms, but all consumers pay higher prices as a result. Such programs generate deadweight losses. Such programs have been studied in detail, but there are still puzzles as to their passage. In particular, there is no good theory explaining which groups are able to obtain benefits. At least part of the answer is in terms of the power of identified individuals in the political system. When a tariff is being debated, there are particular workers who will expect to lose, and they know who they are. Moreover, others observe them and see that they will lose. Rhetoric often stresses the benefits to these individuals. Potential gainers from abolition of the tariff are amorphous and anonymous, and so have less weight in political decision making. Similarly, when a union organizes, we can observe wages of union members increasing. These beneficiaries are identifiable individuals. Those persons who are denied jobs because of the higher wages are again anonymous,

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and cannot be seen. Indeed, they themselves probably do not know who they are. Again, the identifiable individuals have a privileged position in the political process. This is perhaps a result of our intuitions favoring observed individuals over numerous anonymous persons. Although Hayek and many economists stress the dangers of excessive government, it is important to keep these dangers in context. Throughout most of human existence (the long period of mobile hunter-gatherers) societies (or at least men) were relatively free. About 10,000 years ago with the rise of sedentary societies, kings and other leaders began to engross excessive power. Modern western societies are the freest societies that have existed since hunter-gatherer times; indeed, since modern societies give women as much freedom as men, these societies are the freest that have ever existed. Moreover, even within modern societies there is no clear trend towards increased government. For example, although economists stress the evils of tariffs, international trade is now freer that in the past. In the United States at least, the amount of economic regulation has recently decreased. Nonwestern societies are often much less free than western societies, and it is important to keep this in mind.

CONCLUSION Like all evolutionary systems that deal with humans, Hayek’s system is in two parts. First is the evolution of humans to the point where culture takes over. This is a strict Darwinian evolutionary system based on natural selection. Hayek’s “dispositions,” or tastes and preferences, evolved under this regime and these tastes still exist. Hayek has correctly stressed that many problems of current economic systems result because humans still have the tastes which served well in the evolutionary environment but do not function so well today. Once humans reached the current level of development, cultural evolution took over. Although Hayek’s theory of cultural evolution has some Darwinian insights, he emphasizes the Lamarckian rather than the Darwinian character (Hayek, 1988). The bottom line is that cultural evolution refers to the evolution of institutions and traditions, not to the biological development of the individual. Furthermore, such institutions, traditions, and the behavior which are correlated with them, cannot be inherited but only learnt through education and experience. From this it follows that an individual learns how to behave not only through his parents but also through teachers, peers and other persons. As Hayek (1988, p. 25) stresses, “Cultural evolution operates largely through group selection”: different institutions compete with one another and the more efficient ones will survive. Nevertheless, the outcome of this process is not predictable. This makes his theory falsifiable: Hayek

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predicts that the group practicing an efficient tradition will develop further and grow larger. However, it is only in the long run that it will become clear if an institution is efficient because it takes a long time to observe any reproductive advantage generated by adhering to efficient institutions. Moreover, the mechanism of group selection can easily be distorted. Man’s innate instincts show deep scepiticism against the outcome of open processes. This article has highlighted that these instincts may desire political settings in which governmental power leads to excessive redistribution and inefficient attempts at correction of all kinds of outcomes.

NOTES 1. See Gick (2003) for a thorough explanation. 2. Dispositions according to Hayek (1978, p. 40) are [t]he most convenient starting point . . . which makes an organism inclined to respond to stimuli of a certain class, not by a particular response, but by a response of a certain kind.” 3. From Hayek (1988, p. 11), “These primitive people were guided by concrete, commonly perceived aims, and by a similar perception of the dangers and opportunities – chiefly sources of food and shelter – of their environment. They not only could hear their herald; they usually knew him personally.” 4. See Gick and Gick (2001). 5. See Hayek (1979, pp. 153–176) and Hayek (1988, p. 12). 6. Hayek (1988, p. 12) compares such a behavior with instincts that apply “to the members of one’s own group but not to others.” 7. As Hayek (1988, p. 89) points out, “trade and commerce often depend importantly on confidentiality, as well as on specialized or individual knowledge.” 8. Much of what follows is based on Rubin (2003). 9. Ridley (1997) argues that there was substantial specialization. But societies were too small to support much specialization until much later, when humans became sedentary. 10. Hayek (1988, p. 11) states “[M]an’s instincts . . . were not made for the kinds of surroundings, and for the numbers, in which he now lives. They were adapted to life in the small roving bands or troops in which the human race and its immediate ancestors evolved during the few million years while the biological constitution of homo sapiens was being formed.” 11. From Hayek (1978, p. 268), “These inherited instincts demand that man should aim at doing a visible good to his known fellows (the ‘neighbour’ of the bible) . . . The demand for ‘social justice,’ for an assignment of the shares in the material wealth to the different people and groups according to their needs or merits, on which the whole of socialism is based, is thus an atavism, a demand which cannot be reconciled with the open society in which the individual may use his own knowledge for his own purposes.” See also Hayek (1988, p. 100) “Here again, although members of a primitive group may readily concede superior knowledge to a revered leader, they resent it in the fellow who knows a way to obtain by little perceptible effort what others can get only by hard work. To conceal and to use superior information for individual or private gain is still regarded as somehow improper – or at least unneighbourly. And these primitive reactions remain active long after

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specialization has become the only way to make use of the acquisition of information in its great variety.” 12. The possibility of deviation depends on the degree of reputation (Hayek, 1979, p. 204, fn. 48). “Though present morals evolved by selection, this evolution was not made possible by a license to experiment but on the contrary by strict restraints which made changes of the whole system impossible and granted tolerance to the breaker of accepted rules, who may have turned out a pioneer, only when he did so at his own risk and had had earned such license by his strict observation of most rules which alone could gain him the esteem which legitimized experimentation in a particular direction.” 13. The criteria mentioned show Hayek as a follower of rule utilitarianism. See especially Yaeger (2001, Ch. 4). 14. For an accurate explanation see Gick (2003). 15. The third major religion, Hinduism, does not seek converts, but has grown through conquest and through the natural population increase of its adherents.

REFERENCES Bailey, M. J. (1992). Approximate optimality of aboriginal property rights. Journal of Law and Economics, 35, 183–198. Betzig, L. L. (1986). Despotism and differential reproduction: A darwinian view of history. Hawthorne, NY: Aldine de Gruyter. Boehm, C. (1999). Hierarchy in the forest: The evolution of egalitarian behavior. Cambridge, MA: Harvard University Press. Boyer, P. (2001). Religion explained: The evolutionary origins of religious thought. New York: Basic Books. Brown, D. E. (1991). Human universals. New York: McGraw-Hill. Burnham, T., & Phelan, J. (2001). Mean genes: From sex to money to food, taming our primal instincts. New York: Penguin. Byrne, R., & Whiten, A. (Eds) (1988). Machiavellian intelligence: Social expertise and the evolution of intelligence in monkeys, apes, and humans. Oxford: Clarendon Press. Carneiro, R. L. (2000). The transition from quantity to quality: A neglected causal mechanism in accounting for social evolution. Proceedings of the National Academy of Sciences, 97, 12926– 12931. De Waal, F. (1996). Good natured: The origins of right and wrong in humans and other animals. Cambridge, MA: Harvard University Press. Gick, E. (2003). Cognitive theory and moral behavior: The contribution of F. A. Hayek to business ethics. Journal of Business Ethics, 45, 149–165. Gick, E., & Gick, W. (2001). F. A. Hayek’s theory of mind and theory of cultural evolution revisited: Towards an integrated perspective. Mind & Society, 3(2), 149–162. Gowlett, J. A. J. (1992). Tools – The paleolithic record. In: S. Jones, R. Martin & D. Pilbeam (Eds), The Cambridge Encyclopedia of Human Evolution (pp. 350–360). New York: Cambridge University Press. Guthrie, S. (1993). Faces in the clouds: A new theory of religion. New York: Oxford University Press. Hayek, F. A. (1944/1994). The road to serfdom. Chicago: University of Chicago Press. Hayek, F. A. (1952/1979). The counter-revolution of science. Indianapolis: Liberty Fund.

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Hayek, F. A. (1978). New studies in philosophy, politics, economics and the history of ideas. Chicago: University of Chicago Press. Hayek, F. A. (1979). Law, legislation and liberty (Vol. 3). Chicago: University of Chicago Press. Hayek, F. A. (1988). The fatal conceit. London: Routledge. Humphrey, N. (1976). The social function of the intellect. In: P. P. G. Bateson & R. A. Hinde (Eds), Growing Points in Ethology (pp. 303–317). Cambridge, UK: Cambridge University Press. Jobling, I. (2002). Faultless monsters: Positive biases in self-perception and the nineteenth century novel hero. Paper presented at the 2002 meetings of the Human Behavior and Evolution Society, Rutgers University. Jones, C. I. (2001). Was an industrial revolution inevitable? Economic growth over the very long run. Advances in Macroeconomics, 1(2), Article 1. . Keeley, L. H. (1996). War before civilization. New York: Oxford University Press. Kelly, R. L. (1995). The foraging spectrum: Diversity in hunter-gatherer life ways. Washington, DC: Smithsonian Institution Press. Knauft, B. (1991). Violence and sociality in human evolution. Current Anthropology, 32, 391–428, including comments and reply. Kremer, M. (1993). Population growth and technological change: One million BC to 1990. Quarterly Journal of Economics, 108, 681–716. Leakey, R. E. (1981). The making of mankind. New York: Dutton, quoted in Hayek (1988). Maynard-Smith, J., & Szathmary, E. (1999). The origins of life: From the birth of life to the origins of language. New York: Oxford University Press. Moore, R. F. (1996). Caring for identified versus statistical lives: An evolutionary view of medical distributive justice. Ethology and Sociobiology, 17, 379–401. Pinker, S. (2002). The blank slate: The modern denial of human nature. New York: Viking Press. Ridley, M. (1997). The origins of virtue: Human instincts and the evolution of cooperation. New York: Viking Press. Rubin, P. H. (2002). Darwinian politics: The evolutionary origin of freedom. New Brunswick, NJ: Rutgers University Press. Rubin, P. H. (2003, July). Folk economics. Southern Economic Journal, 70(1), 157–171. Simon, J. (1981/1996). The ultimate resource. Princeton, NJ: Princeton University Press. Smith, A. (1776/1904). An inquiry into the nature and causes of the wealth of nations. Methuen and Co., Ltd. Edwin Cannan (Ed.). Library of Economics and Liberty. 15 November 2002. . Sober, E., & Wilson, D. S. (1998). Unto others: The evolution and psychology of unselfish behavior. Cambridge, MA: Harvard University Press. Soltis, J., Boyd, R., & Richerson, P. J. (1995). Can group-functional behaviors evolve by cultural group selection? An empirical test. Current Anthropology, 36(3 June), 473–494. Stein, B. (1979). The view from Sunset Boulevard. New York: Basic Books. Stiner, M. C., Munro, N. D., Surovell, T. A., Tchernov, E., & Bar-Yosef, O. (1999). Paleolithic population growth pulses evidenced by small animal exploitation. Science, 283(5399), 190–194. Trivers, R. L. (1971). The evolution of reciprocal altruism. Quarterly Review of Biology, 46, 35–57. Vromen, J. J. (1995). Economic evolution. An inquiry into the foundations of new institutional economics. London: Routledge. Weimer, W. B., & Palermo, D. S. (1982). Cognition and the symbolic processes. Hillsdale: Lawrence Erlbaum.

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Whiten, A., & Byrne, R. W. (Eds) (1997). Machiavellian intelligence II: Extensions and evaluations. Cambridge, UK: Cambridge University Press. Wilson, D. S. (2002). Darwin’s cathedral. Chicago: University of Chicago Press. Woodburn, J. (1980). Hunters and gatherers today and reconstruction of the past. In: A. Gellner (Ed.), Soviet and Western Anthropology (pp. 95–117). London: Duckworth. Quoted in Kelly (1995). Wrangham, R., & Peterson, D. (1996). Demonic males: Apes and the origins of human violence. New York: Houghton-Mifflin. Yaeger, L. B. (2001). Ethics as social science: The moral philosophy of social cooperation. Cheltenham: Edward Elgar. Zywicki, T. J. (2000). Was Hayek right about group selection? 13 Review of Austrian Economics, 81.

HAYEK’S THEORY OF THE MIND Brian J. Loasby INTRODUCTION “It is now becoming widely recognised that many of the central unresolved problems in economics turn on questions of knowledge” (Loasby, 1986, p. 41). Nearly twenty years after that was written, it may be appropriate to take a (necessarily selective) look at ideas about human knowledge and to suggest some implications for the practice of economists. The ideas with which we shall begin long predate the observation that I have just recalled; and the delay in recognising their implications indicates how the growth of knowledge is dependent on the formation of appropriate linkages – which of course are not recognised as appropriate until they have been formed. Adam Smith, Alfred Marshall and Friedrich Hayek were all confronted with the uncertain basis of knowledge before they began their study of economics; and what their responses have in common is not only a theoretical focus on the process by which people develop what we call “knowledge” but also a reliance on similar kinds of process, which result in the formation of connections within particular domains. Each author recognises the impossibility of demonstrating that any such process can deliver proven truth; instead each envisages sequences of trial and error within particular contexts, leading to the preservation of what seems to work – until it no longer does, when a new sequence of trial and error begins. In other words, they all offer evolutionary theories, Marshall and Hayek explicitly so, while Smith, directly and indirectly, had a major influence on the development of Darwin’s ideas. Raffaelli (2003), who was the first to emphasise the significance of Marshall’s theory of human cognition, has now demonstrated the pervasiveness of its influence in Marshall’s economics. In this paper it is appropriate to begin with Hayek, both Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 101–134 © 2004 Published by Elsevier Ltd. ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07006-1

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because of his status among Austrian economists and because he offers the most elaborate account by an economist of the neurological basis of thought and action. In the second section we shall then take note of some similarities, differences and complementarities with Smith and Marshall. (Comparisons with the work of Daniel Kahneman, Vernon Smith, and Gigerenzer & Selten, 2001 must be left for another occasion.) In the third section Hayek’s theory will be related to some recent neuropsychological accounts of the working of the human mind, and the final section will suggest some implications of the characteristics of the human mind discussed in the preceding sections for the methods of economic analysis and for economic policy.

HAYEK’S SENSORY ORDER The problem which attracted Hayek’s attention was this. “In order to be able to give a satisfactory account of the regularities existing in the physical world the physical sciences have been forced to define the objects of which this world exists increasingly in terms of the observed relations between these objects, and at the same time more and more to disregard the way in which these objects appear to us” (Hayek, 1952, pp. 2–3). Not only have sensory qualities been progressively eliminated from this scientific account; they have not been replaced in a way that allows them to be mapped onto the new categories, but by a distinctive ordering. Thus “objects which appear alike to us do not always prove to behave in the same way towards other objects; . . . objects which phenomenally resemble each other need not be physically similar to each other, and . . . sometimes objects which appear to be altogether different may prove to be physically very similar” (Hayek, 1952, pp. 5–6). Hayek accepts the superiority of the physical order as a representation of relationships within the physical world, including the physical properties of the human brain, but he does not raise the question why the physical order within the human brain did not produce a closer reflection of the wider physical order instead of an apparently inferior system of representations; he simply asks how this sensory order came into existence. “How” may be thought a more “scientific” question than “why,” and in this instance it may also be thought to have logical priority: indeed Hayek’s analysis provides a basis for explaining why, as we shall see. This explanation will be one of many illustrations of the value of Hayek’s analysis as a general theory of the creation of mental orders – an explanation of how the mind works. At a methodological level, it is also a demonstration of the distinctive role of psychology in understanding mental events (Hayek, pp. 6–7); and what makes this role distinctive, as Hayek argues, is that mental events are not simply the imprint of physical events, but representations; moreover the

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coexistence of sensory and physical orders within a single brain demonstrates the possibility of alternative coherent representations of a set of events. There is much more to human behaviour than responses to data – a proposition that has potentially far-reaching implications for the study of economic activity, not least for theories of choice. We may also note that the issue identified by Hayek illustrates the principle that problems are defined by differences (Pounds, 1969); we react not to states but to changes in states or disparities between states (notably between perceptions and expectations). Disequilibrium, but not disorder, is the necessary context for choice; this is a fundamental Austrian insight. As Vernon Smith (2003, p. 468) argues in his Nobel Prize Lecture (which opens with quotations from Hume, Hayek and Simon), “it is necessary to constantly remind ourselves that human activity is diffused and dominated by unconscious, autonomic, neuropsychological systems that enable people to function effectively without always calling upon the brain’s scarcest resource – attentional and reasoning circuitry.” Focussing on differences is an economising device; and a natural consequence is that we normally attach value to changes of wealth rather than states of wealth (in defiance of decision theorists), as Kahneman (2003, pp. 1454–1458) reminds us in his Nobel Prize Lecture. Since the disparity to be explained is that between a classification which is based on the effects produced by external events on other external events and a classification based on their effects on our senses, the focus of inquiry is on systems of relationships, and the key to Hayek’s analysis is the hypothesis that “causal connexions” in either classification are linked to “structural connexions” within the human brain. Both are relational orders (Hayek, 1952, pp. 18–19). It follows that the sensory and physical orders are closely associated with different neurological networks, and that networks of the latter kind are of relatively recent origin. The essential point to note here is that connections within the brain are selective, and so connections between human perceptions and the physical world (including the physical world of the brain) are also selective; moreover, being selected within the human brain, which as a physical system is capable of sustaining alternative connections, they are “subjective” rather than “objective.” The characteristic Austrian emphasis on subjectivity therefore has a psychological, indeed biological, basis. Subjectivity is perfectly compatible both with an objectively-existing universe and with the possibility of coming to understand that universe better, though not with any final proof of empirical truth; there is nothing improbable about the intellectual alliance between Hayek and Popper. There is great scope for error, because connections may be false or incomplete, and for sheer ignorance as defined by Israel Kirzner, because the connections which

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could have mitigated that ignorance may never have been made; there is also great scope for imagination and novelty through the making of new connections. The link between Hayek and Shackle is well founded on their understanding of human psychology, though this link will not be explored in these pages. The influences on the formation of connections, and on the possibilities of aligning them with the external world, then become an important field of study, the results of which may be significant for policy. We shall return to these implications later. Since connections are formed within the brain, and are necessarily highly selective, it might be supposed that individuals could develop patterns of connections which are so diverse that they fail to understand each other; and this is not a possibility that we should ignore. However, subjectivity does not exclude intersubjectivity (Hayek, 1952, p. 23), and Hayek argues that similarities of experience promote similarities of patterns and perceptions, at the level of the individual or the species; as we shall see, there are important differences between the evolutionary processes at these two levels. Smith’s (1976a [1759]) Theory of Moral Sentiments also rests on such similarities of patterns and perceptions. Because of the normal connotations of the word “experience” it may be more appropriate to speak of “construing the replication of events,” a terminology introduced by the psychologist George Kelly (1963), to whose work we shall refer several times. This is indeed an accurate definition of the process that is analysed in Hayek’s neuropsychological theory, for what events are deemed to constitute a replication is determined by the interpretative framework that is applied to them, or in physiological terms by the neural pathways that they share. In what circumstances people are likely to use similar constructions is an issue that we shall have to consider later, as is the issue – perhaps of greater importance – of the possibility of understanding substantially different constructions which are used by other people, and of using such different constructions within a single coherent economic or social system. Mutual understanding and the growth of knowledge both face the Duhem-Quine problem: a failure may be attributable to any part of the system, and so the “cause” of that failure cannot be simply deduced from the evidence. Any discussion of such issues must be based on some account of how these interpretative frameworks are formed; and that is the problem that Hayek explores. Because its conceptual basis is that of a selectively-connected system, Hayek’s theory is to be sharply distinguished from general equilibrium models, in which every element is connected to every other – indeed the completeness of the connections (the equivalent of a “field theory”) is the basis both for analyses of the existence and stability of general equilibrium allocations and for claims about their welfare properties. Potts (2000) has produced an incisive argument that the incompleteness of their connections is the crucial fact about all economic systems;

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the incompleteness of all cognitive systems is the foundation of Simon’s work on human decision-making and organisational design, and Simon, like Hayek, insists on the interactions between the external environment and the “internal environment” (Hayek, 1952, p. 109) of the human brain. The incompleteness and variability of connections is, of course, perfectly compatible with a unitary order, on which Hayek (1952, p. 19) insists; but it is also compatible with multiple unitary orders which may be applied to a single system. The potential for multiple selective but unitary orders is the conceptual basis of Hayek’s theory of the mind: its application to the method and content of economics will be indicated in the final section. A hint of one application may be supplied by observing that Hayek’s hypothesis of selective connectivity naturally suggests the need for a process-theoretic explanation of the development of selective but systematic connections. This is what Hayek provides. Suggesting a topological isomorphism between the neural and phenomenological orders (Hayek, 1952, pp. 37, 40), he argues that instead of direct connections between particular stimuli and particular sensory qualities, the effect that is produced by any stimulus depends, first, on how (or indeed whether) it is translated into an impulse in some nerve fibre (Hayek, 1952, p. 10) and, second, on the location of this impulse in relation to other impulses within the network of connections that have already been established within the brain (Hayek, 1952, p. 53). “The transmission of impulses from neuron to neuron within the central nervous system . . . is thus conceived as the apparatus of classification” (Hayek, 1952, p. 52). De Vecchi explores the influence on Hayek’s thinking of gestalt psychology, to which Hayek makes approving references, though criticising its restriction to the analysis of perception. Gestalt perceptions are orders that are derived not from the parts but from the relationships between them; these relationships are “the result of a process of organization . . . performed by the nervous system” (De Vecchi, 2003, p. 144), which selects a particular combination of connections. Because they are the result of a process of organisation, “the qualities which we attribute to the experienced objects are strictly speaking not properties of that object at all, but a set of relations by which our nervous system classifies them” (Hayek, 1952, p. 143). Hayek immediately and explicitly draws on Popper’s language to emphasise that “all we know about the world is of the nature of theories and all ‘experience’ can do is to change these theories”; in other words, we create a different set of connections. All knowledge, including “knowledge how” as well as “knowledge that” (Ryle, 1949), is constituted by connections; it is a particular set of relationships among many other sets which are technically possible, and any such set is always potentially subject to replacement – though major changes are not easily achieved, as has frequently been demonstrated.

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Every theory is a set of relationships which is the outcome of a trial and error process in which theories, and the patterns of neural connections which embody them, are tested by the effectiveness of the actions to which they lead – or, as we shall see almost immediately, of their success in interpreting phenomena. Hayek (1952, p. 19) refers to “the discriminations that we perform,” which he associates with Ryle’s (1949) category of “knowing how.” The test, of course, is of sufficiency, not optimality; and these discriminations may be of very many kinds and very many degrees of precision (Hayek, 1952, p. 71). The perception that an established theory is inadequate stimulates a search for a better theory; since criteria of inadequacy are themselves subjective Hayek provides a basis for Carnegie-type models in which search is stimulated by a disparity between achievement and aspiration, and in which aspiration levels themselves require explanation. (Unfortunately, neither Hayek nor Simon recognised the intersections of their ideas.) Indeed, it is such a process, Hayek argues, that has gradually led to the supersession, for some important purposes, of sensory theories by physical theories, though Hayek fails to apply Ryle’s analysis to indicate that this entails a move from “knowing how” to “knowing that.” We should, however, note that the sensory order is still often crucial for “knowing that.” As Hayek points out, this process gives us some reason – though not a conclusive reason – to expect a closer fit between these physical theories and the environment, provided that the environment does not change at a faster rate than the revision of theories – a point to which we shall return when we come to consider alternative versions of this evolutionary process. However because, as Hayek emphasises, we must always use theories to interpret experience before we can use experience to modify theories, existing theories provide both the conditions which stimulate, or fail to stimulate, the revision of theories and the starting point for any such revision; thus history matters (Hayek, 1952, p. 123) for the physical as well as the sensory order, though we need not assume that it determines unique paths or unique outcomes. Moreover, since all these theories “are generalizations about certain kinds of events, and since no number of particular instances can ever prove such a generalization, knowledge based entirely on experience may yet be entirely false” (Hayek, 1952, p. 168). This, we should note, is a restatement of David Hume’s objection to induction as a means of demonstrating empirical truth, and also an endorsement of Popper’s position.

HAYEK, SMITH AND MARSHALL It is now appropriate to consider the relationship between Hayek’s analysis and the psychological theories that, as noted in the introduction, were developed early

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in their careers by two other economists who were also concerned about the nature and foundations of human knowledge. It was the sensory order that Hayek set out to explain; in his exposition of “the principles which lead and direct philosophical enquiries” Adam Smith (1980 [1795]) had sought to account for the development of mental representations of the physical order, taking as his principal illustration the succession of astronomical theories. Smith was familiar with Hume’s simple demonstration that there could be no procedure for correctly deriving universal empirical laws from observation or experiment, and consequently no impregnable basis for deductive reasoning about phenomena. He was also familiar with Hume’s recommendation that we should turn our attention to the psychological processes by which people come to treat some empirical propositions as if they were unquestionably true; but he seems to have been dissatisfied with Hume’s (1875, p. 41) simple argument that people are “excited by nature” to believe in “constant conjunctions,” and developed an explanation which rested on an interaction between human emotions and the innovative human mind. Smith argued that it is characteristic of human nature to be uncomfortable when unable to make sense of some phenomenon, especially when that phenomenon is repeatedly encountered, and that people therefore attempt to achieve comfort by the invention of “connecting principles” which will allow phenomena to be collected into categories and also provide a satisfactory explanation of relationships between categories. Satisfactory explanations are a source of pleasure, especially when these explanations are aesthetically appealing, and they are therefore likely to be widely adopted by those encountering such phenomena. The discomfort occasioned by a subsequent failure to accommodate some new phenomenon within an established pattern then provides the stimulus to create a new interpretative system by a rearrangement of connections, which may also require a redefinition of categories (for example, the set of “planets”). Viewed from the perspective of Hayek’s analysis, it appears that Smith is explaining how a physical order emerges from the sensory order, and showing how sensations guide this process. That Smith, like Hayek, had a conception of knowledge as a set of replaceable theories is most strikingly demonstrated by his insistence that Newton’s theories were the product of Newton’s imagination, not a direct perception of the truth. As Smith notes, its general acceptance as necessary truth is to be explained by the rhetorical appeal of its unifying principle, which is also discussed in his Lectures on Rhetoric (Smith, 1983, pp. 145–146). However, because Hayek attempts no detailed explanation of the development of the physical order it is not surprising that he does not discuss the role of sensory elements as motivators or selection criteria in that development, which is such a notable feature of Smith’s account. Smith (1980 [1795], p. 77) even noticed that the desire for theoretical comfort

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might induce people to reject part of their sensory order (such as the overwhelming sensory evidence of a stationary earth), “to preserve the coherence of the ideas of their imagination.” Though this supersession of elements of the sensory order was a major element in the problem which Hayek was trying to resolve, his explanation is focussed on the physiological mechanisms and does not incorporate the motivational issues that were so important to Smith. There seems to be no fundamental obstacle to combining the two, though that task is beyond the scope of this paper. Because psychology was at that time closely associated with philosophy, it is not surprising that Smith did not attempt to provide a physiological underpinning for what we may now call his evolutionary theory of cognition. He did, however, extend that theory to explain how the division of labour promotes the growth of knowledge. First, science, which had begun as a series of local corrections to an apparently fallible sensory order, emerges as an identifiable category of knowledge, and then, as scientific knowledge expands, specialisation between the sciences simultaneously increases the range of study within the scientific community and the attention to detail within each sector; and this attention to detail accelerates the perception of anomalies which, by causing intellectual discomfort even when they appear to have no practical significance, stimulate the invention of new “connecting principles” that may accommodate them. (That practical significance may play no part in very powerful motivations is amply demonstrated by Giocoli, 2003.) Then Smith (1976b [1776]) transferred his theory of the growth of knowledge from science to the economy through his fundamental proposition that the division of labour, by encouraging a focus on detail which generates problems and stimulates the development of both stronger and novel connections within particular domains, has such powerful effects on the growth of knowledge that it becomes the primary instrument of economic growth. (For an extended account, see Loasby, 2002). It was this application, not Smith’s underlying psychological theory, that attracted Marshall’s attention when he turned to economics. Before then, however, Marshall had already recognised the possibility of a conjunction between contemporary associationist psychology and Darwin’s ideas (which, as we shall see later, owed much to Smith’s emphasis on the advantages of differentiation), and in the process provided a physical equivalent of Smith’s cognitive theory. Marshall’s encounter with the problems of knowledge has been explored by Butler (1991), Groenewegen (1995), and Raffaelli (2003); it may be sufficient to note here that this encounter was partially prompted by a major intellectual controversy about the possibility of demonstrating religious truths, which coincided with Marshall’s own religious doubts. His response was clearly shaped by Alexander Bain’s (1864, 1865) major reorientation of psychology from philosophy towards physiology, which had the

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unintended effect of making it readily accessible to Darwin’s ideas, as Marshall quickly realised; he had read The Origin of Species by March 1867 (Groenewegen, 1995, p. 119). Perhaps prompted by his mathematical training, he wondered how far the psychological processes of the development of knowledge could be represented by a mechanical system – Smith (1980, p. 66) had also noticed the resemblances between mechanisms and systems of thought – and devised the most elaborate model of his whole life in order to investigate this question (Marshall, 1994). In doing so he was consciously following the example of Charles Babbage, who in turn had been inspired by the decision of the French mathematician Prony to organise the production of mathematical tables on Smith’s principles of the division of labour (see Raffaelli, 2003, pp. 52–53). (It seems that Marshall was not aware at this time of either Smithian connection.) The possibility of reducing biology to physics is not a recent idea, and the problematic relationship between mechanical and biological concepts which pervades Marshall’s economic analysis seems to have its origin here. Marshall clearly distinguishes between the evolution of “machines” as a species and the evolution of specific capabilities within individual members of that species. In the first stage of evolution each machine comprises a “body” which is capable of receiving impressions from its environment, which he calls sensations, and performing actions in that environment, and a “brain” which has no direct connection with the environment and therefore must operate, as in Smith’s and Hayek’s theories, by forming selective connections. Marshall indicates this by restricting the brain to operating with “ideas of sensations” and “ideas of actions”; it works by linking the idea of an initial sensation received by the body with the idea of an action which the body performs in response, and then linking the latter with the idea of an sensation that is interpreted as a consequence of that action. If the latter linkage produces a pleasurable sensation, then the linkage from initial sensation to action is strengthened, and if the sensation is unpleasant it is weakened. The suggested mechanism, possibly inspired by Babbage’s conceptions of analytic engines and automata, to which Marshall refers, is of wheels connected by bands, which may become tighter or looser in response to the sensation experienced. This cumulative trial and error process, which forms associations of contiguity or similarity, is consistent with Bain’s account of the physiology of mental phenomena; and Marshall shows how the process could produce complex patterns of relationships, which would differ between machines (even of identical design) because of differences in their environments and in the initial formation of connections. Over time each machine may develop a range of closely connected sensations and actions, which we might now call routines; these routines are not the result of anticipatory choice but of environmental selection among actions

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which, by Marshall’s intentional specification of his model, cannot originate in consequential reasoning. The basic mechanism, including the importance of sensation as initiator of action and moderator of environmental selection, also corresponds quite closely with Smith’s mentally-focussed account of the growth of knowledge, though it would correspond even better with an elaborated account of the process by which the division of labour fosters the development of capabilities. Indeed it should be noted that in Marshall’s presentation action is essential to the formation or dissolution of associations; this was to become an important element in his theory of economic development (Raffaelli, 2003). Marshall then postulates the emergence of a second level of control within the brain, which uses similar mechanisms for different purposes (an early example of exaptation as a postulated evolutionary mechanism). Ideas of sensations received which have not been linked to any idea of satisfactory action can now be referred to this higher level, which may generate the idea of a novel action and associate it with the idea of a sensation produced by its effects. Expectations appear; but they appear as conjectures. A pleasurable linkage between contemplated ideas of action and sensation is then transferred to the lower level, where it directs bodily action; and if the action produces the anticipated sensation the corresponding link between initial sensation and action forms a new routine. This is a crucial development: it introduces imagination and the possibility of trial and error within the mind which may improve the chances of success in the environment, thus opening the path to modern practices of research and development. Since both the conjectures generated at this level and the internal selection processes applied to them are not random but oriented to problems, the course of development is now influenced by purposive behaviour. This does not conform to modern neoDarwinian principles of variety generation; but it does not conflict with the broader Darwinian principle of selection at the practical level, as in Darwin’s own example of selective breeding. Marshall’s formulation has substantial virtues as an evolutionary model which ascribes complementary roles and different evolutionary mechanisms to the development of the species and development within the individual, and demonstrates how the division of labour between the two levels of the brain accelerates the growth of knowledge. The evolution of the brain is clearly a biological phenomenon, though the sequence envisaged by Marshall may be explained by the application of basic economic principles to biology. The second level, which is much more energy intensive, requires the prior development of the first as an effective survival mechanism and subsequently as a problem-generator; with this precondition it becomes an important source of potential improvement in the machine’s performance, achieved at low overall cost in mental energy by the separation of levels and specialisation between them. The additional effort of

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generating and checking ideas is undertaken only when the existing set of routines has proved inadequate, and does not disturb those elements in the set which appear to work well; any improvements in performance are stored at the lower level, and thus cease to require active supervision. It is an efficient mechanism for making local adjustments, a precursor of Marshall’s partial equilibrium analysis. Marshall and Hayek have much in common, but also some interesting differences. Both explain the growth of knowledge by the creation of selective connections, and both are concerned with mechanisms that make this possible, though Marshall is content with what we would now call a constructive existence proof (explaining how it could be done) while Hayek seeks to explain how it is actually done. In addition, both postulate two processes, which are built of similar elements but emerge in sequence and produce different results. This common source of differentiated outcomes is a feature of evolutionary thinking. However, there is an apparent difference between the pairs. Whereas Marshall’s processes, though relying on similar mechanisms, necessarily operate at different levels, Hayek presents the processes of creating the sensory and physical orders as if they operate at the same level – though he gives very little detail about the formation of the physical order. A potentially significant difference between their models is Hayek’s (1952, pp. 123–125) ascription of some degree of purposiveness – which is linked, as with Marshall, to mental experimentation before action – to very simple mental orders, whereas Marshall’s machine acquires the capabilities for experimentation and purpose only when it has evolved to incorporate a higher level. Because of the costs of experiment and deliberation, these capabilities must be used sparingly, and actions are normally governed by routine, though many of these routines are the result of earlier experiment and deliberation. This is not incompatible with Hayek’s model, though his presentation seems to underestimate the costs of “purposive adjustment,” which is not necessarily conscious (Hayek, 1952, p. 82). In Marshall’s sequence, the first level is quite capable of developing a sensory order, but a physical order, because it depends on experimentation and purpose, requires the second; and Smith’s theory may be invoked to explain why the physical order, which has to meet the selection test of comforting the imagination, may develop in a different direction. Alternatively, it would be consistent with Hayek’s exposition to assign the sensory order to genetic control, in which purpose is a product rather than a cause, and the physical order to development at the level of the individual. Smith, Marshall and Hayek all built their systems on the fundamental economic principle of scarcity; but what is scarce in their systems is human cognitive capacity and the energy that is necessary to drive it. These are precisely the only resources that are assumed to be freely available in most formal models in present-day economics, which thus ignore the most fundamental of all allocation

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problems that human beings face. The Chicago objection to regulation rests on the assumed abundance of entrepreneurship, while the Austrian objection is based on the importance of incentives to expand the supply (Audretsch et al., 1999, p. 620). Smith, Marshall and Hayek also effectively, if unintentionally, provide the basis for explaining why the assumption that cognition alone has no opportunity costs is maintained by most economists; it is essential to underpin the concept of rational choice equilibrium (as Herbert Simon often pointed out), and thus, in Smith’s (1980, p. 77) words (quoted earlier), “to preserve the coherence of the ideas of their imagination.” The preservation of established structures is an important economising device, and it is exemplified by the practice of mainstream economists, and in many well-established communities and organisations. The evolutionary sequence of Marshall’s machine conforms particularly well to this fundamental scarcity, even though it predates his interest in economics; as Raffaelli (2003) shows, the cognitive advantages of specialisation between levels pervade his view of economic organisation and economic development. Smith’s, Marshall’s and Hayek’s psychological systems rely on routines and institutions which economise on cognition, and so do the economic systems that they later considered and which are populated by human beings who are equipped with such systems.

NEODARWINISM AND NEUROCONSTRUCTIVISM Hayek’s theory of the formation and modification of mental orders is explicitly designed to encompass two distinct processes, one of which “takes place in the course of the development of the single individual” and one “in the course of the development of the species and the results of which will be embedded in the structure of the individual organism when it commences its independent life or when it reaches maturity” (Hayek, 1952, p. 102). The idea of an embedded framework of the human mind which (correctly) controlled human knowledge of such basic and universal concepts as space and time was developed, in a non-evolutionary fashion, by Kant in response to Hume, and it was Herbert Spencer (now so out of favour) who proposed an evolutionary interpretation of such embedding which would preserve Kant’s conception of the mind’s power of structuring perceptions against the claims of extreme empiricists (Raffaelli, 2003, pp. 31–34). Hayek (1952, p. 166) extends this interpretation by arguing that “experience does not begin with sensations or perceptions, but necessarily precedes them . . . and the distinction between sensory qualities, in terms of which alone the conscious mind can learn about anything in the external world, is the result of such pre-sensory experience.” It seems natural to ascribe this evolutionary sequence to the species rather than the individual.

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However, Smith had already gone further in observing how “the ideas of the imagination” could overthrow “the evidence of the senses,” which we might now interpret as the ability of “the development of the single individual” in some circumstances to override – though not to replace – the results of “the development of the species.” The significance of such a capability can hardly be overestimated. Though its emergence is susceptible to a strictly biological explanation, its effect is to make possible a human history that is not determined (though it is conditioned) by biological mechanisms, and so to create space for social sciences which go beyond biological models. Adam Smith had explored several regions of this space. In particular, it allows the fundamental principles of evolution – variation, selection, and replication – to operate in different ways for different contexts. In contrast to the neoDarwinian prescription, social and economic evolution may include many selection processes, deliberate as well as natural (though since deliberate selection cannot be based on rational expectations it may have unintended consequences); it may also incorporate direct influences of environmental change on the search for novelty, though such novelties cannot be directly derived from such changes. The evolution of human societies is in some significant measure to be explained by psychology. Since Hayek’s specific objective was to explain how the sensory order could differ from the physical order, it was reasonable for him to leave open the application of his unifying principle to the distinctive systems of individual and species development, as Smith left open the application of his unifying principle of the division of labour to various forms of economic organisation; but it is now difficult to ignore the important differences between them. Hayek (1952, pp. 60, 102–103) carefully avoids any discussion of these differences, and his presentation in terms of individual development, which was – and for many of us still is – easier to connect with our own established schemes of ordering, presumably explains why Hayek’s theory of species development is so often overlooked. Some neoDarwinians, however, are very sensitive to the implications of proposing two distinctive evolutionary processes. They would argue that Hayek’s theory of development within the lifetime of an individual gives no reason why any such developed order should be transmitted across generations, whereas the neoDarwinian transmission mechanism of genetic inheritance can be comfortably fitted to a theory of the development of species-specific patterns of behaviour. Hayek’s account of development within the individual may be interpreted as driven by experience (in Kelly’s sense of the constructions that are imposed on a sequence of events), both in providing the stimulus to experiment with new connections and in supplying the criteria for choosing among these new connections; but in species development the role of “experience” is not to stimulate experimental changes in mental ordering but to select among changes which

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have occurred by random mutations. The double helix is a device for accurate reproduction, and so all mutations must be technically regarded as mistakes in copying; and although environmental factors may be allowed to influence the frequency of mistakes it is a fundamental principle of neoDarwinism that it cannot influence the kind of mistakes that are made. There is thus no role for modifications that are prompted by experience; instead a very small fraction of mistakes turn out to enhance fitness, and these are preserved by accurate copying to succeeding generations. Experience-led learning by individuals is regarded with suspicion by neoDarwinians, and it cannot be inherited; our mental orders are genetically adapted to some past environment, with the era of hunter-gatherers being a current favourite (see Cosmides & Tooby, 1994). Indeed we may now observe an emerging conflict for supremacy in the social sciences between the rival unifying theories of rational choice equilibrium and neoDarwinian evolution. The two stand in a curious relationship. Both are theories about selection between alternatives and the preservation of what is selected; and in both, selection is based on the consequences of those alternatives which are presented for selection. However, rational choosers, being equipped with rational expectations, know these consequences in advance, and having made the correct choices they naturally have no wish to change them, but remain in their equilibrium state until there is some shock to the economic system. (Their cognitive system, being already fully connected and therefore perfect, never changes.) In the neoDarwinian model, by contrast, no-one knows the consequences of the available alternatives, and any attempt to design alternatives in order to produce desirable consequences is a pretence that is unworthy of science; but if neoDarwinian processes can discover the best answer that is currently available only after trying all existing (though not all possible) alternatives, nevertheless the best currently available answer will be discovered, and once discovered it will be conserved in the genetic code, which may then be indistinguishable from an equilibrium allocation. By appropriate allowance for the costs of this process one may even be able to make claims for optimality along similar lines to the claims for optimality, subject to information and transaction costs, that are sometimes put forward in economics. Thus assumptions which appear to be polar opposites can, with a little sleight of thought, support identical outcomes. Now deriving equilibria from the initial data is analytically simpler than tracing processes, because the stages of these processes are not full equilibria and are therefore difficult for the modeller to control in a non-arbitrary fashion. Partial equilibria can be devised, but any particular partial equilibrium is always open to objection – particularly by those who believe either in rationality or in the long-term power of neoDarwinian processes. (The standard isolation of game theoretic models from the wider environment raises dual questions

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about the appropriateness of this assumption of environmental irrelevance and their applicability in a wider domain, which modellers do not always address.) So we should not be surprised that some evolutionary theorists are attracted to equilibrium modelling; and one particularly attractive application is the attribution of particular medical conditions or behaviour to specific genes. The explanation of performance by structure is a favourite theoretical principle across the disciplines, and a direct link between final outcomes and the initial data has the dual appeal of simplicity and plausibility, especially when the initial data can be identified as a specific gene sequence. However, there is some resistance to the dominance of this strategy among neuropsychologists; and the combination of argument and evidence which they have produced should have particular resonance among social scientists of an evolutionary inclination, especially those who are impressed with Hayek’s reasoning. The following account is based on a series of papers, some jointly-authored, by Professor Annette Karmiloff-Smith, Head of the Neurocognitive Development Unit at University College London, and an acknowledged leader of her profession. In a lecture to mark the Centenary of the British Psychological Society (Karmiloff-Smith, 2002), her starting-point is the use by neoDarwinian geneticists of evidence from adult neuropsychological patients and children with genetic disorders to support claims that the human brain is organised into specialised modules which are directed by specialised genes. She offers a fundamental methodological criticism that will appeal to all Austrians: an exclusive focus on the relationship between initial conditions and end-states may lead us astray, and a better understanding of causation requires attention to the processes by which these end-states are produced. Her central example is of a genetic disorder, the Williams Syndrome, which is clearly associated both with the deletion of 17 specific genes and with a specific set of physical consequences in adults, including a smaller brain volume, an abnormal size, orientation and density of neurons, and atypical proportions of several regions of the brain, together with psychological consequences of low IQ, and low spatial skills, with the notable exception of proficiency in facial recognition. This combination appears to supply strong prima facie evidence for an exclusively genetic explanation, and, as she notes, it has been cited (e.g. by Pinker, 1997, 1999) in support of a theory of the direct determination of behaviour, including altruism, aggression, intelligence, spatial cognition and language, by specific genes or specific sets of genes (Karmiloff-Smith, 2002, p. 526). Such an exclusive explanation is then confronted with further evidence. First, patients who lack a subset of these 17 genes do not exhibit corresponding subsets of the symptoms: there is no simple mapping from genes to outcomes. (Though the sample size is small, universal claims, such as that for exclusive

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and specific genetic determination of end-states, may logically be refuted by a single counter-example; questions about the sample must be questions about the experimental procedure which has generated an apparent counter-example, not about its logical implications.) Second, the claim that the apparently unimpaired proficiency in facial recognition of people with Williams Syndrome demonstrates an intact face-processing module is undermined by careful experimentation which revealed that these people were processing faces feature by feature, whereas the supposed “face-processing module” relies on configuration. (Of particular interest is the observation that control subjects are equally reliant on processing by feature when presented with inverted faces; the implications of this will be considered in the following section.) Differences were also found in the means of producing some other supposedly-intact skills; thus the “pattern of intact vs. impaired modules formed from intact vs. mutated genes,” which a theory of purely genetic determination requires, is removed by “[d]ifferentiating between superficial behavioural scores and underlying cognitive processes” (Karmiloff-Smith, 2002, p. 536). Third, experimentation with infants revealed substantial differences from the results with adults, while the use of infants with Down’s Syndrome as controls had the incidental effect of demonstrating notable differences between the infant and adult states of those affected by this syndrome also; such changes in response during the course of development, implying a reconfiguration of neural networks, are inconsistent with nativist claims that directly link impaired modules with adult states (Karmiloff-Smith, 2002, p. 538). These results do not, of course, overthrow the conception of a genetically driven evolutionary process, or indeed the argument that many human physical and behavioural characteristics are genetically determined; but the modified theory that is offered by Professor Karmiloff-Smith, in conjunction with other cognitive neuropsychologists, allows scope for “complex pathways from geneto-brain-to-cognitive-processes-to-behaviour” (Karmiloff-Smith, 2002, p. 526). Genetics, and the neoDarwinian model of which they are the focus, retain a major role in channelling development (e.g. by the formation of linkages as suggested by Smith, Marshall & Hayek); but there is nevertheless considerable space for social scientists to develop evolutionary explanations of a somewhat different kind, for which genetic constraints may provide an appropriate baseline, such as all evolutionary explanations need. This kind of permissive linkage between disciplines appears to correspond to Ziman’s view of science. Though commending “weak” reductionism – the search for underlying commonalities – as a research strategy, Ziman (2000, pp. 323, 326) objects to “strong” reductionism – the unification of knowledge by the universal application of fundamental principles, precisely because no such principles can explain “the spontaneous emergence of novel modes of order in complex systems”; and these selective connections

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produce “a simplification of nature, and of human cognition as naturally evolved, that actually makes scientific research possible.” Explanations of the emergence of order, in human brains and in human societies, are not confined to random mutations and natural selection, though neither is excluded, but can incorporate the search for novelty, though making new connections, and choices that are made for what appear to be good reasons, because they embody plausible connections. They may go beyond this to suggest why particular reasons may be thought to be good and why searches may be undertaken in particular circumstances and may proceed in particular directions. Thus they are not restricted to explaining how people may get things right, but may also help to understand how they may go astray – and an understanding of the reasons for failure may have practical uses. The drastic simplifications of assuming all economic agents to be hard-wired optimisers who are extremely well-informed (and if confronted with asymmetric information know precisely what are the implications of what they do not know), which excludes the need for any process other than Bayesian updating, will not suffice; but the kind of psychologybased social science developed by Hayek, and also by Smith and Marshall, is highly congenial. In fact, the final sentence of Karmiloff-Smith’s lecture would serve as a presentday introduction to Hayek’s Sensory Order: “The contrasting view [to the static model of genetic determination of adult states] presented in this lecture is that our aim should be to understand how genes are expressed through development, because the major clue to genotype-phenotype relations is not simply in the genes, or simply in the interaction between genes and environment, but in the very process of development itself” (Karmiloff-Smith, 2002, p. 540). In other papers she argues that “on the gene side, the interaction lies in the outcome of the interacting, cascading effects of interacting genes and their environments and, on the environment side, the interaction comes from the infant’s progressive selection and processing of different kinds of input. . . . The child’s way of processing environmental stimuli is likely to change repeatedly as a function of development, leading to the progressive formation of domain-specific representations” (Karmiloff-Smith, 1998, p. 390). In a jointly-written paper advocating “an emergentist solution to the NatureNurture controversy,” she and her colleagues emphasise “the extraordinarily plastic and activity-dependent nature of cortical specialisation.” Because “cortical regions are likely to differ from the outset in style of computation, which means that they will also differ in the variety of tasks they can perform best,” there may be widespread dispositions to convert domain-relevance into domain-specificity; nevertheless any particular pattern of domain-specificity is a consequence of development – a particular organisation of the genetic

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endowment (Bates et al., 1998). (The argument that localisation of mental functions does not imply localisation in any particular part of the cortex, and that alternative pathways may be developed in response to specific damage, had already been made by Hayek (1952, pp. 147–148), citing Lashley’s (1929) account of “vicarious functioning” and “equipotentiality.”) Though much is genetically determined and the remainder is genetically constrained, nevertheless in important respects “the brain progressively sculpts itself, slowly becoming specialised over developmental time” (Karmiloff-Smith, 2002, p. 527). “The expression of genes through development,” rather than entirely by programming, may itself be given an evolutionary explanation, as Karmiloff-Smith (1998, p. 390) notes: “although evolution has pre-specified many constraints on development, it has made the human neocortex increasingly flexible and open to learning during postnatal development. In other words, evolution is argued to have selected for adaptive outcomes and a strong capacity to learn, rather than prior knowledge. Within such a perspective, it is more plausible to think in terms of what we might call domain-relevant mechanisms that might gradually become domain-specific as a result of processing different kinds of input.” There has been some evolution away from genetically programmed domain-specificity towards a genetically-enabled multi-specific capability for creating domain-specific skills through development. Domain-specificity – the division of labour – is a general characteristic, but some domains may be genetically specified and others may become specified during the course of development. Present-day humans therefore embody a partial shift from “evolution in the course of the development of the species” towards “evolution in the course of the development of the single individual” – a shift which has been confirmed by natural selection, but which entails other forms of selection (for a discussion of some of these, see Loasby, 2001). We should not be surprised that evolutionary processes should themselves be subject to evolution; this is a feature of both Smith’s and Marshall’s psychological theories, and it is the source of Hayek’s problem of the discrepancy between the sensory and physical orders. Human knowledge and skills develop through the creation and modification of connections within the brain, for selective connections are the key to human cognition. If two stimuli are experienced differently, “this difference must be reflected somewhere in the brain. Every new piece of learning changes the structure of the brain in some fashion, however minor” (Bates et al., 1998). This is precisely how learning is modelled by Hayek, and also by Marshall (1994). The development of a new system of connections that constitutes a physical order, and which at first supplements and then increasingly supersedes our sensory order in many contexts, may be seen as a consequence of this major trend in selection within the human species. This deserves some further consideration.

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That specialisation on a particular range of activities would result in a movement from relatively undifferentiated potential to domain-specific knowledge and capabilities, which could confer distinctive advantages, was Adam Smith’s great idea. It was applied to the world of nature by Milne-Edwards (1827, p. 534) to explain the great variety of species, and this gave Darwin the principle which governed the direction of evolution. We may now draw on our knowledge of genetics to argue that the detailed specification of a limited range of behaviour for each species provided evolutionary space for very many different species to demonstrate that their evolved domain-specific behavioural regularities conferred sufficient comparative advantage within their specific environment to allow them to survive, though any comparative advantage may be extinguished by changes in this environment, including the evolution of other species. Only in the human species is this specialisation associated with exchange, though the principle of complementary specialisation is manifest in social insects and in many specific inter-species relationships – plants and pollinating insects provide the largest class of examples – and in a broader sense in ecology. However, speciation is only the first stage of differentiation. The growth of the pre-human brain allowed for an increasing range of behaviour within each individual; but what appears to have been a crucial change resulted from a very rapid increase in brain size between 500,000 and 100,000 years ago. Because it followed the change to an upright stance, which inhibited enlargement of the birth canal, this increase could be accommodated only by the birth of infants at a very early stage of brain development; this made them extremely vulnerable to both accident and predation for an exceptionally long period, and could therefore have been selected for only if it was associated with some great advantage. This advantage, we may now conjecture, seems to have been precisely the ability to direct this new genetically-guided cognitive capacity to form better representations of the environment as it was experienced, and to develop more appropriate skills to deal with it – which is the kind of adaptation cited by Karmiloff-Smith. For this purpose “the unusually slow period of human postnatal brain development” (Karmiloff-Smith, 1998, p. 394) is actually an advantage, for the connections in the brain are being formed while the child is interacting with the environment. With an appropriate genetic endowment of programmable rather than programmed capacity, domain-specific skills can be developed within individuals as well as through the development of the species; and this has some advantages. This developmental process of theory-revision can cope with much faster environmental change than reliance on the selection and diffusion of fortuitous genetic mutations, and also with movement into an environment that has not previously been experienced by that individual. Hayek’s model of development at the individual level applies.

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This interaction between the growing brain and the environment could not have happened if the development of this larger brain were strictly genetically determined; but the extraordinary increase in the size of the brain entailed a far greater proportionate increase in the number of potential connections, and therefore a formidable challenge to programming capacity. “On mathematical grounds, it is difficult to understand how 1014 synaptic connections in the human brain could be controlled by a genome with approximately 108 genes, particularly when . . . humans share approximately 98% of their genes with their nearest primate neighbours” (Bates et al., 1998). (This argument corresponds to Hayek’s (1952, p. 185) proposition that “the capacity of any explaining agent must be limited to objects with a structure possessing a degree of complexity lower than its own.”) Instead, “brain development in the higher vertebrates appears to involve massive overproduction of elements early in life (neurons, axons and synapses), followed by a competitive process through which successful elements are kept and those that fail are eliminated” (Bates et al., 1998); this is a non-genetic application of neoDarwinian evolution to introduce a different evolutionary process. The loss of genetic control has allowed cognitive development to be shaped by interaction with particular environments at the level of the individual, on evolutionary principles of variation and selective preservation. Thus the evolutionary process has itself evolved, as genetic determination has been supplemented by a genetically-enabled potential for adaptation on a much shorter time scale than genetic evolution (though even within a human lifetime, as Adam Smith realised, the development of domain-specific skills and habits of thought may lead to dangerous reductions of adaptability). The evolution of the evolutionary process (though not precisely so expressed) is also a feature of Adam Smith’s psychological theory of the growth of knowledge, in which specialisation between individuals, in both knowledge and capabilities, is a later development that enhances the effectiveness of the powerful human motivation to create mental models of puzzling phenomena (Loasby, 2002). The principle that greater diversity requires a relaxation of central control is familiar in studies of organisational design and innovation; and it is, of course, a central principle of Austrian economics. (It is not good news for economists who rely on general equilibrium modelling.) That this diversity within the human species should apparently be an unintended consequence of the increase in brain size (even though to a neoDarwinian all consequences are unintended) should also appeal to an Austrian mindset.

SOME IMPLICATIONS Let us now consider some of the implications of Hayek’s psychological theory of the development of human cognitive powers in the light of neuroconstructivism

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and the views of the growth of knowledge and capabilities developed by Smith and Marshall. We shall also refer to George Kelly’s (1963) theory of personality, which focuses particularly on the problem of preserving the internal coherence of an individual’s “interpretative system” while simultaneously maintaining a satisfactory correspondence with the events encountered by that individual or precipitated by her actions, and in doing so provides a powerful line of enquiry into biases in and obstructions to learning. Apparently-relevant evidence may be ignored, and locally-effective explanations may be dismissed, because they appear incompatible with ways of making sense that have become indispensable – even in the hardest of sciences, as Ziman (1978) observes. The pathological imperative to impose such coherence on the theoretical systems of modern economics without empirical warrant or even empirical reference, which Giocoli (2003) has clinically examined, is a particularly suitable case for Kelly’s treatment. Hayek’s principal application of his proposition about the limits of any apparatus of classification is to show that “no explaining agent can ever explain objects of its own kind, or of its own degree of complexity, and, therefore, that the human brain can never fully explain its own operations” (Hayek, 1952, p. 185); thus, although we can hope to understand the principles underlying our own mental processes, “mind must remain forever a realm of its own which we can know only through directly experiencing it, but which we shall never be able fully to explain or to ‘reduce’ to something else” (Hayek, 1952, p. 194). This is his conclusion to his investigation into the problem of psychological explanation; human cognition is inevitably bounded, as Simon also insisted. Austrians in particular should recognise the inescapable limits to introspection. Hayek also draws attention to the impossibility of achieving a full explanation of the world around us, while simultaneously supplying a principle of organisation for the human brain and for human societies; and this is the starting-point for the following discussion. Hayek’s impossibility theorem warns us that our knowledge is necessarily fallible and incomplete, but it also suggests how it may be improved and tested, and what kinds of opportunity costs are likely to be incurred along different pathways of attempted improvement. Knowledge is created by selecting connections which will constitute domain-specific modules; and we may identify two general principles on which to base this selection, which apply to everyday cognitive operations, to our conscious attempts to construct interpretative frameworks, some of which we may choose to call theories, and to the design of formal organisations. One principle directs us towards fine discrimination in our definition of categories, at the expense of reducing the breadth of our view and ignoring interactions with the rest of the universe, thus restricting our pattern-making to a narrow domain which we may be able to explore in some depth. The second principle points towards the strategy of aggregating the elements of our universe into expansive invented categories on the basis of similarities that we suppose are significant

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for our particular purpose, while ignoring many differences within each category which we assume to be of little relevance for that purpose (or which we simply fail to notice), thus creating a domain which is broad but almost empty. Though each has a physical counterpart in the human brain, all categories are located in the space of representations, and may be manipulated without further reference to what they are deemed to represent. Such manipulations may be enlightening, or misleading; much depends on how they are used (Loasby, 2003). Normally, there is some accommodation between these two principles, and our representations are typically sub-systems which include both a few external connections and a few subdivisions within their components. To illustrate from formal economics, near one extreme we find theories in which everything of interest is bundled into a few composite categories, as when a whole economy is represented by the combination of undifferentiated labour and capital to produce undifferentiated output, with a unit price for each category; near the other extreme we find models of precisely-specified games which are isolated from all external influences – though in a wider scientific perspective, the agents within a game represent a high degree of aggregation by comparison with the attempt to identify fundamental particles. Even this supposedly-ultimate objective, we may note, retains the principle of aggregation within each category of particle; but since, as Herbert Simon (1982, 2, p. 142) observed, the purpose of theory is to economise on fact, some aggregation is unavoidable. Indeed, as Hayek (1952, p. 176) pointed out, nothing can be recognised unless it can be assigned to some existing category; “we can know only such kind of events as show a certain degree of regularity in their occurrence in relation to others.” These regularities, and the classes that they support, are necessarily problematic. Perhaps the clearest, and prior, statement of this necessary principle of contextual similarity, and the implicit dangers of ignoring apparently irrelevant differences in favour of salient resemblances, was provided by Frank Knight (1921, p. 206); Hayek (1952, pp. 145–146) also emphasises that all classification must be based on selected elements, so that the resulting “system of acquired connexions . . . will give only a very distorted reproduction of the relationships” which it purports to represent, and “will often prove to be false,” generating misleading expectations. Simon (1982, 2, pp. 306–307) similarly observes that because of the active filtering involved in both direct perception and the handling of information “the perceived world is fantastically different from the ‘real’ world.” What are called “framing effects” are not a sign of failure but a condition of intelligent behaviour; but of course every framework has a limited “range of convenience” (Kelly, 1963, p. 11) and outside that range may be seriously misleading. Systematic advantages are necessarily accompanied by the potential for systematic error; and the practical test of any interpretative, heuristic or organisational system is whether

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its advantages apply to situations which are important or frequently encountered and its errors to situations which are unimportant or very rare (Gigerenzer & Selten, 2001). Of course, environments may change in a way that upsets this balance. Hence the importance of a procedure for revising, or even replacing, classifications which no longer seem to work (Hayek, 1952, p. 145), and of a strong intrinsic (and therefore genetic) motivation to do so; such revisions are the means by which the physical order began to emerge from the sensory order, and by which new sciences come into existence. The possibility of revision implies the ability to conceive of alternative principles of classification on which to construct representations. What is distinctive, at least in degree, about the human species is that the multifarious forms of the division of labour among its members have produced such an unprecedented variety of these representations and so have enormously increased the total of human knowledge. Hayek’s account of the functioning of the human brain and neurocognitive theory both lead to the conclusion that human knowledge is dispersed and incomplete; furthermore, the combination of the wide-ranging potential of the human brain and the limited capacity of each particular brain to realise that potential implies that knowledge can become less incomplete only if it becomes more dispersed. The division of labour exploits the ability of individuals to create domain-specific networks, each with its appropriate range of convenience within which systematic advantage dominates systematic error – if they are given the freedom to so. In currently-fashionable terminology that implies delegation and empowerment, or in economic language imperfectly-specified contracts; but the obverse of such discretion is loss of control (and even some loss of understanding), which to those concerned with the overall efficiency of allocation, either as analysts or policy-makers, is a serious deficiency. The fundamental reason for this negative perception is the illusion that the system can be safely treated as if it were fully connected (Potts, 2000); this is comparable to the illusion that the connective structures of the greatly-enlarged human brain can be fully specified genetically (though this is a very different specification, not of a fully connected system but of disjoint modules). Both illusions exclude uncertainty; but in doing so they also exclude endogenous innovation. Asymmetric information has become a major focus of attention in economics; but because full specification (at least of all contingencies and their implications) is necessary for the calculation of system optima it is inevitable, though unfortunate, that the resulting problems are treated as some kind of “organisational failure,” rather than being part of the pathology of success. Kirzner (1973), by contrast, has rightly insisted on differential alertness to opportunities as an essential contributor to economic progress. One important consequence of this prevalent attitude is an implicit assumption that the co-ordination of dispersed knowledge is simple

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if incentives are entirely compatible, whereas there is abundant evidence of the major contribution of well-intentioned misunderstandings to many failures: for those of a generous disposition, economists’ recommendations to the transition economies of eastern Europe may be so classified. The apparently analysable problems of information have diverted attention from the more fundamental issue of interpretation; asymmetric interpretation is at once a threat to co-ordination, a basis for opportunism and a route to innovation. The recent growth of interest in “knowledge management” may provide an opportunity for a balanced analysis of the costs and benefits of the growth of knowledge, related to an understanding of the processes of this growth – but not if the management of knowledge is treated as primarily a problem of information technology. It is no accident that the principles and compromises that are inherent in the use of human mental capabilities are to be found in the organisation of social, economic and political systems, for the operation of these systems entails equivalent cognitive problems, which cause us to rely on abstract systems of rules for the selection and classification of relevant phenomena. As De Vecchi (1903) points out, Hayek used this equivalence in his later work, and advocated the dispersion of both political power and economic decision-making; Kirzner has pursued the theme of domain-specific entrepreneurial alertness and Marshall (1919, pp. 647–648), though describing the state as “the most precious of human possessions,” insisted on the importance of confining it to “its special work,” and applied his cognitive model of conjectured linkages to industrial organisation (Raffaelli, 2003). For example, a cluster of small firms (especially in an industrial district) has greater potential for variety than a large firm, especially if the advantages of large-scale are believed to require conformity to routine, and therefore inhibit the changes in administrative and cognitive organisation that generate increasing returns. As Qu´er´e (2003, p. 198) points out, “Increasing returns do not pre-exist. They are the result of an economic process; that is, a result of the way co-ordination problems are managed over time.” Marshall recognised the connection between the management of co-ordination problems in the economy and the management of co-ordination problems within the brain: both require combinations of routines and novelty, and these combinations are themselves modified by evolutionary processes of trial and error. Economic growth and the growth of knowledge both entail the division of labour in order to achieve an effective allocation of resources to the development of domain-specific cognitive modules within the economy and within society – indeed within many kinds of “space.” As Darwin learnt from Smith, perhaps indirectly through Milne-Edwards, these are the advantages of the division of labour that have led biological evolution towards the variety of species; and they have led human societies towards the variety of knowledge. The genetic specification

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of life forms has created many short-lived inefficient allocations of resources along the way, for only a very small proportion of all possible genetically-induced specialisations produce any advantages; and the effects of specialisation on the generation of new knowledge and new capabilities also create many short-lived inefficient allocations of resources to unsuccessful novelties along the way, because new knowledge and capabilities arise from the variety of conjectures within human brains. The imperfectly-specified structure of the human brain has similar merits to the imperfectly-specified contract of the Coasean firm and the imperfectly-specified activities of a Hayekian economy, which indeed are institutions that reflect that structure and enhance its effectiveness. It is important that the resulting knowledge-domains should also be imperfectly specified: indeed “domain-specificity,” though adequate to mark the contrast with notions of general applicability, is a misleading label. In Nelson and Winter’s (1982) evolutionary theory, the primary units of evolution are skills, including skills of organisation, which are treated as cognitive programmes of limited scope; but Nelson and Winter take care to emphasise and to illustrate how ambiguous this scope may be, and use this ambiguity within their theory. Imperfect specification is also a condition of those experiments at the margin, inspired by differences of temperament and interpreted experience, on which Marshall relied for the variations that were “a chief cause of progress” (Marshall, 1920, p. 355), and it is essential for Penrose’s (1959, 1995) central notion of the imagination of new services to be obtained from resources and of new productive opportunities to which these services may be directed. Since increasing attention is being paid to the knowledge content of capital (of which Marshall was very well aware), it may be helpful to apply to structures of knowledge Lachmann’s (1978) analysis of capital goods: they are substitutable between uses but within each use they are complementary to a particular set of other capital goods when combined in a specific way. In other words they are multi-specific, and their performance depends on their orientation. Lachmann’s warning also applies: just as the value of capital cannot be maintained simply by perpetuating the current set of combinations, so the value of knowledge cannot be maintained simply by perpetuating its current uses. It is indeed an important characteristic of knowledge that it can be reused, but what is most important is that it can be reused in ways that are not simply deducible from current uses – a consideration which is not prominent in endogenous growth theory, because it is not easily accommodated within the system of thought to which that theory belongs. Imagination (which Lachmann rated almost as highly as Shackle) is the genetically-derived device by which genetic evolution allows the humans species to exceed the limits of genetic evolution. The exploitation of our cognitive capabilities is enhanced by a (geneticallyprogrammed) motivation to search, which is crucial to Smith’s account of the

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growth of knowledge; this increases the rate of “mutation” among networks in what is likely to be the appropriate neighbourhood, though we should not lightly assume that it will improve the success rate within this neighbourhood. Incentives (broadly defined) replace instructions as the search space is increased. Since these are fundamental principles of human behaviour we should not be surprised that they apply to organisational design and management. However, although we may welcome the present interest in incentives among economists, we should note that this interest is heavily concentrated on the delivery of what is already specified, at the expense of the search for new possibilities, let alone the search for unrecognised problems. (Requiring applicants for research funds to specify the outcomes marks the triumph of auditing over innovation.) In addition the analysis of incentives is generally restricted to a very narrow view of human motivation (Frey, 2001); here the contrast with Smith is especially striking. Discretion is important in two ways: it allows the development of substantially different cognitive structures for different specialisms, and it also allows local variation and therefore localised progress within each specialism. Both major and minor differences in the environment make their distinctive contributions to such development; and these environments include the size and structure of organisations, which were of especial interest to Marshall. (This is the context in which he introduced his “law of increasing return”; and that is why he was not prepared to attenuate it in order to conform to a particular concept of equilibrium.) At neither level is it possible to prescribe the “best” direction in which to seek improved knowledge; human consciousness and human purpose, organised in a variety of cognitive patterns which suggest a variety of profit opportunities, may lead to a faster rate of variety generation, and may even raise the average quality, but the growth of knowledge remains a process of trial and error, as Hayek continued to argue throughout his life. Despite the waste generated in this process, that is so obvious in retrospect, the necessary superiority of a centrally directed search for knowledge is no less an illusion than the necessary superiority of central planning. The digital revolution in information processing has diverted attention from the structural nature of knowledge. The evidence on facial recognition presented earlier is particularly relevant at this point. The motivation to recognise faces is, we may presume, a shared genetic endowment – its advantages in the formation of human society (including its importance in controlling opportunism) are obvious; but it is not linked to a unique facial module. Recalling that recognition by feature is always employed by those affected by the Williams Syndrome, but also by those not so affected when they are presented with inverted faces, we may identify recognition by feature as the default mode; configural recognition is employed by those who have both the capability to do so and have also been presented with

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the material that is necessary to build patterns. Pattern-making is an inherited capability, which may therefore be impaired by a genetic disorder; how that capacity is used depends on the environment and individual attempts to make sense of it. The use of different procedures for upright and inverted faces is also a demonstration that domains may become very specific through development at the level of the individual; few people encounter inverted faces frequently enough to build appropriate patterns by which to identify them, but experiments with inverting spectacles have shown that it can be done. (There is also a familiar economic principle at work here; investment in developing the skill of configural recognition within a specific domain is not justified if this skill is very rarely used.) Developed capabilities are configurations that economise on cognition; Marshall (1920, p. 251) explains how someone who has learnt to skate can employ that knowledge as a unit in constructing more elaborate figures; few economists have understood why he chose this method of introducing his analysis of industrial organisation (Raffaelli, 2003). Ziman (2000, p. 120) points out that “pattern recognition is deeply embedded in scientific practice,” and that the construction, use and modification of such patterns within each scientific field is a particular (we may say domain-limited) application of a universal and inter-subjective human capability. Patterns provide a basis for extending similarities by physical and mental experimentation at the margin; and since cognitive patterns differ somewhat between people there will be different margins at which to experiment. Marshall’s recognition that these differences in cognitive patterns and in their corresponding experimental margins are substantially influenced by interactions with particular environments explains his profound interest in the “linkage between what people do and how they are changed by doing it,” which Becattini (1991, p. 16) forecast would justify “a radical repositioning of Marshall from theorist of price and equilibrium to theorist of industrialization and development.” (Raffaelli (2003) presents such a radical repositioning.) There will also be different margins at which knowledge may be most readily absorbed from other people or from written or electronic sources, for absorption requires incorporation into or amendment of some configuration; and what is absorbed is likely to differ slightly even between those who have undergone standardised training. Creative and absorptive capacity both depend on the ability to make new connections, and are therefore limited by the connections that already exist; this ability and its potential domain, we may suppose, are genetically determined, but its use is not. That use, however, follows the broad evolutionary principles of variation, selection, and retention. A characteristic of this cognitive theory, as of all evolutionary theories, that is often overlooked is the intimate dependence of change on the absence of change. Systematic development is impossible unless there is a stable baseline from which

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to begin and a stable environment against which options may be assessed – and which, in theories such as Hayek’s that allow for deliberate attempts to generate conjectures, may give direction to these attempts. Smith’s (1980) psychological theory was identified in its title as an explanation and illustration of “the principles which lead and direct philosophical inquiries.” The heavens provided a stable environment, which was subject to improving techniques of observation, and the sequence of robust interpretative systems examined by Smith was used, two centuries later, to illustrate Kuhn’s (1962, 1970) theory of scientific development, which is remarkably close to Smith’s. Routines stabilise evolved patterns, thus releasing mental energy and providing a basis for experiment; this interplay between routine and innovation, within an individual, a firm, an industry, and an economy, is a pervasive theme in Marshall’s economics (Raffaelli, 2003). Thus a sensible use of the concept of equilibrium is to enquire which elements of a system stand in an equilibrium relationship to each other; for these equilibrium relationships provide the foundations of change. A natural consequence of this dependence of innovation on stability (which is also essential to neoDarwinian theory) is a substantial degree of path-dependency within each cognitive domain – including that of a whole economy, as is indicated by Marshall’s (1919) surveys of national systems; but this tendency is partially offset by the variety and the quasi-independence of domains – another consequence of the combined effects of cognitive limitations and the division of labour. The counterpart of this quasi-independence is the problem of co-ordination, which arises in two forms: the compatability of separately-produced knowledge, and its comprehensibility to those who have not participated in its production. The division of labour offers to the innovator the protection of cognitive distance; the integration of what has been divided requires cognitive proximity, though perhaps only at the points of contact. We should not overlook the effects of our shared genetic inheritance, emphasised by Hayek, which extends beyond the substantial component of programmed behaviour to the shared procedures by which our interpretative frameworks are formed (Ziman, 2000, p. 121), and the language in which they are (partially) expressed. Not only does intersubjectivity play “a fundamental role in science”; it is “as basic to the human condition as subjectivity itself” (Ziman, 2000, pp. 105, 106). Smith’s (1976a) hopes for a civil society rested substantially on his argument that most people could both understand and appraise the behaviour of others in situations that were different from their own. Since then, social and economic evolution, based on an inherited capacity to create differentiated patterns, has increased the variety of situations and increased the possibilities of juxtaposing interpretative frameworks that have few elements or connections in common. Development within the individual dilutes the shared genetic inheritance of domain-specific behaviours. Cultural

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evolution, in particular, may serve either to reinforce or to override the similarities of attitudes and behaviour embedded in humans on which both Smith and Hayek relied. Kelly (1963) construes human personality in terms of the interpretative frameworks which guide each person’s understanding and behaviour; and the failure to maintain acceptably coherent interpretative frameworks in a changing environment thus becomes Kelly’s construction of a personal breakdown. The disruption of order makes intelligent decision-making impossible. In an organisational context, this analysis can easily be extended to include problems of incompatability between the frameworks which seem to apply in the work environment and those with which each worker is comfortable in other parts of life, and also to problems of incompatability between the changes of framework that seem to be required in different parts of the organisation to cope with major changes in the organisation’s environment. “A breakdown of corporate personality” may be an appropriate way to describe what has happened to many organisations (including the Soviet Union). We should remember, however, that compatability may be necessary in only a few dimensions, and systems may be connected along the dimensions where it is most readily achieved (Ziman, 2002, pp. 302–306). Success may depend both on bringing some people together and keeping others apart, exploiting selective cognitive proximity while preserving the cognitive distance necessary to gain the advantages of specialisation. This may sometimes require the redefinition of organisational boundaries, as Allyn Young (1928) argued; adaptability – the capacity to modify connections – may be preserved, and sometimes enhanced, by rearranging the connections between units or between levels. Such rearrangements may increase independence or exploit complementarities, thus redefining the cognitive unit, though not without creating new problems. Richardson’s (1972) analysis of capabilities along the dimensions of similarity and complementarity (which is consistent with Hayek’s and Knight’s analysis) provides a basis for analysing these relationships, but Richardson also notes the special organisational problems that arise when dissimilar capabilities (embodied in dissimilar neural networks) are so closely complementary that they require to be jointly managed. Organisational design is always an option of difficulties. Although the division of labour is usually associated with the separation of activities, Smith (1976b, p. 21) recognised not only the benefits of recombination but also that the selectivity of connections provides scope for those who “are often capable of combining together the powers of the most distant and dissimilar objects”; thus integration, he observes, is itself a specialised activity. It is a particularly important exemplar of the advantages of the division of labour, because it encourages novel extensions of the results of more narrowly-focussed

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specialisation through the development of new configurations. The skills of integration across domains are themselves domain-limited, and for each individual they are normally restricted to particular categories of “distant and dissimilar objects,” as the careers of “Schumpeterian” entrepreneurs have shown. Witt (1999) has also pointed to the entrepreneurial role in creating and maintaining compatible interpretations (a unitary order, in Hayek’s terms) within a firm; because we all need plausible interpretative schemes, entrepreneurs may thereby crowd out opportunism. These interpretations must also be, in some degree, differentiated from those which frame the activities of other firms, and sometimes differentiated from the shared assumptions of an industrial community; Schumpeter and Marshall both recognised the importance of the outsider as a source of novelty, though it was Schumpeter who drew attention to the major co-ordination failures that may result from the destruction of established knowledge.

CONCLUSION As Potts (2000) has reminded us, a system consists of elements (which may themselves be systems) and the connections between them; changes in systems may therefore be traced to changes in either elements or connections, or to interactions between these two kinds of change. It is an essential feature of general equilibrium modelling that any model should be fully connected; consequently any differences between equilibrium models must be attributed exclusively to differences in their elements. Unfortunately, complete connections within these models require significant omissions from the elements of which they are composed, even in the supposedly complete Arrow-Debreu system. What is excluded is nothing less than what Arrow called “the costs of running the system” – everything from the energy costs of cognition, which are a substantial part of human energy costs, to the creation and operation of markets and organisations. Not only does this make these models incompetent to handle externalities and institutions (Coase, 1988, p. 15), both of which are the consequences of incompletable connections; economising on these costs requires a high degree of selectivity among connections. The elements and the connections in a model cannot, in general, be independently chosen by the modeller. Structures matter. Marshall’s (1920, p. 139) suggestion that organisation should be reckoned as a distinct factor of production is not an idiosyncratic idea, especially as he defined organisation very broadly (almost as the equivalent of “the costs of running the system”). The idea is particularly appropriate if we are interested, as Marshall certainly was, in the process of economic development. Just as perfect reproduction excludes genetic evolution, so perfect organisation

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(and, of course, perfect competition) excludes novelty; Marshall (1920, p. 318) and Young (1928) both identified organisational change as the route to increasing return. Hayek’s theory of the mind is a theory of connection-building: at the level of the species, it is part of a general theory of genetic evolution; at the level of the individual it is a theory of the innovative mind; and if one combines the two we have a theory of the evolution of the evolutionary process itself, along the lines suggested by Karmiloff-Smith and her co-authors. Domain-specificity (more accurately, domain-limitation) is a key concept. The genome appears to be inherently a method of constructing a system of domain-specific elements, embodying Smith’s principle of the division of labour; but with the remarkable enlargement of the human brain we seem to have a partial but significant supplementation of genetically-determined domain-specificity (which seems likely to include at least a major part of the sensory order) by genetically-enabled development of domain-relevant capabilities towards domain-specificity at the level of the individual. As Hayek argues, this requires novel – and additional – patterns of connections within the brain; and these patterns are produced, as Smith and Shackle notably emphasised, by the human imagination. Though the results of genetic evolution are still pervasive, there are now significant possibilities for development at the level of the individual to modify, and even sometimes to override, development at the level of the human species. This is by no means all. The mental orders that are created by our imagination and tested in specific domains are themselves forms of organisation, for all knowledge is a structure of selected connections. Now although much of our “lifeworld knowledge . . . is coded organically into our behaviour, genetic make-up and bodily form” (Ziman, 2000, p. 299), these created mental orders vary greatly across individuals. Consequently the knowledge that can be made available in any human society depends on organisation – which means on particular patterns of connections – of the kinds listed by Marshall, which exploit the advantages of similarity (local variation within imperfectly-specified patterns) and of differentiation (different patterns), which can produce new species of knowledge incomparably faster than genetic evolution. The creation, distribution and selective connection of domain-specific modules within the economy is a central issue for explaining economic development and for effective policy at the level of firms and governments. However, economists should never forget opportunity costs. There are important disadvantages of domain-specificity at all levels. Though it is perhaps somewhat easier to escape from internally-generated patterns of thought and action than from those that are genetically determined, it is nevertheless true (as the studies reported by Karmiloff-Smith confirm) that patterns resulting from development

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become increasingly rigid. The reconstruction of a personality to match a changed environment is a formidable challenge. (As a problem for clinical psychologists, it stimulated Kelly’s (1963) Theory of Personality). Changing the patterns of all the members of a group in a way that preserves intra-group compatability while adjusting to a different environment is even more difficult; reconstructing an organisation, formal or formal, of any size seems to be impossible without changing the membership. Penrosian firms, like individual entrepreneurs, may find that nothing fails like success, because success may entrench belief in the patterns that appear to have produced it. The coherence of larger societies may depend on moderating the demands for compatability; for although, as Ziman (2000, p. 121) observes, the world-wide appeal of some soap operas indicates the similarity of evolved mental and emotional mechanisms, the power of genetics is being continually attenuated by individual and social developments which, though genetically enabled, are not genetically controlled. In the end, there is no escape from Knightian uncertainty; no procedures for expanding either theoretical knowledge or practical skills can be proved to be correct in relation to the total system to which they are to be applied, because our best representations of this system are necessarily incomplete, and likely to be erroneous in some unrecognised respects. However, Knightian uncertainty is also a precondition for novelty, as Shackle kept reminding us; and human cognitive systems have a distinct, if limited, capacity for creating novelty as an integral part of their cognitive operations. They may well also have a genetically-based need to search for novelty, and so a degree of uncertainty (balanced with some perceived stability) may be a necessity for the survival of the human species, as well as a potential threat to that survival.

ACKNOWLEDGMENTS I would like to thank Peter Earl, Roger Koppl and Jack Vromen, together with an anonymous referee, for their comments on an early draft, without implicating them in those parts of this version that they do not approve.

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IS HOMO ECONOMICUS EXTINCT? VERNON SMITH, DANIEL KAHNEMAN AND THE EVOLUTIONARY PERSPECTIVE C. Athena Aktipis and Robert O. Kurzban ABSTRACT The awarding in October of 2002 of the Nobel Memorial Prize in Economics1 to Daniel Kahneman and Vernon Smith might have profound implications for the survival of Homo economicus, which has long occupied a privileged place in the minds of economists and decision-making theorists. The species has endured many challenges and proven quite adaptable, changing to accommodate a cascade of findings inconsistent with its original conception. Homo economicus now faces a potentially more serious challenge: the resurgence of Homo sapiens, a more coherent and biologically grounded model for human decision-making, informed by theory and data from across the scientific spectrum. We use the term Homo economicus – as others have (e.g. Thaler, 2000) – as a shorthand for the canonical model of humans as self-interested agents. The historical conception of Homo economicus is of a rational decision-maker with perfect information and perfectly ordered preferences. This view has proven fruitful, yielding precise and often accurate predictions of aggregate economic behavior, which yields prima facie validation of the model. However, a wealth Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 135–153 © 2004 Published by Elsevier Ltd. ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07007-3

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of data, especially from the controlled setting of the laboratory, bring into question whether these assumptions reasonably reflect human thought and behavior.2 The work of both Kahneman and Smith played an essential role in rethinking the assumptions of classical theory. Smith, with his colleagues, for example, showed that contrary to a model of pure self-interest, people will sacrifice their own gains for others’ welfare (e.g. Hoffman, McCabe & Smith, 1996a). The Homo economicus approach to reconciling such observations within a rational choice framework is to add auxiliary social preferences for such things as aggregate welfare or fairness to fit the empirically observed departures from the standard model (e.g. Charness & Rabin, 2002). Kahneman and Tversky, in turn, undermined the standard model’s assumption that people’s preferences are stable, by showing preference reversals that cannot be explained by any reasonable reading of standard theory. These and other challenges to the standard economic model have been met by incorporating ancillary theories and constraints (e.g. other regarding preferences, inequity aversion, risk aversion, and loss aversion): Homo economicus’ only choice was to adapt, and she has indeed undergone considerable evolutionary change. Is, then, Homo economicus becoming extinct? The answer up until now has been no, largely because there was no reasonable alternative to Homo economicus. But now, with evolutionary psychology providing an alternative framework that can potentially form the foundation for a satisfying and coherent theory of economic behavior, the fate of Homo economicus is increasingly uncertain.

EVOLUTIONARY PSYCHOLOGY: GENERAL PRINCIPLES Self-Interest in Economics and Evolutionary Psychology At first glance, the evolutionary perspective and the standard economic perspective seem to be quite similar, both claiming that some form of self-interest drives behavior (Economist, 1993). In broad strokes, economists posit that humans are self-interested, while evolutionary psychologists’ claims rest on construing genes as selfish agents, with unidimensional “preferences” for their own replication (Dawkins, 1976/1989).3 Although these claims have superficial similarities, they differ in important respects (Cosmides & Tooby, 1994). In contrast to the assumption that humans are self-interested, evolutionary psychologists endorse the view that genes themselves are the unit of “selfishness.” Throughout human evolutionary history, our ancestors faced a wide variety of

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adaptive problems, from finding food, to securing a mate and taking care of offspring. Individuals carrying genes that enabled them to solve these adaptive problems were more likely to survive and leave healthy offspring, thus increasing the frequency in the next generation of genes coding for cognitive mechanisms that generated such behaviors (Tooby & Cosmides, 1992). Because solving these adaptive problems often involved securing benefits for oneself, individuals have cognitive mechanisms that, under a range of conditions, cause them to compute the costs and benefits to the self associated with possible outcomes and act in ways that achieve benefits for the self. This selfishness, although not a cornerstone of evolutionary theories of behavior, is consistent with the fundamental assumptions in standard economic models of human behavior. Of course, not all behavior is transparently self-interested; at minimum, people clearly do not behave as income-maximizers: people routinely incur costs, financial or otherwise, for the benefit of others. Such other-regarding preferences are not a problem for the evolutionary view. For example, the theory of kin selection indeed predicts that people should have strong preferences for sacrificing in favor of closely related individuals (Hamilton, 1964a, b). In contrast, economic approaches need to explain why individuals do things that benefit others, and this fact forced economic models to adapt in order to explain “anomalous” findings, generally by adding new theories or constraints (e.g. inequity aversion, other-regarding preferences). On the other hand, such behaviors and preferences fall naturally out of well developed models derived from the evolutionary approach (Hamilton, 1964a, b; Trivers, 1971) without recourse to ad hoc theories. Moreover, the evolutionary approach provides an ultimate explanation for the existence of many fundamental human preferences. It is true that classical theory can be used to infer preferences from observed behaviors (Samuelson, 1948) but it can not speak to the origins of these preferences. Economists can (and do) claim that individuals get utility from these activities, leaving the question of the origin of tastes and preferences to the other behavioral sciences (Cosmides & Tooby, 1994; Rubin & Paul, 1979). Evolutionary psychology provides answers – or at least a way to generate possible answers – about these origins: tastes and preferences that enabled us to better solve adaptive problems were selected for during human evolutionary history.

It’s not Just the Fitness Evolutionary psychologists do not claim that individuals simply try to maximize the number of offspring. Instead, evolutionary psychologists claim that humans

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have cognitive mechanisms designed to cause them to put effort toward things (proximate goals) that would have tended to increase reproductive success during our evolutionary history: gaining resources, increasing status, establishing social networks, finding mates, having sex, and investing in their children. Throughout our evolutionary history, engaging in these behaviors would have been critical to reproductive success. Although our current reproductive opportunities are far more numerous and often less costly than our reproductive opportunities in the environment in which we evolved, we cannot be expected to give up the pursuit of status, resources, social partners, and mates for the sperm bank and egg donation clinic (Burnham & Phelan, 2000). More specifically, this perspective suggests that humans do not have one “fitness maximization system” but instead a variety of specific mechanisms designed for particular adaptive functions. A well known and generally accepted principle is that the boarder the array of tasks to which a tool – whether physical or computational – can be applied, the worse the tool will be at accomplishing each of those tasks (Tooby & Cosmides, 1992). As has been discussed at length elsewhere, only information processing systems that are designed to apply to a narrow range of problems have sufficient computational power to efficiently generate accurate solutions to these particular problems (e.g. Chomsky, 1975). Analogously, because different adaptive problems require different computations for solving them, selection favors mechanisms designed to perform specific functions. These include detecting “cheaters” in social situations (Cosmides & Tooby, 1992), evaluating prospective mates (Buss, 1994; Singh, 1993), and evaluating the risks and benefits associated with aggressive behavior (Wilson & Daly, 1993, 1997). In the remainder of this article, we describe the ways in which the work of Smith and Kahneman undermined important components of classical economic theory and discuss how evolutionary approaches provides a paradigmatic framework that can make sense of findings considered “anomalous” on older views (e.g. Kuhn, 1996, 1962; Levati, 2002; Palfrey & Prisbrey, 1997).

VERNON SMITH Empirical Challenges to Homo Economicus Homo economicus was a reasonable first guess, in light of the widespread and not completely unsuccessful application of classical theory to the real economy. However, Vernon Smith’s work undermined the connection between observations of a market that was behaving in a way that matched an equilibrium analysis and

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the (plausible) inference that the agents in the economy were making decisions in the way implied by the theory. Smith’s early work on auctions is illustrative. In these experiments, subjects in a laboratory experiment acted as buyers and sellers in a market designed to simulate markets in the real world. Critically, participants had only very limited information about the market as a whole, i.e. a description of the rules of the game and a single price – the value (in dollars) of the object to the buyer or the seller (Smith, 1962). In these experiments, results conformed well to those predicted by a rational expectations competitive equilibrium model. This was true under diverse parameterization of the experimental conditions, including the details of the market mechanism, and was especially true as subjects repeated play. However, underlying assumptions of classical theory were not met in these experiments, especially information conditions – subjects had knowledge of only their own values, and certainly not perfect information about other agents. However the competitive equilibrium is achieved in these experiments, it is not through the computations implied by a traditional equilibrium analysis taking place in the heads of the subjects, but through the interactions between individuals with limited information (Hayek, 1988; Smith, 1991a, b). Smith’s later work (see the edited volumes Smith, 1991a, b, 2000a) extended the experimental work on auctions to other kinds of markets and institutions. One of the many important messages to emerge from this corpus of research was the critical role played by institutions (Smith, 1994). The mechanisms that subjects interact with in experiments have important effects on the behavior of those subjects. This is in large part because, not surprisingly, people respond to their perceptions of incentives, if not always in ways predicted by standard theory (see below). A significant contribution of Smith and his collaborators’ work was to catalogue subjects’ responses to various economic environments and institutions. For example, Hoffman, McCabe and Smith (1996a) illuminated an important aspect of bargaining psychology that is not captured by classical theory. They used an Ultimatum Game, in which one subject (the Proposer) offers a second player (the Responder) $X out of a total of $M. The second player can either accept, receiving $X, or decline, in which case both get $0. HMS found that if player 1 earns the role of Proposer (as opposed to being chosen at random), Responders are, under some conditions, willing to accept smaller offers. This is just one piece of a large set of data which add richness to our understanding of human economic decision making by taking psychology seriously – in this case, a psychology of “entitlement.” In the context of the present chapter, it is worth pointing out that the wealth of evidence generated by Smith led him and some of his collaborators toward evolutionary psychology as a source for new theoretical insights.

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Evolutionary Perspectives on Smith’s Work Cooperation. Recent work by Smith and his colleagues, especially Kevin McCabe (e.g. Hoffman, McCabe, Shachat & Smith, 1994; Hoffman, McCabe & Smith, 1996a, b; Kurzban, McCabe & Smith, 2001), extended research programs showing that in laboratory settings, people behave in ways that seem to suggest prosocial motivations (Guth, Schmittberger & Schwarze, 1982). Hoffman, McCabe and Smith (1998) focused on findings that players in numerous experiments using Prisoner’s Dilemma and Public Goods games were far more cooperative than predicted by standard theory. The authors presented an argument that an explanation for the existence of cooperation is the result of a history of selection for “certain cognitive abilities that predispose many people toward reciprocity” (see also Gintis, Bowles, Boyd & Fehr, 2003, p. 655). Similar results suggesting preferences beyond simple self-interest have been obtained with other games as well. Smith’s explanation for this is, in some sense, to say that in the laboratory you can take the person out of the social world, but not the reverse. That is to say, people enter experiments as social creatures with adaptations for a social world and experiences in it. In discussing why lab results don’t match predictions of classical theory, Smith (2000b) suggests: “What may be wrong is the very idea that instances of human decision interaction can be construed as without a history or a future” (p. 80). Responding to incentives: it’s not just the money. An important contribution of Smith’s was to detail the ways in which subjects in the laboratory responded to economic incentives. No one seriously doubts that they do, but Smith’s work systematically examined how people responded to different institutions – different rules of the game – a body of research with obviously important implications for the real world, in particular questions surrounding how to structure markets to generate economic efficiency (for a collection of relevant papers see Smith, 1991a, b, 2000a).

Impersonal and Personal Exchange The juxtaposition of two seemingly contradictory patterns of findings from the laboratory, that: (1) in some experiments people closely follow their financial selfinterest in a way that bears out predictions drawn from classical theory and; that (2) in other experiments people are considerably more prosocial than non-cooperative game theory would suggest led Smith to a distinction that he highlighted in his Nobel address: Impersonal versus Personal Exchange. As Smith puts it, when experiments are run to test the standard model: “[A]lthough the test results tend

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to be confirming in impersonal market exchange, the results are famously and recalcitrantly mixed in ‘personal exchange,’ notably in a great variety of twoperson extensive form games where some half of the people attempt and frequently succeed when risking cooperation, even when anonymously paired” (p. 505). Impersonal exchange refers to the familiar relatively anonymous transactions with money in markets with which we are all familiar. As the name suggests, this type of interaction is with individuals with whom we have little history and quite possibly little future, and, indeed, they may not be individuals at all, but rather faceless firms. In this context, people seem to be performing computations that allow them to follow their money-maximizing self-interest, whether or not these computations are the ones implied by classical theory. Critically, under conditions of impersonal exchange, Homo economicus is a reasonably predictive model. Personal exchange, in contrast, refers to transactions with known others, or, more generally to transactions that take place within a context that is construed socially. When the experimental context is constructed to cue participants to the social aspects of the task – for example, by reducing one’s sense of anonymity (Hoffman, McCabe & Smith, 1996) – participants cooperate at rates well above that predicted by traditional theory. Taken together, the results of experiments in these differing environments suggest that Homo economicus – in the sense of a set of cognitive mechanisms that are capable of calculating how to pursue one’s financial interest – is one aspect of human cognition. However, Homo economicus appears only under certain conditions, especially ones in which there are few cues that one is embedded in a social world. This resonates with evolutionary views that take human cognition to be a set of functionally specific modules that are dynamically activated depending on proximate cues (Tooby & Cosmides, 1990), and, more specifically, the view that humans have a number of distinct modes of social interaction depending on the context (Fiske, 1992).

DANIEL KAHNEMAN Empirical Challenges to Homo economicus While Vernon Smith’s work challenged the assumptions of Homo economicus from inside the discipline of economics, psychologists Daniel Kahneman and Amos Tversky, his collaborator, used the methods of experimental psychology to challenge traditional notions of human rationality from the outside. Kahneman and Tversky are best known for their work that chipped away at a cornerstone of classical approaches to decision making, expected utility theory. Expected utility

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theory assumes that individuals have preferences over choices based on the value of the outcomes and the probability of the outcomes obtaining (von Neumann & Morgenstern, 1944). Kahneman and Tversky’s prospect theory illustrates several other factors that can affect the valuation of an outcome. In their early work, Kahneman and Tversky described the two central aspects of prospect theory: the non-linearity of decision-weights and loss aversion (Kahneman & Tversky, 1979/2000). The non-linearity of decision-weights describes how the perceived value of an outcome does not increase linearly as its probability increases, as standard theory would suggest. Instead, individuals tend to undervalue outcomes that are close to certain (but not 100% certain) and overvalue extremely unlikely outcomes (Kahneman & Tversky, 1992/2000). Loss aversion refers to the asymmetric value functions individuals have for losses and gains. A loss tends to carry with it a greater decrease in perceived value than the increase in value that comes with an equivalent gain, i.e. “losses loom larger than gains.” In other words, people seem to dislike losing $10 more than they like winning $10. Tennis great Jimmy Connors captured the notion of loss aversion when he said, “I hate to lose more than I love to win”(Wall Street Journal, 2004). In later work, Kahneman and Tversky expanded the notion of loss aversion, applying it to economic exchanges (Kahneman & Tversky, 1991/2000). Kahneman and Tversky convincingly showed that human behavior violates one of the assumptions of standard models of decision-making: “that preferences do not depend on current assets” (p. 143). According to the standard model, the amount of money an individual is willing to pay (WTP) for a good should be the same as the amount that individual is willing to accept (WTA) for giving up the good. If I am willing to accept no less than $8 to give up a university mug, I should be willing to pay $8 for that mug if I do not have it. However, individuals are often willing to pay less to get an item – a university mug, among many other things (Kahneman & Tversky, 1991/2000) – than they are willing to accept to give it up. Kahneman and Tversky used prospect theory to explain this disparity, by arguing that people don’t think of spending money as incurring a loss, but do perceive losing goods as incurring a loss (see Kahneman, 1991/2000). That is, the loss aversion entailed by prospect theory increases the magnitude of the perceived loss of the item, raising the minimum amount an individual would be willing to accept (WTA) to give that item up, which leads to the difference between WTA and WTP. Kahneman and Tversky also showed that under some conditions, individuals display inconsistent preferences (Kahneman & Tversky, 1984). In their experiments, Kahneman and Tversky showed that framing an option as a cost versus framing it as an uncompensated loss can affect whether that option is chosen. For example, one of their questions asks the respondent to choose between two options for combating a disease that is expected to kill 600 people. When presented

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with the following options, most individuals (72%) choose the risk-averse option (program A) A: 200 people will be saved B: There is a one-third probability that 600 people will be saved and two-thirds probability that no people will be saved.

However, when individuals are asked to choose between logically identical options that are framed differently, most individuals (78%) choose the more risky option (program D) (Kahneman & Tversky, 1984). C: 400 people will die. D: There is a one-third probability that nobody will die and a two-thirds probability that 600 people will die.

Although the first and second sets of choices are identical in real terms, they differ with respect to the framing of the two options. In the first version, the deaths are framed as an uncompensated loss, implying a reference state in which everybody dies of the disease (“. . . people will be saved”). The second version frames the deaths as a loss, implying a reference state in which nobody dies (“. . . people will die”).

Evolutionary Perspectives on Kahneman’s Work Although Kahneman and Tversky’s prospect theory was not designed as a model of ecological decision making, there are clear parallels between the preferences described by prospect theory and the kinds of behaviors that are rational for organisms in variable or risky ecological circumstances. Loss/gain asymmetry. The asymmetry between losses and gains, which is a centerpiece of prospect theory, can be easily reconciled with evolutionary theory. For any organism, marginal losses are more fitness relevant than marginal gains because gains and losses are asymmetrical with respect to their effect on expected fitness. When an organism realizes a gain, it can increase its energy store, which usually increases the length of time it will live. However, when an organism realizes a loss, it may cause that organism to die or become more susceptible to death. So, everything else being equal, under broadly plausible assumptions about fitness functions, organisms should be designed to be more concerned with avoiding losses than with realizing gains because of this asymmetry (Stephens & Krebs, 1986). Note that the marginally decreasing nature of the utility function also makes sense from an evolutionary perspective. If an individual is close to death, an

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Fig. 1. This graph shows a hypothetical value function based on prospect theory (adapted from Kahneman & Tversky, 1984). Note that the value of a loss is larger than the value of an equivalent gain (dotted lines).

increase in their energy reserves is much more valuable than the same amount of increase would be if that organism had much more energy to begin with (Fig. 1). Prospect theory acknowledges that the variability and probability of a given outcome can influence the value ascribed to it to a greater extent than predicted by an expected value computation. Accordingly, an outcome with a less than certain chance of occurring, say a 0.95 probability of getting $100, could be subjectively valued at $80, rather than the $95 expected value. In evolutionary terms, optimal foraging theory suggests that sensitivity to probability and variability is quite rational (Stephens & Krebs, 1986). If an organism has a 0.95 probability of acquiring the large prey item that will sustain it and a 0.05 chance of getting nothing that day (and therefore dying), the organism should not value this option equivalently to a sure bet at getting a prey item that is 0.95 the size of the large prey. Because every organism always faces the threat of death (or decreased fecundity) when it does not acquire enough resources (Caraco, 1983; Caraco & Lima, 1987), a less than certain gain can be worth much less than its expected value. The same reasoning applies for variable outcomes. If organisms have a threshold of energy they need in order to survive, a variable option that entails the possibility of going below that threshold is worth less than an option with an equivalent expected value but no chance of going below that threshold (Caraco, 1983; Caraco & Lima, 1987). In short, optimal foraging theory, a framework derived from an evolutionary analysis, which has already proven fruitful for understanding decision making in non-human animals, provides a potentially unifying perspective on the ultimate origins of the preferences reflected by prospect theory (Caraco & Lima, 1987). It is

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true that Kahneman and Tversky (1984) did not require the evolutionary analysis to develop their theory – their ingenious empirical efforts were sufficient. But optimal foraging theory links economic decision making in this domain with a proven productive theoretical background and, importantly, suggests new directions of inquiry (e.g. Rode, Cosmides, Hell & Tooby, 1999). This changes loss aversion from an empirically derived ad hoc add-on into a comprehensible component of a more seamless conceptual structure. Relative Well-Being. Classical economic theory, sensibly, holds that utility increases as wealth and consumption increase. Similarly, evolved organisms’ motivational systems should be designed to find it rewarding to have more of those things that contribute to growth, health, and reproductive success. However, a particular good can have different value, depending on the consumption history of the individual: the first doughnut tastes better than the fifth. A well designed motivational system should clearly be designed to take into account diminishing returns – a hungry organism should be more motivated to acquire calories than a sated one. In addition, some types of motivational systems will be designed to vary not as a function of some absolute metric (satiety), but rather in comparison with relevant social others. For example, if mates are evaluated on the basis of some comparison among candidates, then selection might favor a mechanism that motivates behavior with the goal of achieving relative superiority along that dimension, rather than against some objective metric (Price, Cosmides & Tooby, 2002). There is considerable support for the idea that people’s happiness and satisfaction is computed in this way. While it is true that there is a positive correlation internationally between income and happiness (or “subjective well-being,”) this relationship is neither straightforward nor monotonic, and large national increases in wealth do not cause correspondingly sizable increases in happiness (Diener & Oishi, 2000). This is somewhat of a puzzle on standard approaches to utility. State Dependence. The impact of a given change in welfare depends on an organism’s current state; a small gain to an organism that has large energy reserves might represent a large gain to a starving organism. Consistent with this, people indeed respond to risks to changes in welfare as a function of their current financial or nutritive state (Rode et al., 1999). In the context of prospect theory, this suggests that there should be some variation in the shape of individuals’ curves. For example, a starving animal or a poor person is likely to have a more steeply sloped curve for gains since a morsel of food or dollar has greater (perceived) value, while a sated organism or rich person would have a shallower curve for gains because the marginal value of those gains is small. Somewhat less obviously, the loss portion of the curve is likely to be less steeply sloped for a hungry animal or poor individual because a small loss is likely to kill or ruin that individual, and further losses are

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irrelevant after that point. For a sated animal or for a rich person, the curve is likely to be steeply sloped curve over a greater range of losses since there is more to lose before all is lost. Individuals with differently shaped curves will value the same risky opportunity in different ways. A rich individual might value a risky option less because the perceived value of the potential loss associated with the risk is much greater than the perceived value of the potential gain. However, a poorer individual might be more willing to undertake that risk because the value of the potential gain is greater than the value of the possible loss. Data suggest that humans do behave in such a way: Wilson and Daly (1997) found that rates of homicide and early pregnancy are higher in areas of lower socioeconomic status and lower life expectancy. They claim that this difference in willingness to undertake risks is adaptive because individuals with lower life expectancies should be more willing to engage in risky behaviors (such as violence) that might raise status, thereby increasing reproductive success. One interpretation of this finding is that individuals who perceive themselves to be poorly off may have a curve with a steeper slope for gains and shallower slope for losses, which makes them more likely to engage in risky behaviors such as violence and sex (Wilson & Daly, 1993, 1997). The foregoing raises the possibility that the differently shaped curves for organisms in different states can be profitably thought of as the same prospect theory curve with reference points above (in the case of a sated individual) and below (in the case of a hungry individual) the origin. Whether state dependence is conceptualized as differently shaped curves or changing reference points along a single curve, individuals value outcomes differently, and therefore behave differently, depending on their current subjective well-being.

THE RESURGENCE OF HOMO SAPIENS Tastes and Preferences Although tastes and preferences are central to economic decision making, the question of the origins of tastes and preferences is of little interest to many economists. Evolutionary psychology, on the other hand, is critically concerned with and has conceptual tools to address the origins of preferences (Cosmides & Tooby, 1994): our literal taste for fat is because of the adaptiveness of consuming fat in our evolutionary history, we like finding attractive partners because that increased our reproductive success, and we care about our children because their survival meant the survival of our genes. Similar arguments can be made for other

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sorts of tastes and proximate goals, such as helping kin (Daly, Salmon & Wilson, 1997), developing positive social relationships (Leary & Baumeister, 2000), and striving for prestige (Henrich & Gil-White, 2001). One of the ways in which our tastes and preferences helped us survive during our evolutionary history was by attracting us to fitness-relevant elements of the environment. As Thornhill (1998) put it: “beauty experiences are unconsciously realized avenues to high fitness in human evolutionary history. Ugliness defines just the reverse” (p. 544). In the case of food, our ancestors lived in a world in which fat and sugar were much scarcer than it is today. Passing up an opportunity to eat meat or high sugar items (which were then mostly fruits) could have made the difference between starving or surviving the winter. Because of the nutritional value of animal fat, genes that coded for a preference for consuming animal fat were selected. In modern environments, this taste leads to unfortunate outcomes. Consuming meat and high sugar foods (which are now candy bars and the like) can make the difference between an early heart attack and surviving to see one’s grandchildren. The evolutionary approach predicts tastes for proximate goals (fatty and sugary foods), not ultimate survival and reproductive success (Burnham & Phelan, 2000).

Time/Energy Constraints The evolutionary approach highlights the fact that our ancestors – like all other living organisms – had only limited time and energy to engage in a wide variety of fitness-enhancing activities, and therefore had to make trade-offs between one activity and another, for example, how much time to invest in finding a mate versus finding food, or whether to invest in having offspring immediately or invest in increasing status so future offspring might have a better chance at survival and reproduction. This process itself, allocating time and energy to decision-making, represents an important adaptive task. Collecting information relevant to a question and determining the correct weighting of that information can take an arbitrarily large amount of time and mental resources. Standard economic approaches were unconcerned with computational limitations, implicitly assuming that time and mental resources were unlimited and costless. Simon (1955) introduced the idea that computation was itself a limited resource, stating that humans exhibit “bounded rationality,” or rationality within certain computational constraints. Both Kahneman and Smith extended these ideas in important ways. Smith and Walker (1993), for example, developed a framework designed to take into account payoffs to the subject beyond the monetary, including

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the cost of making the decision itself. Kahneman and Tversky (1979/2000, 1984) showed that humans use decision rules that are based on neither perfect information nor straightforward cost/benefit evaluation. Both of these research programs laid foundations for extremely productive lines of research that have been taken up by others who have extended and clarified these issues. Gigerenzer and his colleagues (Gigerenzer, 2000; Gigerenzer & Selton, 2001; Gigerenzer, Todd & The ABC Research Group, 1999) have strengthened the connections between bounded rationality and evolution/ecology to develop precisely formulated models that make sense in the context of an organism with biological constraints. They have developed the idea that humans are “ecologically rational,” making judgments that are “fast and frugal,” arriving at good decisions using only very limited information (Gigerenzer et al., 1999). Other researchers are similarly engaged in productive research programs that take seriously the idea that human decision makers have limited time and cognitive resources to bring to bear on any given problem (e.g. Gabaix & Laibson, 2003).

Emotions Another aspect of human behavior that is informed by the evolutionary perspective is that of emotions. Historically, emotions have been seen as impediments to rationality, getting in the way of good decision-making. However, it has become clear that emotions play a central, indeed critical, role in decision-making. Emotions imbue situations with an affective valence that is essential for responding appropriately to opportunities and weighing choices. Damasio (1995) refers to this as a “somatic marker,” a physiological response that carries affective information relevant to a situation. Individuals whose emotional capacities have been damaged by brain injuries seem to lack this anticipatory response. Damasio and his collaborators (Bechara, Damasio, Damasio & Lee, 1999) have shown that these patients persist in choosing cards from a deck with more risk and lower expected return, while normals developed an anticipatory psychological response and learned to avoid the inferior deck. In a sense, the patients who lacked the emotional response were behaving less rationally than the individuals whose emotional systems were in tact. This view resonates with that of other functionally oriented researchers (Frank, 1988; Ketelaar & Todd, in press; Tooby & Cosmides, 1990) who have discussed the evolutionary significance of emotions. According to evolutionary psychologists Tooby and Cosmides (1990), emotions function to coordinate physiological and psychological responses to fitness relevant situations, focusing attention on important aspects of the environment and guiding the organism to adaptively

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correct responses. Emotions are obviously important for responding to the social environment as well. Ketelaar and Au have shown that the emotion of guilt seems to have an important function in motivating commitment (Ketelaar & Au, 2003). Hence, emotions are more of an aid to decision-making than an obstacle to be overcome. Without them we would be unable to attend to relevant stimuli, properly respond to risky situations, or feel emotions such as guilt that facilitate the formation and maintenance of social relationships. The evolutionary significance of emotions is transparent; they help us respond to danger effectively and facilitate the social relationships that influence our reproductive success.

CONCLUSION Smith, Kahneman and their colleagues amassed a tremendous amount of evidence that first threatened, then endangered Homo economicus. Instead of a simple model of human behavior based on rationality and perfect information, Homo economicus became an amalgam of various sub-models and constraints that explain deviations from straightforward rationality. In this paper, we sought to answer the questions: Why is it that humans so often depart from the reasoning, decision making, and behavior of Homo economicus? When should we expect human behavior to be consistent with the predicted behavior of Homo economicus? Where should we look for the ultimate explanation for our species’ actual preferences? Evolutionary psychology and experimental economics share more than a skeptical view of Homo economicus; they also share the common goal of creating a realistic model of human behavior. Evolutionary psychology can help provide a framework for experimental economists to understand behaviors observed in the laboratory and in the real world, as well as an account of the origins of preferences. Experimental economists have provided a wealth of evidence with which adaptationist hypotheses about cognitive design can be built. The evolutionary view sheds light on the ultimate reasons for behavior surrounding trust and reciprocity (Hoffman et al., 1996b), and gives potential insights into people’s asymmetrical valuations of equivalent sized losses and gains (Kahneman & Tversky, 1991/2000). More generally, evolutionary psychology is potentially valuable to economics because it can help economists better understand the ultimate reasons for the cognitive mechanisms underlying economic choices, or even, as in the case of Prospect Theory, the shape of a particular value function. The marriage of theory from evolutionary psychology and methods from cognitive science and experimental economics has already borne empirical fruit (Hoffman et al., 1996b; Ketelaar & Au, 2003; Kurzban et al., 2001).

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The emerging field of “neuroeconomics” (Glimcher, 2003; McCabe, 2003), for example, owes much to the increasing connections between economics and cognitive psychology that have been forged during the past two decades, many of which to a greater or lesser degree are descended from research by Smith and his colleagues. Reciprocally, the tools of experimental economics can help evolutionary psychologists test hypotheses focal to their theoretical interests, including kin-directed altruism (Unur & Peters, 2003), how individuals balance their interests against those of their group, people’s desire for punishment, intertemporal choices, and so on. So, is Homo economicus extinct? Not exactly. In hindsight, Homo economicus is a species that could never have evolved in the first place. Homo economicus tried to survive by adding auxiliary theories into an ultimately unsalvageable model. The model of human decision making envisioned by early rational choice theorists violates what is known about human behavior in the laboratory on the one hand, and what is known about the products of evolution by natural selection on the other. It is true that a wealth of evidence suggests that Homo economicus is a reasonable model for human behavior, but only under very particular conditions, such as impersonal exchange. But the correct model of human decision making requires acknowledging that our actual species, Homo sapiens, is an amalgam of Homo reciprocans, Homo prospectus, Homo nepotismis, and no doubt many other interesting subcomponents. Homo economicus can be expected to live on in Homo sapiens as well, showing herself only when no one is watching.

NOTES 1. Technically the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, established in 1968. 2. In his Prize Lecture, Smith (2002) was quick to point out that another Smith (Adam) had long ago argued (Smith, 1759) that “individuals were mischaracterized by the metaphor, ‘economic man’ ” (p. 2). 3. We use teleological language for discursive economy, confident that this language can be paid out in terms of purely physical causality (see Dawkins, 1976).

ACKNOWLEDGMENTS This material is based upon work supported under a National Science Foundation Graduate Research Fellowship. The second author would also like to thank the Russell Sage Foundation for their generous support.

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REFERENCES Bechara, A., Damasio, H., Damasio, A. R., & Lee, G. P. (1999). Different contributions of the human amygdala and ventromedial prefrontal cortex to decision-making. Journal of Neuroscience, 19(13), 5473–5481. Burnham, T., & Phelan, J. (2000). Mean genes: From sex to money to food: Taming our primal instincts. Cambridge, MA: Perseus. Buss, D. M. (1994). The evolution of desire. New York, NY: Basic Books. Caraco, T. (1983). White-crowned sparrows (Zonotrichia leucophrys): Foraging preferences in a risky environment. Behavioral Ecology and Sociobiology, 12, 63–69. Caraco, T., & Lima, S. L. (1987). Survival, energy budgets, and foraging risk. In: M. L. Commons, A. Kacelnik & S. J. Shettleworth (Eds), Quantitative Analyses of Behavior: Foraging (Vol. 6, pp. 1–21). Hillsdale, NJ: Lawrence Erlbaum. Charness, G., & Rabin, M. (2002). Understanding social preferences with simple tests. The Quarterly Journal of Economics, 117(3), 817–869. Chomsky, N. (1975). Reflections on language. New York: Random House. Cosmides, L., & Tooby, J. (1992). Cognitive adaptations for social exchange. In: J. H. Barkow, L. Cosmides & J. Tooby (Eds), The Adapted Mind (pp. 163–228). New York: Oxford University Press. Cosmides, L., & Tooby, J. (1994). Better than rational: Evolutionary psychology and the invisible hand. AER Papers and Proceedings (May), 327–332. Daly, M., Salmon, C., & Wilson, M. (1997). Kinship: The conceptual hole in psychological studies of social cognition and close relationships. In: J. Simpson & D. Kenrick (Eds), Evolutionary Social Psychology (pp. 265–296). Mahwah, NJ: Lawrence Erlbaum. Damasio, A. (1995). Descarte’s error. New York: Avon Books. Dawkins, R. (1976/1989). The selfish gene. Oxford: Oxford University Press. Diener, E., & Oishi, S. (2000). Money and happiness: Income and subjective well-being across nations. In: E. Diener & E. M. Suh (Eds), Culture and Subjective Well-being (pp. 185–218). Evo-Economics: Biology meets the dismal science (1993, December 2). The Economist, 93–95. Fiske, A. (1992). The four elementary forms of sociality: Framework for a unified theory of social relations. Psychological Review, 99, 689–723. Frank, R. H. (1988). Passions within reason: The strategic role of the emotions. New York: W. W. Norton. Gabaix, X., & Laibson, D. (2003). A new challenge for economics: The “frame problem” In: Vol. 1: Rationality and Well-Being. Oxford University Press. Gigerenzer, G. (2000). Adaptive thinking: Rationality in the real world. New York: Oxford University Press. Gigerenzer, G., & Selton, R. (2001). Rethinking rationality. In: G. Gigerenzer & R. Selton (Eds), Bounded Rationality: The Adaptive Toolbox, MIT Press. Gigerenzer, G., Todd, P. M., & The ABC Research Group (1999). Simple heuristics that make us smart. New York: Oxford University Press. Gintis, H., Bowles, S., Boyd, R., & Fehr, E. (2003). Explaining altruistic behavior in humans. Evolution and Human Behavior, 24(3), 153–172. Glimcher, P. W. (2003). Decisions, uncertainty, and the brain: The science of Neuroeconomics, MIT Press. Guth, W., Schmittberger, R., & Schwarze, B. (1982). An experimental analysis of ultimatum bargaining. Journal of Economic Behavior and Organization, 3, 367–388.

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Hamilton, W. D. (1964a). The genetical evolution of social behavior I. Journal of Theoretical Biology, 7, 1–16. Hamilton, W. D. (1964b). The geneticial evolution of social behavior II. Journal of Theoretical Biology, 7, 17–52. Hayek, F. (1988). The fatal conceit. Chicago: University of Chicago Press. Henrich, J., & Gil-White, F. J. (2001). The evolution of prestige: Freely conferred status as a mechanism for enhancing the benefits of cultural transmission. Evolution and Human Behavior, 22, 165–196. Hoffman, E., McCabe, K., Shachat, J., & Smith, V. L. (1994). Preferences, property rights, and anonymity in bargaining games. Games and Economic Behavior, 7(3), 346–380. Hoffman, E., McCabe, K., & Smith, V. L. (1996a). On expectations and the monetary stakes in ultimatum games. International Journal of Game Theory, 25(3), 289–301. Hoffman, E., McCabe, K., & Smith, V. L. (1996b). Social distance and other regarding behavior in dictator games. American Economic Review, 86(3), 653–660. Kahneman, D., & Tversky, A. (1979/2000). Prospect theory: An analysis of decision under risk. In: D. Kahneman & A. Tversky (Eds), Choices, Values and Frames (pp. 17–43). Cambridge: Cambridge University Press. Kahneman, D., & Tversky, A. (1984). Choices, values and frames. American Psychologist, 39(4), 341–350. Kahneman, D., & Tversky, A. (1991/2000). Loss aversion in riskless choice: A reference-dependent model. In: D. Kahneman & A. Tversky (Eds), Choices, Values and Frames (pp. 143–158). Cambridge: Cambridge University Press. Kahneman, D., & Tversky, A. (1992/2000). Advances in prospect theory: Cumulative representation of uncertainty. In: D. Kahneman & A. Tversky (Eds), Choices, Values and Frames (pp. 44–65). Cambridge: Cambridge University Press. Ketelaar, T., & Au, W. T. (2003). The effects of feelings of guilt on the behavior of uncooperative individuals in repeated social bargaining games: An affect-as-information interpretation of the role of emotion in social interaction. Cognition and Emotion, 17, 425–453. Ketelaar, T., & Todd, P. M. (in press). Framing our thoughts: Evolutionary psychology’s answer to the computational mind’s dilemma. In: P. S. Davies & H. R. H. III (Eds), The Evolution of Minds: Psychological and Philosophical Perspectives. Norwell, MA: Kluwer. Kuhn, T. S. (1996, 1962). The structure of scientific revolutions (3rd ed.). Chicago and London: University of Chicago Press. Kurzban, R., McCabe, K., & Smith, V. L. (2001). Incremental commitment and reciprocity in a real time public goods game. Personality and Social Psychology Bulletin, 27(12), 1662–1673. Leary, M. R., & Baumeister, R. F. (2000). The nature and function of self-esteem: Sociometer theory (Vol. 32). San Diego: Academic Press. Levati, M. V. (2002). Explaining private provision of public goods by conditional cooperation: An evolutionary approach. Unpublished manuscript, Max Planck Institute for Research into Economic Systems, Jena, Germany. McCabe, K. (2003). Neuroeconomics. In: L. Nadel (Ed.), Encyclopedia of Cognitive Science (Vol. 3, pp. 294–298). Nature Publishing Group, Macmillan. Palfrey, T. R., & Prisbrey, J. E. (1997). Anomalous behavior in public goods experiments: How much and why? American Economic Review, 87, 829–846. Price, M. E., Cosmides, L., & Tooby, J. (2002). Punitive sentiment as an anti-free rider psychological device. Evolution and Human Behavior, 23, 203–231.

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Rode, C., Cosmides, L., Hell, W., & Tooby, J. (1999). When and why do people avoid unknown probabilities in decisions under uncertainty? Testing some predictions from optimal foraging theory. Cognition, 72, 269–304. Rubin, P. H., & Paul, C. W., III (1979). An evolutionary model of taste for risk. Economic Inquiry, 17(4), 585–596. Samuelson, P. A. (1948). Consumption theory in terms of revealed preference. Economica, 15, 243– 253. Simon, H. A. (1955). A behavioral model of rational choice. Quarterly Journal of Economics, 69, 99–118. Singh, D. (1993). Body shape and women’s attractiveness: The critical role of waist-to-hip ratio. Human Nature, 4(3), 297–321. Smith, V. L. (1962). An experimental study of competitive market behavior. Journal of Political Economy, 70, 111–137. Smith, V. L. (1991a). Papers in experimental economics. Cambridge: Cambridge University Press. Smith, V. L. (1991b). Rational choice: The contrast between economics and psychology. Journal of Political Economy, 99, 877–897. Smith, V. L. (1994). Economics in the laboratory. Journal of Economic Perspectives, 8(1), 113–131. Smith, V. L. (2000a). Bargaining and market behavior: Essays in experimental economics. Cambridge: Cambridge University Press. Smith, V. L. (2000b). Bargaining theory, behavior and evolutionary psychology: Introduction. In: V. L. Smith (Ed.), Bargaining and Market Behavior: Essays in Experimental Economics (pp. 79–89). Cambridge, UK: Cambridge University Press. Smith, V. L., & Walker, J. M. (1993). Rewards, experience and decision costs in first price auction. Economic Inquiry, 31, 237–244. Stephens, D. W., & Krebs, J. R. (1986). Foraging theory. Princeton: Princeton University Press. Thaler, R. H. (2000). From Homo economicus to Homo sapiens. Journal of Economic Perspectives, 14(1), 133–141. Thornhill, R. (1998). Darwinian aesthetics. In: C. Crawford & D. L. Krebs (Eds), Handbook of Evolutionary Psychology: Ideas, Issues and Applications (pp. 543–572). Mahwah, NJ: Lawrence Erlbaum. Tooby, J., & Cosmides, L. (1990). The past explains the present: Emotional adaptations and the structure of ancestral environments. Ethology and Sociobiology, 11, 375–424. Tooby, J., & Cosmides, L. (1992). The psychological foundations of culture. In: J. H. Barkow, L. Cosmides & J. Tooby (Eds), The Adapted Mind (pp. 19–136). New York: Oxford University Press. Trivers, R. L. (1971). The evolution of reciprocal altruism. The Quarterly Review of Biology, 46(March), 35–57. Unur, A. S., & Peters, H. E. (2003). Experimental analysis of other-regarding preferences of parents and children. Unpublished manuscript. von Neumann, J., & Morgenstern, O. (1944). Theory of games and economic behavior (1953 ed.). Princeton, NJ: Princeton University Press. Wilson, M., & Daly, M. (1993). Lethal confrontational violence among young men. In: N. J. Bell & R. W. Bell (Eds), Adolescent Risk Taking (pp. 84–106). Newbury Park, CA: Sage. Wilson, M., & Daly, M. (1997). Life expectancy, economic inequality, homicide and reproductive timing in Chicago neighborhoods. British Medical Journal, 314(1271).

AUSTRIAN ECONOMICS, EVOLUTIONARY PSYCHOLOGY, AND METHODOLOGICAL DUALISM: SUBJECTIVISM RECONSIDERED Viktor J. Vanberg ABSTRACT The methodological individualism and subjectivism of the Austrian tradition in economics is often associated with a methodological dualism, i.e. the claim that the nature of its subject matter, namely purposeful and intentional human action, requires economics to adopt a methodology that is fundamentally different from the causal explanatory approach of the natural sciences. This paper critically examines this claim and advocates an alternative, explicitly naturalistic and empiricist outlook at human action, exemplified, in particular, by the research program of evolutionary psychology. It is argued that, within the Austrian tradition, a decidedly naturalistic approach to subjectivism can be found in F. A. Hayek’s work. In short, I shall contend that the empirical element in economic theory – the only part which is concerned not merely with implications but with causes and effects . . . – consists of propositions about the acquisition of knowledge. F. A. Hayek (1948a, p. 33).

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1. INTRODUCTION The combination of methodological individualism and subjectivism is commonly regarded as constitutive of the research tradition that was originated by Carl Menger (Kirzner, 1992a, p. 73; Vanberg, 1998)1 and for which the name “Austrian economics” has become the modern label (Kirzner, 1992b, p. 122; Vaughn, 1994, p. 3). Methodological individualism entails the commitment to explain aggregate or collective social phenomena in terms of behavioral choices made by individuals, their interaction-effects and unintended consequences.2 This commitment, in turn, implies that an individualist approach must include as its theoretical core – or its principal explanatory conjectures – general assumptions about human behavior. The Austrian research tradition is subjectivist in its insistence on the fact that subjective preferences and beliefs are essential determinants of human action, and that an adequate theoretical account of human behavior must pay proper attention to these determinants. It is ultimately its thoroughgoing subjectivism that marks the critical difference between the Austrian tradition and mainstream, neoclassical economics (Streissler, 1972, p. 427). The latter may also be said to adhere, in essence, to methodological individualism and to account for the subjectivity of human valuations in its concept of utility (Lachmann, 1977, p. 156). With its fiction of perfect information, however, neoclassical orthodoxy entirely assumes away the very complexities that arise from the subjectivity of perceptions, knowledge and expectations (Witt, 1992, p. 216; 2003, p. 25).3 Notwithstanding its various refinements, the orthodox approach in essence proceeds as if all economic agents would “see” the world as it truly is (and as the economic theorist supposedly sees it) and were able to reliably foresee the consequences of their actions. Such perspective rules out the possibility that inter-personal differences and inter-temporal changes in behavior may be due to differences and changes in subjective beliefs about the world, and it affords the economic theorist the luxury of not having to deal with what, in this regard, goes on in people’s minds. There has been general agreement within the Austrian tradition that an economics that has anything of relevance to say about real world economies cannot afford the luxury of disregarding the subjectivity, and therefore variability, of human knowledge and beliefs.4 Yet, Austrian economists have been in much less agreement on what such subjectivism implies for the manner in which economics can be – or should be – carried out as a scientific enterprise. In fact, among advocates of different strands of Austrian economics there has been considerable disagreement on the methodological implications that a commitment to subjectivism entails (Caldwell, 1991, p. 488; Lavoie, 1991, p. 471, 1994b, p. 55; Shand, 1981, p. 13).

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The purpose of the present paper is to take a closer look at some of the principal arguments that have been advanced by Austrians economists on the methodological implications of subjectivism. More specifically, I shall take issue with claims, raised by a number of authors within the Austrian tradition, that recognizing the subjectivist determinants of human action requires economics (as well as the other social sciences) to adopt a methodology that is fundamentally different from the causal explanatory approach of the natural sciences. After summarizing these claims (in Section 2), I shall critically examine (Section 3) and contrast them with an alternative, explicitly naturalistic and empiricist outlook at human action, exemplified by the research program of evolutionary psychology (Section 4) and by the theoretical perspectives of biologist E. Mayr and philosopher K. R. Popper (Section 5). I shall further argue that such an alternative, empiricist research program has actually been advanced from within the Austrian tradition itself, namely in F. A. Hayek’s work (Sections 6 & 7).5 My conclusion will be that there are ample reasons for advocates of the Austrian research program to revise some of their traditional views on subjectivism, and to part with methodological claims that tend to foreclose prematurely promising research.

2. SUBJECTIVISM AND METHODOLOGICAL DUALISM IN AUSTRIAN ECONOMICS In their efforts to specify what they consider to be the most consistent version of “subjectivism” Austrian economists have distinguished between a “subjectivism of preferences” and a “subjectivism of expectations” (Lachmann, 1977, p. 28) or between “static” and “dynamic” subjectivism (Kirzner, 1992b, p. 122; O’Driscoll & Rizzo, 1985, p. 22).6 Such distinctions are meant to emphasize that a consistent subjectivism must go beyond recognizing the subjectivity of human valuations and take serious the fact that human purposeful action is always based on subjective expectations and interpretations, i.e. on mental activities such as “ordering and formulating ends, allocating means to them, making and revising plans, determining when action has been successful” (Lachmann, 1982, p. 37). There is no need in the present context to comment on the controversy over whether or not Carl Menger (Chamilall & Krecke, 2002) and second or thirdgeneration Austrians, such as Ludwig von Mises, can justly be said to have already paid sufficient attention to the “subjectivism of expectations” (Lachmann, 1982, p. 36) or adopted a “fully subjectivist treatment of choice” (Kirzner, 1992b, p. 126).7 Nor is there a need to address the issue of whether it was not until the “Austrian revival of the 1970s” and its “radical subjectivism”(Lachmann, ibid.) that the Austrian tradition arrived at a consistent “subjectivism of active minds”

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(ibid., p. 37), or whether, as others suspect, the recent “radically subjectivist” movement marks, instead, a departure from the paradigmatic core of the Austrian research program (Kirzner, 1995, p. 13). My exclusive concern here will be with the above noted claim that the subjectivist dimensions of their subject matter require economists to adopt a methodological approach that is fundamentally different from the causal explanatory methodology commonly practiced in the natural sciences. This claim continues to play a prominent role within the Austrian tradition ever since it was first and most forcefully pronounced by Ludwig von Mises and, whether directly or indirectly, Mises’ arguments on this issue have clearly been most influential in shaping the general paradigmatic outlook of modern Austrian economics (Witt, 1989, p. 411). According to Mises, what separates the methodology of economics, and the sciences of human action more generally,8 from that of the natural sciences is the fact that they deal with “conscious behavior or purposive activity” (Mises, 1990, p. 19), i.e. with “behavior open to the regulation and direction by volition and mind” (ibid.), by contrast to mere reactive responses to stimuli “which cannot be controlled by volition” (ibid., p. 23).9 Explicitly rejecting K. R. Popper’s falsifiability criterion as the relevant test for empirically contentful scientific theories Mises (1978, p. 69) declares: “It is obvious that all this cannot refer in any way to the problems of the sciences of human action.” And by contrast to Popper’s view that the same general methodological principles apply to all empirical sciences, including the behavioral and social sciences, he insists on a “methodological dualism” that “splits the realm of knowledge into two separate fields, the realm of external events, commonly called nature, and the realm of human thought and action” (Mises, 1957, p. 1). Mises’ arguments in support of his dualism claim are somewhat different for the two branches of the sciences of human action he distinguishes between, namely praxeology or the praxeological disciplines on the one side and history or the historical disciplines on the other (Mises, 1978, p. 41). Economics as a praxeological discipline, so Mises argues, is concerned with “the a priori category of action” (ibid.), not with the particular circumstances surrounding observable actions. It deals “with the categorical essence of choice and action as such, with the pure elements of setting aims and applying means” (1990b, p. 21), not with “the concrete content of the ends men are aiming at” (Mises, 1978, p. 73) or with “the quality of the . . . means applied” (Mises, 1990, p. 9).10 It is based on “aprioristic reasoning” (ibid., p. 29) about “choosing as such,” not on psychological arguments on “internal processes determining the various choices in their concreteness.”11 The study of the particularities of concrete acts is, in Mises’ scheme, the task of the second branch of the sciences of human action, of history. History

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“comprehends the totality of what is experienced about human action” (Mises, 1990, p. 43), its scope is “to investigate what ends people aim at and what means they apply for the realization of their plans” (ibid., p. 24). And such investigation is, so Mises argues, an exercise in psychological reasoning.12 It is about “understanding the meaning of action” (ibid., p. 12) in the sense of inferring the intentions and expectations that motivate actual human choices. By contrast to the praxeological approach of economics, Mises regards the method of understanding (Verstehen) as “the specific method of historical research” (ibid.),13 as the method that not only historians but “all other people always apply in commenting upon social events in the past and in forecasting future events” (ibid., p. 26). As noted, the reasons why Mises finds it necessary to insist on the methodological autonomy of the sciences of human action and their categorical separation from the methodological standards that apply to the natural sciences, differ somewhat for the two branches, praxeology and history. As far as Mises’ claim is concerned that the praxeological branch of the sciences of human action provides a priori knowledge about “the realm of human thought and action,” it is obviously incompatible with a methodology a` la Popper, according to which only empirically refutable theories qualify as “scientific.” Acceptance of such a methodological view would, so Mises argues, require one to “deny the cognitive value of a priori knowledge” (1978, p. 5) and it would disqualify all a priori theories, such as praxeology, as “unscientific,”14 an implication that, in his eyes, is in apparent conflict with the fact that “nothing is more certain for the human mind than what the category of human action brings into relief” (1978, p. 71). Mises’ apriorism15 has been the subject of extensive debate and criticism, and there is no need to repeat in detail here the arguments that speak against Mises’ claims.16 It may suffice here to note that the relevant issue is not, as Mises’ phrasing of the matter tends to suggest, whether a priori theories can have “cognitive value” (the cognitive value of mathematics is surely undisputed). The issue rather is whether theories can be a priori certain and non-refutable and, at the same time, have any empirical content, inform us about the world of our experience. Popper’s falsifiability criterion is not meant to disqualify non-refutable theories as “meaningless,” it is meant to separate empirically contentful theories from theories that, even though they may provide meaningful insights into matters of logic, do not inform us about matters of fact, including facts of human thought and action.17 What deserves more attention in the context of this paper are Mises’ substantive arguments for why the sciences of human action, the historical disciplines no less than their praxeological counterparts, cannot be measured against the same methodological criteria that apply to the natural sciences. This is, in the first instance, the argument that mental phenomena represent a realm that is

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categorically separated from the realm of “external” (physical and physiological) phenomena, and that they escape, therefore, the methods of the natural sciences that are appropriate only for the latter realm. The fact that action is determined by ideas, that it “is the mind’s response . . . to the conditions in which nature and other people’s actions place a man” (Mises, 1990, p. 20), puts it, as Mises asserts, outside the explanatory scope of the natural sciences.18 – It is noteworthy, and I shall return to this issue later, that the way Mises puts this argument leaves some room for interpretation. While most of his comments on this matter appear to imply that the divide between the two realms can, for principal reasons, never be overcome, in other comments he explicitly limits his claim to “the present state of our knowledge” (ibid., p. 25),19 allowing for the possibility that the issue may have to be reconsidered in light of the knowledge available at future points in time. Mises’ argument that “the methods applied in dealing with natural events” (1978, p. 47) are not applicable to the study of mental phenomena is specifically directed at positivistic and behaviorist approaches. Their principal shortcoming is in his view that, by reducing the study of human action to stimulus-response schemes (ibid., pp. 40, 121), they ignore the anticipatory capacity of the human mind upon which intentional and purposeful conduct is based, in particular man’s capacity to anticipate the conduct of his fellow men (ibid., p. 47). The method that acting man employs in such anticipation is, as Mises argues, the same method that constitutes the methodological autonomy of the various historical disciplines, namely the “study of meaning” (ibid., p. 43) or the method of “understanding (Verstehen)” (ibid., p. 48). It is a method that allows these disciplines privileged access to “the ultimate principles” governing the phenomena they study (Mises, 1990, p. 9), namely knowledge “about the meaning which acting men attach to their action” (ibid., p. 8). Understanding, or the study of meaning, deals with “the reactions of the mind,” i.e. “with something invisible and intangible that cannot be perceived by the methods of the natural sciences,” which, so Mises argues, the natural sciences must, however, recognize “as real also from their point of view, as it is a link in a chain of events” (Mises, 1978, p. 47). It is not only the method of understanding but also the “the category of finality” (ibid., p. 36) that separates, in Mises’ view, the sciences of human action from the natural sciences.20 As he puts it: “The natural sciences are causality research; the sciences of human action are teleological” (ibid., p. 7).21 While the former argue in terms of cause and effect, the latter argue in terms of “final causes” (ibid., p. 37), in terms of “the ends sought by acting men in pursuit of their own designs” (ibid., p. 7). It is, so Mises notes, the finality or ends-oriented nature of purposeful human action that makes it impossible to “apply to the behavior of man the same methods the natural sciences apply in dealing with the behavior of mice or of iron” (ibid., p. 37).

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As an additional, and separate, argument in support of his autonomy claim Mises finally stresses the fact that the sciences of human action deal with phenomena the complexity of which precludes the kind of experimental research that he considers constitutive for the natural sciences. As he puts it: “The experience to which the natural sciences owe all their success is the experience of the experiment . . . The social sciences cannot make use of experiments. The experience with which they have to deal is the experience of complex phenomena” (1990, p. 5).22 Mises is generally recognized as the single most influential inspiration for modern Austrian economics. Even if not all aspects of his theoretical system – such as, for instance, his apriorism – find general acceptance, it is, in particular, his methodological dualism that seems to have become a rarely if ever disputed core tenet of the Austrian paradigm. I. Kirzner (1978, p. vi) certainly expresses a commonly shared view when he approvingly notes: “Economics, Mises explained again and again, is a discipline the character of which differs drastically from that of the natural sciences.” More recently the methodological dualism in the Austrian school has been reinforced and given a new direction by the “radical subjectivism” of Ludwig Lachmann. Though Lachmann does not agree with Mises’ praxeological apriorism, he too insists that it is the intentionality and purposefulness of human action as a “manifestation of the human mind” that commands “the methodological independence of the social sciences” (Lachmann, 1977, p. 61).23 Taking his lead from Max Weber24 and the “understanding-approach” (Verstehende Soziologie) in early twentieth century German sociology, Lachmann argues that the method of Verstehen “which aims at the discovering the meaning of things” (ibid., p. 49) is the adequate method for Austrian economists for whom “the thought design, the economic calculation or economic plan of the individual, always stands in the foreground of theoretical interest” (ibid., p. 47).25 It is a method, he notes, that is “closed to the natural sciences” (ibid., p. 58) and that “apparently conflicts with most methods used in and suitable to the natural sciences” (ibid., p. 49). While Mises and Lachmann equally emphasize the role of understanding as the principal method of the sciences of human action, a method that they see in contrast to behavioristic approaches,26 there is a significant difference in their respective interpretations of this method. As has been noted above, to Mises it is an exercise in psychological or – as he prefers to call it – “thymological” reasoning, it is an inquiry into the intentions and expectations that motivate human choices. By contrast, and in a somewhat ambiguous manner, Lachmann insists that as a “principle of explanation” the method of Verstehen “has nothing to do with psychology” (Lachmann, 1977, p. 155). As an “analysis of observed phenomena in terms of pre-existing plans” (ibid.), he argues, it is concerned “with purposes, not with motives, with plans, not with the psychic processes which give

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rise to them, with acts of our conscious minds, not with what lies behind them” (ibid.).27 Lachmann’s version of the Verstehen approach has become the inspiration for a rather peculiar – and highly controversial (Vaughn, 1994, pp. 127ff) – variety in modern Austrian economics, described by its advocates as “interpretative turn” (Lavoie, 1994a, p. 1), a turn that is claimed to be “simply a vindication of the traditional Austrian positions against positivist neoclassical philosophical attitudes” (Lavoie, 1994b, p. 54). The “hermeneutical Austrians,” as Don Lavoie (ibid., p. 55) and other champions of this “turn” call themselves, share the Austrian emphasis on subjectivism, “methodological dualism” (Lavoie, 1991, p. 477) and the rejection of a “crude behavioristic stimulus-response scheme” (ibid., p. 486). And they endorse, in particular, Lachmann’s view of economics as “a subject that needs to deploy the methods of Verstehen, of the interpretation of meaning, and not think of itself as a natural science trying to establish causal laws” (Lavoie, 1994a, p. 9). It is their main tenet, however, that, in order to be true to Lachmann’s “vision of what a truly interpretive approach to economics can be like” (ibid., p. 11), Austrian economists must adopt a different – namely “hermeneutical” – methodological foundation for their analytical efforts than what has been practiced in the Austrian tradition so far. As Lavoie (1994b, p. 55) phrases it: “The hermeneutical Austrians contend that none of the Austrians’ usual methodological positions, from Aristotelianism to Kantianism, to Neo-Kantianism, to Popperianism, adequately captures the virtues of their own substantive economics, and that contemporary hermeneutics does.” In embracing the “post-modernist philosophical position” (Lavoie, 1994a, p. 5) to be found in the “philosophical hermeneutics” of such authors as Martin Heidegger, Hans-Georg Gadamer, Paul Ricoeur or Richard Rorty (Lavoie, 1994b, p. 54), the “hermeneutical Austrians” hope to find the appropriate methodology that, finally, allows the subjectivism of the Austrian tradition to be developed to its full potential, namely to the “economics of meaning” (Lavoie, 1994a, p. 9) that Lachmann envisioned. The essential merit of these “contemporary versions of the Verstehen approach” (Lavoie, 1991, p. 482) is, according to Lavoie, that they imply a reinterpretation of what “subjectivism” is about, away from the idea that “meaning is ‘internal’ to a single mind” (ibid., p. 472) towards the notion that meaning “resides ‘within’ the inter-subjective.”28 Though it is by no means easy to decipher what such reorientation of subjectivism is exactly meant to be about, it is apparent that Lavoie sees the distinguishing characteristic of the hermeneutical approach that he endorses in the fact that it is not about “seeing things from the agent’s point of view” (ibid.), but is concerned with a kind of “meaning” that is separable from the intentions of the acting person. Whether or not such “hermeneutical subjectivism” amounts at all to a research program that can be meaningfully classified as “Austrian” need not be of concern

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in the present context.29 Of principal interest here is the fact that Lavoie and his fellow “hermeneutical Austrians” not only subscribe to but even reinforce the methodological dualism that Mises had made a trade-mark of the Austrian school, and that to them, as for Mises, it is its concern with “the purposes of the individual human beings who make up an economy” (Lavoie, 1991, p. 474) that requires economics to adopt a methodology entirely different from that practiced by the natural sciences.30

3. METHODOLOGICAL DUALISM CRITICALLY EXAMINED So far I have mainly recorded the principal arguments that have been put forward in the Austrian tradition in support of the claim that economics, if it is to take proper account of the intentionality and purposefulness of human action, must adopt a methodology fundamentally different from that of the natural sciences. The purpose of the present section is to critically examine these arguments, while the remaining sections of this paper will discuss theoretical approaches that, in contrast to the dualism claim, adopt an explicitly naturalistic outlook at human action. Methodological arguments are meta-theoretical arguments or statements about theories. They come either in the form of normative principles that are supposed to guide scientific inquiry into fruitful directions, or in the form of factual judgements about certain properties of theories. If they are meant as normative principles, methodological arguments can be neither true nor false. They can only turn out to provide more or less fruitful guidance to scientific inquiry, and they can prospectively be judged in terms of their likely effects. If they are meant as factual claims about theories, they can be true or false. They can be critically examined in terms of the viability of their premises and they can be confronted with the factual properties of theories. In the sense of the noted distinction, methodological dualism can be meant either as a normative principle or as a factual claim. If it is meant as a normative principle, as the recommendation that the sciences of human action should adopt in their explanatory endeavors a methodology categorically different from the causalexplanatory approach of the natural sciences, it has to be judged in terms of its “fruits,” i.e. the insights it generates, compared to the “fruits” of research programs that aim at a naturalistic, causal explanation of human action. If it is meant as the factual claim that human action, for principle reasons, simply cannot be explained in terms of naturalistic, causal theories, it is either true or false. And whether it is one or the other has to be judged in terms of the sustainability of the reasons

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cited in its support and in light of the factual state of our theoretical knowledge. It must be regarded as questionable when its premises can be shown to be faulty, and it must be regarded as falsified when theories become available that allow for a causal explanation of human action. The “Austrian” defense of methodological dualism, summarized above, is essentially based on the factual claim that a causal explanation of intentional human action is impossible. If this claim is meant to say that we have no theories that would provide a satisfactory explanation, it must be judged in terms of our current theoretical knowledge and may have to be revised as new knowledge becomes available. If it is meant to say that such explanation is “in principle” impossible, because of the “nature” of human action, it ignores the simple fact that we have no other knowledge of the “nature” of things, including the “nature” of human action, than what our theories tell us. To make such “in principle” claims means, therefore, that one pretends to know more than one possibly can know, namely more than what our currently available theories tell us. It follows that the dualism claim deserves serious discussion only if it is meant in the first sense, i.e. as a judgement about the state of our theoretical knowledge at a given point in time. It helps to avoid confusion about the methodological status of the social sciences to carefully distinguish at the outset between two issues, namely, on the one hand, the issue of whether the subject matter of the social sciences includes “subjective” phenomena, by contrast to the “objective” phenomena studied by the natural sciences, and, on the other hand, the issue of whether the methods applied in studying these phenomena should be or need to be “subjective,” by contrast to the “objective” methods of the natural sciences (Boehm, 1982, p. 44). Only the second issue is of relevance here. That the social sciences deal with subjective phenomena such as people’s purposes, intentions, expectations, beliefs, etc. is not controversial at all among defenders of the methodological autonomy of the social sciences and their opponents. The controversy is about whether their concern with subjective phenomena requires the social sciences to adopt a methodology fundamentally different from that of the natural sciences.31 With regard to the latter issue, a major source of ambiguity in the Austrian rejection of a natural sciences approach to social science is the failure to carefully distinguish between the rejection of a “mechanistic” approach and the rejection of a causal explanatory approach to social phenomena. When Mises (1978, p. 3) charges that the “study of economics has been again and again led astray by the vain idea that economics must proceed according to the pattern of other sciences” it makes quite a difference whether this is meant as a critique of attempts to model economics “after the scheme of classical mechanics” (ibid., p. 39), or whether it is meant as a rejection of the notion that the logic of explanation

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is the same in all empirical sciences, in the social sciences no less than in the natural sciences. It is the second and not the first issue that is controversial among advocates of methodological dualism and their opponents. Both sides can easily agree in their critique of an economics that – like “Walrasian general equilibrium analysis” (Lavoie, 1994a, b, p. 10) – transfers the mechanical paradigm of classical physics to the study of human action, interpreting the world of social interaction in analogy to the world of interacting physical forces (Mirowski, 1989). What they disagree about is the issue of the methodological autonomy of the social sciences. F. A. Hayek has explicitly distinguished between the two issues, and this is the proper place to look at his arguments, anticipating the later, more general discussion of his approach (Section 6). As has often been noted, one can find in Hayek’s writings, especially in The Counter-Revolution of Science, remarks on “the contrast between the subjectivist approach of the social sciences and the objectivist approach of the natural sciences” (Hayek, 1979, p. 47) that seem quite similar to Mises’ or Lachmann’s dualistic outlooks. In particular his critique of the methodological attitude that he describes as “scientism or the scientistic prejudice” (1979, p. 24)32 has been cited as evidence of such similarity (Dufourt & Garrouste, 1992, p. 28). Yet, a careful reading of Hayek’s arguments clearly shows that the target of his criticism of “scientism” is not an empiricist, naturalistic approach to social phenomena but an approach that seeks to mold the social sciences along the “physics model”(Hayek, 1982, p. 289) in “slavish imitation of the method and language of science” (Hayek, 1979, p. 24), based on a “superficial similarity of procedure with that of the physical sciences” (Hayek, 1978a, p. 31). His rejection of a “scientistic” approach to the social sciences that mimics the specific paradigm and analytical apparatus of physics does not imply, however, that he endorses Mises’ apriorism or Lachmann’s anti-naturalistic hermeneutics (Witt, 1992, p. 222). In fact, in contrast to Mises’ verdict, quoted above (p. 4), Hayek on a number of occasions has explicitly endorsed K. R. Popper’s falsificationist methodology (Hayek, 1973, pp. 29, 146; 1976, p. 43; 1978a, p. 31), for instance, when he notes about Popper’s “critical rationalism”: “It seems to me the best term for describing the general position which I regard as the most reasonable one” (1967d, p. 94). The fact that in the preface to his “Studies in Philosophy, Politics and Economics” (1967, p. viii) Hayek attributes a “slight change” in the tone of his critique of “scientism” to the influence of Karl Popper has often been quoted in support of the conjecture that Hayek’s original views on the methodology of the social sciences were much more in agreement with Mises’ methodological dualism. Such interpretation is, however, not only difficult to reconcile with Hayek’s early call for an empiricist approach to “mental phenomena” (1979, p. 48) to which I

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will return below (Section 6). It is also in contrast to Hayek’s own assessment of the matter.33 While he shares Popper’s general methodological outlook, Hayek emphasizes, though, that the criterion of falsifiability must be interpreted somewhat differently in the social sciences than in a science like physics, because of the complexity of the phenomena that they study. In this sense he is in perfect agreement with Mises’ argument that the “experience with which they (the social sciences, V. V.) have to deal is the experience of complex phenomena” (Mises, 1990, p. 5). By contrast to Mises he does not draw the conclusion, however, that this is a reason to claim methodological autonomy for the social sciences, nor does he conclude that the complexity of the phenomena they study prevents the social sciences from aiming at causal explanations. Hayek’s conclusion rather is that, because of the specific problems that arise “in connection with those essentially complex phenomena of which social structures are so important an instance” (Hayek, 1978a, p. 32), our explanatory ambitions must be more modest in the social sciences than in the physical sciences. While the latter can aim at “complete explanations” and “specific predictions,” Hayek sees the social sciences generally limited to what he calls “explanations of the principle” and “pattern predictions” (Hayek, 1967a, p. 11; 1979, p. 86). Yet, this is, as Hayek points out, a limitation that the social sciences share with the natural sciences to the extent that the latter deal with complex phenomena as well.34 The methodological distinction that Hayek emphasizes cuts across the traditional distinction between the social and the natural sciences. It is a distinction between sciences that study “relatively simple phenomena” (Hayek, 1967b, p. 25), or “closed systems” with a “sufficiently small” number of connected variables (Hayek, 1967a, p. 3), and sciences that study “the more complex phenomena of life, of mind, and of society” (Hayek, 1967b, p. 25), such as, in particular, evolutionary biology (Hayek, 1967a, p. 11).35 According to Hayek, what is true for the theory of evolution by natural selection can be said about theories of complex phenomena more generally, namely that they provide “an account of a process the outcome of which will depend on a very large number of particular facts, far too numerous for us to know in their entirety” (Hayek, 1973, p. 23). Even if we understand the general laws that are in operation in the respective realm, due to our lack of knowledge of the particular facts that determine the course of events, we will not be able to come up with more than an “explanation of the principle” and a “prediction merely of the abstract pattern the process will follow” (ibid.). Such limitation to explanations of the principle and to pattern predictions does not mean, so Hayek argues, that we have to abandon a falsificationist methodology. Because and to the extent that they exclude conceivable courses of events, theories

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of complex phenomena are empirically contentful and refutable (Hayek, 1967b, p. 28),36 even if we need to recognize that the “degree of falsifiability necessarily decreases” (Hayek, 1973, p. 29), compared to theories of more simple phenomena. This inherent “drawback” of theories of complex phenomena37 is in Hayek’s view neither a reason for the social sciences to claim methodological autonomy, nor should it be considered a defect that they need to overcome in order to be more “scientific” (Hayek, 1967a, p. 16). Instead, he argues, for sciences of complex phenomena such as economics “it may prove necessary deliberately to cultivate the technique of explanation of the principle” (ibid., p. 21).38 The principal lesson from Hayek’s argument on the complexity issue is that we must carefully distinguish between two claims, namely, on the one hand, the claim that the complexities of human action and of social phenomena put limits on the degree of specificity and falsifiability that we may hope to achieve in our explanatory efforts and, on the other hand, the claim that these complexities make it necessary for the sciences of human action to abandon the standard concept of causal explanation in favor of a different methodology. This distinction is of immediate relevance for the principal argument that Austrian advocates of methodological dualism rest their case on, namely that the subjectivity of intentional human action precludes any causal, “mechanistic” explanation. If this argument is meant to say that the complexity of the mental processes from which human actions result make it, as a rule, impossible for us to fully explain and to predict specific actions, it is perfectly compatible with Hayek’s view on the methodological status of theories of complex phenomena. In this interpretation, Austrian subjectivism can well be accommodated within the standard notion of causal explanation, more broadly understood to include not only “deterministic” explanations but explanations of the principle as well.39 The case for methodological dualism can, therefore, not be based on the complexity argument alone, but needs to be supported by additional arguments for why a causal explanation of intentional human action should not be possible. The versions of Austrian subjectivism that I have summarized above (Section 2) appear to rest their case for methodological dualism essentially on two arguments. This is, on the one side, the argument that, because human action is based on subjective intentions and expectations, understanding these intentions and expectations rather than causal analysis is the appropriate method of inquiry. And this is, on the other side, the argument that, because human action is purposeful and goal-directed, it must be explained in teleological rather than in causal terms. In examining the “understanding” issue one should, again, at the outset separate what is controversial and what is not controversial among the advocates and the opponents of methodological dualism. Our ability to successfully interact with others is, quite obviously, based on our capacity to infer their intentions, beliefs,

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and expectations from their observed behavior as well as on our capacity to predict their behavior, based on assumptions about their motivations. That we can, in this sense, “understand” other persons’ actions, in our daily lives as well as in our role as social scientists, is not controversial at all among advocates of methodological dualism and their opponents. What the latter oppose is the claim that “this fact must lead to specific methodological problems which require a general methodology for the social sciences which differs from the methodology of the natural sciences” (Albert, 1988, p. 575). When we seek to “understand” other persons’ behavior, we seek to identify mental states, namely intentions, beliefs, expectations, etc., that would make the behavior “meaningful” or consistent. In doing this, we form conjectures about what kind of intentions, beliefs, etc. may have actually motivated the behavior that is to be explained (Koppl, 1994, p. 72). These conjectures may be true or false, and the crucial issue is how we can decide among potential “competing conjectures about subjective meaning” (ibid., p. 73). The heuristic strategy to imagine ourselves in the position of the person whose behavior we want to explain may be a useful tool for generating such conjectures, but it clearly does not qualify as an inter-subjective test for choosing among competing conjectures. The latter requires us to refer, in some manner, to observable indicators for the, themselves unobservable, intentions, beliefs, etc. that are imputed to the actor (Witt, 2003, p. 24). Obviously, if one wants to avoid circular reasoning, the behavior that is to be explained cannot at the same time serve as the observable evidence from which the imputed mental states are inferred (B¨ohm, 1982, p. 47). One needs to refer to inter-subjectively accessible evidence that is, on the one hand, independent of the behavior that is to be explained, and that can, on the other hand, be conjectured to indicate the actual presence of the mental states that are imputed to the actor. As soon as one specifies the method of “understanding” in the above manner, it becomes very doubtful whether understanding actions is something entirely different from a causal explanation and whether there is, indeed, any reason for drawing a categorical methodological line between the understanding-based analysis of social phenomena and the nomological, causal analysis of physical phenomena (Albert, 1988, pp. 581, 586). Both, the imputation of mental states as reasons for action as well as the specification of observable indicators for mental states imply conjectures about causal relations, namely as conjectures about how mental states are causally connected to revealed behavior and how mental states, themselves, are connected to, or causally affected by, observable events.40 What has been said above about the issue of “understanding” is of direct relevance for the second principal argument in defense of methodological dualism, namely the claim that, because of its purposiveness and goal-directedness, human

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action has to be explained in teleological rather than in causal terms. Here again, it is useful to separate first the controversial from the uncontroversial. What is not controversial at all is the fact that human action is goal-directed, based on “planning ahead,” on foresighted anticipation of its consequences. In this sense it is, if one wants to use this term, “teleological,” aiming at a ␶␧␭o␵.41 Controversial is only whether this undisputed fact implies that human action requires a special, namely a “teleological” type of explanation, an explanation that is about “final causation,” “backward causation” or “causation by consequences,” by contrast to the “efficient causation” of the standard causal model. Upon closer inspection the claim that human action represents a case of backward causation or causation by consequences, as opposed to ordinary causation by antecedent causes, turns out to be little more than an instance of careless and misleading use of language. Its advocates surely do not want to say that actions are literally caused by the consequences that materialize as their effects. What they most probably want to say is that human actions are motivated or “caused” by their anticipated and desired consequences. Yet, to argue that an action occurs because the actor expects and wishes it to bring about consequences of a certain kind is clearly not the same than to argue that actions are caused by the consequences that result from them. By contrast to the latter the anticipation of consequences and the desire to bring them about antecede the actions that they motivate. To account for their role as causes of actions does not require us at all to abandon the standard notion of “efficient causation.” Opponents of methodological dualism have no reason to deny that such cognitive factors as intentions, desires, and beliefs play a causal role in human action, and they can easily agree with the claim that “the sciences of human action are teleological” (Mises, 1978, p. 7) if this is only meant to emphasize that explanations of human action must account for the role of cognitive factors, by contrast to purely physicalist accounts in the natural sciences. They will, however, insist that causation by such cognitive factors is still causation in the standard sense, namely causation by antecedent factors, even if cognitive factors are admittedly causal factors of a special kind (Mackie, 1974, pp. 285, 295; Meyer, 2002, p. 117).

4. EVOLUTIONARY PSYCHOLOGY: A NATURALISTIC APPROACH TO MENTAL PHENOMENA As noted above, methodological arguments are statements about theories. Methodological dualism is a conjecture about the relation between two bodies of theories, theories about mental phenomena on the one side, and theories about “external events” on the other. It claims that, because of inherent differences

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between these two realms, theories about “the realm of human thought and action” (Mises, 1957, p. 1) are of a categorically different nature than theories about external events. Even though this claim is often stated as if it were an ontological statement about the “nature” of the respective realms, it can in fact, as I have argued above, never be more than a conjecture about the state of our theoretical knowledge. After all, we cannot know more about the “nature of things” than what our theories tell us. Accordingly, it is ultimately not in terms of methodological arguments per se that the claim of methodological dualism must be judged, but in terms of our theoretical knowledge. This fact is, even if only in a passing manner, recognized by Mises when he limits his dualism claim to “the present state of our knowledge” (Mises, 1990, p. 25), implicitly acknowledging that it may have to be revised in light of future theoretical developments. The “behaviorist” psychology that Mises accused of neglecting the cognitive foundations of human action may have, indeed, been a just target of his fundamental objections against empiricist, naturalistic approaches to human action. Yet, psychology has not only changed since Mises made his case, it underwent, in particular, what has been called the “cognitive revolution,”42 and whether Mises’ verdict is still valid today has to be judged in light of contemporary psychological theories, theories that take a significantly different outlook at mental phenomena than the “crude behavioristic stimulus-response scheme” (Lavoie, 1991, p. 484) that Mises and modern hermeneutical Austrians attack.43 The purpose of this section is to take a closer look at evolutionary psychology as one of the post-cognitive-revolution approaches in modern psychology. To be sure, the tenets of evolutionary psychology are by no means undisputed and they are presented here not as unquestionable wisdom but as conjectures that are subject to further inquiry and critical examination. Yet, evolutionary psychology is of particular interest in the present context because it represents, on the one side, a rigorous effort to provide a purely naturalistic, causal account of the human mind and of human action, and sees itself, on the other side, as an integral part of the cognitive reorientation in psychology, a reorientation that explicitly rejects the “anti-mentalism” (Badcock, 2000, p. 111) of behaviorism. According to L. Cosmides and J. Tooby (1987, p. 302), two main initiators of this research program, evolutionary psychology is concerned with “the discovery and principled investigation of the human psyche’s innate cognitive programs.” “It unites modern evolutionary biology with the cognitive revolution” (Cosmides, Tooby & Barkow, 1992, p. 2).44 While the principal ambition of evolutionary psychology is to better understand “the evolved information-processing mechanisms that comprise the human mind” (Cosmides, Tooby & Barkow, 1992, p. 2), its fundamental tenet is that, because humans are the product of the evolutionary process, the explanation of their

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characteristics, including the “architecture of the human mind,” must be sought in the evolutionary process (Cosmides & Tooby, 1987, p. 278; 1994c, p. 47). Since the human mind is a product of evolution – so evolutionary psychologists argue – inquiring into the conditions of man’s evolutionary history should provide clues for our understanding of how the mind works. They base their research strategy on the argument that, “given the long human generation time, and the fact that agriculture represents less than 1% of the evolutionary history of the genus Homo” (Cosmides & Tooby, 1992, p. 222), our genetic make-up can safely be assumed to be essentially the same as that of our ancestors who predated the appearance of agriculture and modern forms of life. Therefore, evolutionary psychologists conclude, the most reasonable conjecture is that man’s genetically coded psychological mechanisms are adapted to the problem environment that our ancestors were exposed to for thousands of generations, living as hunters and gatherers in small bands (ibid., p. 219; Cosmides, Tooby & Barkow, 1992, p. 5). And we should expect to find the kinds of recurrent problems that such a hunting and gathering way of life typically posed to be reflected in the evolved architecture of the human mind (Cosmides & Tooby, 1994b, p. 86).45 Inquiring into these adaptive problems, this is the fundamental heuristic premise of evolutionary psychology, provides “a powerful engine of discovery” (Cosmides & Tooby, 1992, p. 221), “a heuristic for generating testable hypotheses about the structure of the cognitive programs that solve the adaptive problems in question” (Cosmides & Tooby, 1987, p. 302). It is noteworthy that, in his The Ultimate Foundations of Economic Science (1978), Ludwig von Mises has pointed in rather similar terms to the evolutionary origins of the human mind, without drawing what would seem to be a rather compelling conclusion, namely that, if the human mind is a product of the natural forces of evolution, it should be a legitimate subject of naturalistic, explanatory inquiry.46 One might well have expected von Mises to proceed to a naturalistic theory of the human mind when he argues: The concepts of natural selection make it possible to develop a hypothesis about the emergence of the logical structure of the human mind and the a priori. Animals are driven by impulses and instincts. Natural selection eliminated those specimens and species which developed instincts that were a liability in the struggle for survival . . . We are not prevented from assuming that in the long way that led from the nonhuman ancestors of man to the emergence of the species Homo sapiens some groups of advanced anthropoids experimented, as it were, with categorical concepts different from those of Homo sapiens and tried to use them for the guidance of their conduct . . . Only those groups could survive whose members acted in conformity with the right categories, i.e. with those that were in conformity with reality and therefore – to use the concept of pragmatism – worked (Mises, 1978, p. 14).

Yet, instead of embarking on an inquiry into what an evolutionary account may be able to tell us about the structure of the human mind, Mises cuts off such a

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research avenue by simply declaring: “However, reference to this interpretation of the origin of the a priori categories does not entitle us to call them a precipitate of experience” (Mises, 1978, p. 15). Instead, he insists that the human mind cannot be adequately approached, in a “Darwinian spirit,” as a natural phenomenon “without recourse to finality” (ibid.). It is the categorical difference between phenomena of the human mind and what goes on in non-human nature that, in his view, makes the mind’s evolutionary origins essentially irrelevant for our understanding of its functioning (ibid., pp. 1, 8). One of the principal conclusions that evolutionary psychologists draw from their Darwinian outlook is a critique of rational choice theories (Vromen, 2002, p. 188). A theory that interprets the human mind as a general purpose mechanism with universal, content-independent problem-solving capacity is in their view extremely implausible from an evolutionary perspective (Cosmides & Tooby, 1992, p. 164). Recognizing the evolutionary origins of the human mind imposes, as they argue (Cosmides & Tooby, 1992, p. 108; 1994b, p. 88), constraints on what we can assume about its problem-solving capacities, namely evolvability constraints and solvability constraints. One must be able to show that the faculties that one ascribes to the human mind could, in principle, have evolved under the conditions that, as far as we know, characterized the evolutionary history of our species.47 And one must, secondly, be able to show how these faculties enable the mind to, in fact, solve the problems in question. As Cosmides and Tooby (1992, p. 110) put it: “To be a viable hypothesis about human psychological architecture, the design proposed must be able to meet both solvability and evolvability criteria: It must be able to solve the problems that we observe modern humans routinely solving and it must solve all the problems that were necessary for humans to survive and reproduce in ancestral environments.” It is in terms of the evolvability and solvability constraints that evolutionary psychologists find standard rational choice theory to provide an implausible account of human capabilities. As far as the solvability constraints are concerned, they argue that “no one has yet been able to specify a general learning mechanism or general cognitive problem solver that has the power to solve the complex array of adaptive problems faced by humans, either in principle or in practice” (Cosmides & Tooby, 1987, p. 298). With regard to the evolvability constraints they point out that evolutionary biology provides a number of reasons why it is implausible to assume that “the human mind is an equipotential, general-purpose machine” (Cosmides & Tooby, 1994b, p. 89), and why it is much more plausible to adopt “the contrary view that the mind is richly textured with content-specialized psychological adaptations” (Cosmides & Tooby, 1992, p. 165), adaptations that serve to solve long-standing evolutionary problems (Cosmides & Tooby, 1994a, p. 329; 1994c, p. 65). Evolutionary psychologists do not deny the presence of domain-general

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cognitive mechanisms, their argument is that not all innate cognitive programs can be of a general-purpose nature but that some of them must be domain-specific, “functionally specialized procedures that exploit the recurrent properties of the corresponding domain in a way that would have produced an efficacious solution under Pleistocene conditions” (Cosmides & Tooby, 1992, p. 221). Such domainspecific cognitive mechanisms, Cosmides and Tooby (1994b, p. 89) argue, “can be expected to systematically outperform (and hence preclude or replace) more general mechanisms,” because – by contrast to the latter – they exploit the stable structural features of evolutionary recurring situations.48 As a paradigmatic example of such specialized cognitive mechanisms49 evolutionary psychologists point to Noam Chomsky’s (1980) psycholinguistics and its principal conjecture that the human capacity of language-learning cannot be explained on the basis of general-purpose mechanisms alone but requires the presence of a functionally distinct mental organ, a “language acquisition device” (Badcock, 2000, p. 246; Tooby & Cosmisedes, 1992, p. 95).50 According to Cosmides and Tooby (1987, p. 290), Chomsky’s contribution marked a turning point in modern psychology because it drew attention to the idea that “just as the body has many different organs, each of which is specialized for performing a different function . . ., the mind can be expected to include many different ‘mental organs’.” An area to which evolutionary psychologists have paid special attention in their search for domain-specific cognitive mechanisms is cooperation for mutual benefit and, in particular, social exchange. As Cosmides and Tooby (1994c, p. 48) put it: The adaptive problems that arise when individuals engage in this form of cooperation have constituted a long-enduring selection pressure on the hominid line. Paleoanthropological evidence indicates that social exchange extends back at least two million years in the human line, and the fact that social exchange exists in some of our primate cousins suggests that it may be even more ancient than that. It is exactly the kind of problem that selection can build cognitive mechanisms for solving.

In a world in which mutually beneficial cooperation is a more sustainable source of gains than unilateral exploitation (Cosmides & Tooby, 1992, p. 207), cognitive programs that better enable individuals to successfully engage in mutually beneficial exchange can be expected to outperform other mechanisms. And here, as in other areas of human problem-solving, evolutionary psychologists conjecture that specialized programs are likely to be better adapted to handle recurrent problem-situations than general-purpose algorithms, and that we should, accordingly, expect the human mind to contain specialized mechanisms designed for reasoning about social exchange (ibid., pp. 163, 207; 1994a, p. 330; 1994c, p. 49). Such specialized adaptations to social exchange are, as they argue, particularly important where the complexities of non-simultaneous trade are

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concerned (Cosmides & Tooby, 1992, p. 169) and where, for instance, the capacity to reliably separate reciprocating cooperators from exploitative cheaters is an essential prerequisite for lasting success (ibid., pp. 181ff). Another issue that evolutionary psychologists have focused their research interest on, and one that is of particular interest in the context of this paper, concerns the human ability to “read other people’s minds” and to anticipate their likely behavior. By contrast to methodological dualists, like Ludwig Lachmann, who take this human ability, the capacity of “Verstehen” or “understanding,” as evidence supporting their anti-naturalistic methodology, evolutionary psychologists seek to provide a naturalistic, explanatory account of this very capacity as “an evolved attribute of human beings” (Badcock, 2000, p. 114).51 As Cosmides and Tooby (1994b, p. 101) explain: Another important set of evolutionary long-enduring regularities is the recurrent design features of other human minds. Evolved domain-specific cognitive specializations are even more necessary in this area, not only because other minds constitute the single most important selective force facing any individual human, but also because mental states such as beliefs, motives, intentions, and emotions cannot be directly observed. To allow a human to represent at least some of the mental states that generate other’s behavior, special inferential systems must be available to bridge the gap from the observable to the unobservable. For example, if there is a reliable correlation over evolutionary time between the movement of human facial muscles and emotional state or behavioral intentions, then specialized mechanisms can evolve that infer a person’s mental state from the movement of that persons facial muscles.

According to Cosmides and Tooby (ibid., p. 102), research efforts in the field of cognitive development provide substantial support for the hypothesis that our evolved psychological architecture includes a specialized “theory of the mind module” that enables us to reliably develop models of other human minds. As noted before, a relatively new research program like evolutionary psychology is, of course, not undisputed (Badcock, 2000, pp. 17ff, 108). What is important in the present context is, however, the general research program on which evolutionary psychology is based, not specific claims that are made by various researchers associated with this program. Objections that may well be raised with regard to such particular claims should not distract from the fact that the general paradigmatic outlook of evolutionary psychology is shared by a variety of modern approaches in the cognitive sciences, in psychology and in evolutionary biology that seek to study the human mind from a naturalistic, explanatory perspective (Tooby & Cosmisedes, 1992, p. 93). This general outlook interprets the human mind as an adaptive, information-processing system that translates informational input into behavioral output. It seeks to explain the working principles of this information-processing system in light of the fact that its structure has been shaped by evolutionary forces. And it assumes that the human mind, like all

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information-processing systems, can be described in mutually compatible and complementary ways, on the one hand in terms of its physical components, or its “hardware,” and on the other hand in terms of the programs that govern its operations, its “software” (Cosmides & Tooby, 1987, p. 283; 1994c, p. 44). It is in terms of such interpretation of the mind as an information-processing system that L. Cosmides, J. Tooby and J. H. Barkow (1992, p. 8) note in their Introduction to The Adapted Mind – Evolutionary Psychology and the Generation of Culture: The brain takes sensorily derived information from the environment [including the organism’s ‘internal’ environment, V. V.] as input, performs complex transformation on that information, and produces either data structures (representations) or behavior as output. Consequently, it too, can be described in two mutually compatible and complementary ways. A neuroscience description characterizes the ways in which its physical components interact; a cognitive, or information-processing, description characterizes the ‘programs’ that govern the operation. In cognitive psychology, the term mind is used to refer to an information-processing description of the functioning of the brain . . . An account of the evolution of the mind is an account of how and why the information-processing organization of the nervous system came to have the functional properties that it does.52

According to this outlook at the mind, human problem-solving behavior is guided by programs53 that incorporate “knowledge” of relevant contingencies in man’s problem environment and that enable humans to respond more speedily and effectively to typical, recurrent problem situations than an exclusively generalpurpose device, called “rationality,” would allow them to do. Even though its focus is on the kind of “knowledge” that is the result of natural selection and that is “stored” in genetically encoded programs (Cosmides & Tooby, 1987, p. 287) evolutionary psychology does not deny the role of general-purpose devices and the plasticity of human learning. Evolutionary psychologists insist, however, that such general-purpose devices and human learning can only work with the aid of domain-specific cognitive mechanisms that selectively pre-structure the otherwise unmanageable complexity of the world. As Tooby and Cosmisedes (1992, p. 105) put it: “A mechanism unaided by domain-specific rules of relevance, specialized procedures, ‘preferred’ hypotheses, and so on could not solve any biological problem of routine complexity in the amount of time the organism has to solve it, and usually could not solve it at all.”54 The clue to understanding the impressive problem-solving capacity and cognitive power of the human mind, this is the principal tenet of evolutionary psychologists, is to be found in the richness of its evolved content-specific mechanisms. They hold “that the human capacity for adaptive flexibility and powerful problemsolving is so great precisely because of the number and the domain-specificity of the mechanisms we have” (ibid., p. 113), and they reject accounts that attribute

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such capacity entirely to domain-general, content-independent mechanisms. Not only are such accounts, in their view, highly implausible in light of accumulating research-evidence (ibid., p. 103). To attribute man’s cognitive abilities to a globally defined capacity “rationality” means, they censure, merely to put a label on a phenomenon instead of actually examining it (ibid., p. 113). As Tooby and Cosmisedes (1992, p. 122) phrase it rationality “is not an explanation for anything, but is rather a phenomenon that itself requires explanation.”

5. PURPOSIVE ACTION AS PROGRAM-BASED BEHAVIOR Methodological dualism represents what Tooby and Cosmisedes (1992, p. 21) describe as a “doctrine of intellectual isolationism,” a doctrine that, as they note, “has been the reigning view in the social sciences” (ibid.). It is one of the more wider ranging ambitions of evolutionary psychology to oppose the doctrine of isolationism and to advance, instead, a “conceptual unification” (ibid.), that seeks to systematically integrate explanatory efforts in the social sciences with insights that are generated in neighboring fields such as, for example, cognitive science, evolutionary biology, or neurobiology.55 Evolutionary psychologists see their own explanatory efforts embedded in a number of theoretical developments in several disciplines that point towards, as Tooby and Cosmides (ibid., p. 23) call it, an “Integrated Causal Model” of human behavior, a model that “connects the social sciences to the rest of science” (ibid., p. 24). As noted before, evolutionary psychology is, indeed, just one among a number of recent research efforts that, in mutually compatible ways, seek to provide a naturalistic account of the cognitive foundations of human behavior (Vanberg, 2002, 2004). The central theoretical notions around which these research efforts center have been captured, in a particularly pointed manner, in Ernst Mayr’s concept of teleonomic or program-based behavior and in K. R. Popper’s concept of conjecture-based problem-solving. Their arguments deserve to be, at least briefly, discussed here. Evolutionary biologist Ernst Mayr has suggested an outlook at purposeful behavior that locates the capacity for goal-directedness and intentionality in the presence of behavioral programs that are encoded in an organism and enable the organism to anticipate the consequences of its own actions.56 Mayr refers to such purposeful, intentional behavior as teleonomic behavior in order to avoid the ambiguities of the term “teleological”57 as well as to emphasize that his ambition is to provide a nomological, causal explanation of goal-directedness and intentionality. As he explains: “A teleonomic process or behavior is one that owes

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its goal-directedness to the operation of a program” (Mayr, 1992, p. 127). And such program-based behavior, he argues, can be explained in causal terms, “there is no conflict between causality and teleonomy” (Mayr, 1961, p. 1504). Expressly adopting the concept from information theory, Mayr defines a program as “a set of instructions” (Mayr, 1992, p. 128), as “coded or prearranged information that controls a process (or behavior) leading toward a goal” (ibid., p. 127). Programs can serve to guide goal-directed behavior because they incorporate conjectural knowledge of the world, knowledge of relevant contingencies based on which likely consequences of alternative courses of action can be anticipated. Such programs can, in principle, be stated as instructions or decision-rules of the form, “if problem of type A is encountered, then action of type X is a suitable response.”58 An important consequence of looking, as Mayr suggests, at purposeful action as program-based behavior is that it draws one’s attention to two principal issues. This is, firstly, the question of how programs are coded in an organism and how they become adapted to the organism’s respective problem-environment. Mayr uses the term encoding to refer to this issue. And this is, secondly, the question of how coded programs can be implemented to provide guidance in specific choice situations, an issue that Mayr refers to as decoding. Decoding is about solving the problem of applying programs or decision-rules that are about types of problem-situations and types of actions to specific choicesituations, situations that are always unique in their particular constellations of circumstances. Encoding can, as Mayr points out, be explained as a feed-back process that establishes a systematic link between the performance of programs (success or failure) and their future role in guiding behavior. The two main processes through which such encoding occurs are evolution, affecting genetically encoded programs, and learning, affecting memory-coded programs. The encoding that the evolutionary biologist studies – and that evolutionary psychologists focus their attention on – is governed by the feed-back process of natural selection of successful programs, a process through which “knowledge” is incorporated in genetic codes that allow for adapted behavior. The genetically coded programs, in turn, provide the foundation on which – or the framework within which – the learning of memory-coded programs occurs.59 The distinction between encoding and decoding corresponds to Mayr’s distinction between ultimate and proximate causes of behavior and between the explanatory focus of the “functional biologist” and the “evolutionary biologist.” Proximate causes of behavior are the programs that govern the responses of the individual to the immediate factors of the environment (Mayr, 1961, p. 1503). Ultimate causes of behavior are the factors that have shaped these programs. The functional biologist who “deals with all aspects of the decoding of the information

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contained in the DNA code” (ibid., p. 1502) is interested in the proximate causes of behavior. By contrast, the evolutionary biologist who studies “the laws that control the changes of these codes from generation to generation” (ibid., p. 1502) is interested in the ultimate causes that “are responsible for the evolution of the particular DNA code of information with which every individual of every species is endowed” (ibid., p. 1503). To explain behavior in terms of proximate causes means to employ conjectures about the “psychological mechanisms” or “programs” that allow an individual to cope with problems faced in its environment.60 Looked at from such a perspective, the method of “Verstehen” or “understanding” can be interpreted as a particular research strategy for conjecturing about “proximate causes” of behavior, namely the strategy of imagining oneself in the choice-situation faced by the individual whose behavior is to be explained. As discussed above, the problem the Verstehenapproach faces is that, if one wants to escape circular reasoning, one needs to specify operational methods for how the conjectures generated by “understanding” can be critically examined. Mayr’s distinction between proximate and ultimate causes of behavior suggests ways in which conjectures about “psychological mechanisms” or “programs” can be checked, namely in light of conjectures about how they themselves have come to be what they are. Conjectures about genetically coded cognitive mechanisms, for instance, can be critically analyzed in light of the question of whether they could have evolved in the kind of problemenvironment to which our species was exposed in evolutionary time.61 And conjectures about individually acquired, memory-coded behavioral dispositions can be critically questioned as to whether they could have been plausibly learned in the kind of environment to which the individual in question was exposed. In other words, conjectures about ultimate causes can provide indirect evidence for testing conjectures about proximate causes. As Mayr emphasizes, to claim that teleonomic purposiveness can be explained in causal terms does not mean to ignore that “causality in biology is a far cry from causality in mechanics” (Mayr, 1961, p. 1506). It rather means that the differences that divide these fields are a matter of complexity and not of different principles of explanation.62 In terms similar to Hayek’s comments on theories of complex phenomena, Mayr argues that it is because of the individuality and uniqueness characteristic of the organic world that “explanation will often have to be so unspecific and so purely formal that its explanatory value can certainly be challenged” (ibid., p. 1503). Yet, to recognize such limits in the specificity of the explanations that can be provided does not mean at all to “question the ultimate causality of all biological phenomena” (ibid.). Nor should the fact that the complexity of biological phenomena often precludes prediction be mistaken as a “lack of cause” (p. 1505). As Mayr (ibid., p. 1506) puts it: “The complexities

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of biological causality do not justify embracing nonscientific ideologies . . . but should encourage all those who have been trying to give a broader basis to the concept of causality.” A general outlook at purposeful action that is very similar to E. Mayr’s notion of program-based behavior has been suggested by K. R. Popper who argues that the behavior of all organisms – including purposeful human action – can be viewed as conjecture-based problem-solving behavior.63 Problem-solving, Popper (1982, p. 150) states, is what all behavior – in fact, all life – is about. Like Mayr’s approach, Popper’s suggested outlook is meant to draw attention to the fact that the capacity to solve problems presupposes knowledge of relevant contingencies in the problem-environment. It posits that, as problem-solving agents, all living beings are guided in their behavior by pre-existing expectations about the world around them, expectations that constitute the organism’s conjectural knowledge of the world. And all such knowledge is, so Popper notes, the result of conjecture and refutation, of “competitive tentative solutions and the elimination of error” (Popper, 1972, p. 145).64 According to Popper, it is only in the light of its repertoire of conjectural expectations that an organism can perceive and identify problems. In other words, perception is always a theory-impregnated act of selective interpretation (ibid: p. 343). This is, as Popper argues, no less true for our most elementary, un- or subconscious sensory perceptions than for our most reflected scientific observations.65 And just as we can only perceive our environment in the light of pre-existing conjectural expectations it is, he insists, only on the basis of our conjectural knowledge of the world that we can act and respond to the problems we face. Using the same language as E. Mayr, Popper speaks of such action-guiding conjectural knowledge as “action programs” (Popper & Eccles, 1990, p. 134), as “dispositions to act, or to behave” (ibid., p. 130).66 The principal mechanism that governs the acquisition of expectations and conjectural knowledge is, as Popper supposes, essentially the same for all kinds of “knowledge,” whether it is incorporated in sense organs (Popper, 1972, p. 72) or in explicitly stated scientific theories. As he puts it: “From the amoeba to Einstein, the growth of knowledge is always the same: we try to solve our problems, and to obtain, by a process of elimination something approaching adequacy in our tentative solutions” (Popper, 1972, p. 261). All acquired knowledge – whether it is acquired in the process of genetic evolution or in the process of individual learning – consists, this is Popper’s central claim, in the modification “of some form of knowledge, or disposition, which was there previously, and in the last instance of inborn expectations” (ibid., p. 71). Popper’s theory of conjecture-based problem-solving and of the growth of knowledge through trial-and-error elimination has become a major inspiration

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for evolutionary epistemology,67 a research paradigm that has been developed independently of (and prior to) evolutionary psychology, but is closely related to the latter (Vanberg, 2002, pp. 33ff).68 The central tenet of evolutionary epistemology is that all knowledge processes, i.e. processes that lead to an expansion of knowledge or problem-solving capacity, can be interpreted as instances of the “variation and selective retention process of evolutionary adaptation” (Campbell, 1974, p. 450), where the latter is broadly understood to include genetic evolution as well as cultural evolution and the “variation and selection processes” that constitute individual learning (Vanberg, 1994, pp. 174ff).69 What makes evolutionary epistemology particularly noteworthy in the present context is the fact that F. A. Hayek is counted among its principal founders.70 In the section below I shall take a closer look at Hayek’s approach, an approach that exemplifies an interpretation of Austrian subjectivism that is markedly different from the methodological dualism advocated by authors like Mises, Lachmann and the “hermeneutical Austrians.”

6. F. A. HAYEK: AN ALTERNATIVE AUSTRIAN RESEARCH PROGRAM By contrast to the versions of Austrian subjectivism discussed above (Section 2), F. A. Hayek advocates what one may describe as “naturalistic subjectivism.” He has developed a research program that seeks to provide economics with a behavioral foundation entirely compatible with an empiricist methodology. Beyond the few remarks made above (Section 3), I shall not address here the often discussed issue of whether there has been a systematic shift in Hayek’s methodological outlook since the late 1930s and early 1940s “in a direction away from Mises toward Popper” (Boehm, 1982, p. 50). What is of relevance in the present context is that already in his programmatic 1936 Presidential Address to the London Economic Club (Hayek, 1948a) Hayek explicitly outlined an empiricist research agenda for a subjectivist economics, a research agenda that he has systematically explored in various directions in his later work on markets as systems of communication and on cultural evolution as a process of “collective learning” (Vanberg, 1994), as well as in what is often described as the most unusual part of his life-work, his contribution to theoretical psychology (Hayek, 1952). In “Economics and Knowledge,” Hayek takes issue with an economic theory that fails to address what must, in his view, be a principal concern of an explanatory economics, namely the knowledge problem, i.e. the problem of how effective economic coordination is achieved in the real world among agents who possess only subjective, incomplete and imperfect pieces of knowledge of the complex

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contingencies on which the successful pursuit of their plans depends.71 The principal target of Hayek’s critique is a formal equilibrium analysis which evades “any real solution of the problem” (1948a, p. 51) by falling “in effect back on the assumption that everybody knows everything” (ibid.), an assumption that answers the question of how markets operate in a purely tautological manner but does not inform us about how they actually function.72 Implicitly, his critique is, however, also directed at Mises’ praxeological a priorism, as can be concluded from Hayek’s comments on a “Pure Logic of Choice” which is concerned with what “we know to be common to all human thought” (Hayek, 1948a, p. 47). The “axioms” of the “pure logic of choice,” Hayek notes, define the kind of phenomena which we seek to understand, namely “conscious” as distinguished from “instinctive” action, and in this sense they are, of course, “universally applicable to the field in which we are interested” (ibid.). Yet, so Hayek states in no uncertain terms, the “tautological transformations of the Pure Logic of Choice” (ibid., p. 39) have little to do with an explanation of social reality. As he puts it: “But the assumptions or hypotheses, which we have to introduce when we want to explain the social process, concern the relation of the thought of an individual to the outside world, the question to what extent and how his knowledge corresponds to the external facts. And the hypotheses must necessarily run in terms of assertions about causal connections, about how experience creates knowledge” (ibid.). Hayek emphasizes, not any less than other Austrians do, the subjectivity of the valuations and theories that inform human action.73 He explicitly stresses that “the analysis of what people will do can start only from what is known to them” (Hayek, 1948a, p. 44),74 and that “not only man’s action toward external objects but also the relations between men and all the social institutions can be understood only by what men think about them” (Hayek, 1979, p. 57). Yet, Hayek’s methodological conclusions from the subjectivist premise are clearly different from those drawn by authors like Mises or Lachmann. This is not to deny the often observed fact that some of Hayek’s arguments on the matter – in particular in his essay on “Scientism and the Study of Society” (Hayek, 1979, pp. 17ff) – appear to come close to Mises’ views.75 Yet, as has been noted above (p. 13), a careful reading of these arguments, especially a reading that gives appropriate weight to Hayek’s later clarifying comments, cannot fail to recognize that Hayek’s version of subjectivism systematically differs in its methodological orientation from Mises’ as well as from Lachmann’s subjectivist outlook. By contrast to them his ambition clearly is to develop an empirical, explanatory theory of the role of knowledge or mental phenomena in human action and social interaction. As far as the method of understanding is concerned on which e.g. Lachmann puts so much emphasis as the distinctive method of the social sciences, Hayek

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acknowledges that we surely “constantly act on the assumption that we can in this way interpret other people’s actions on the analogy of our own mind” (1948b, p. 64). Yet, he cautions that such analogies are mere conjectures, “that we can never be sure” (ibid.), and “that we can understand less and less as we turn to beings more and more different from ourselves” (ibid., p. 66).76 More importantly even, Hayek’s own understanding of what “understanding” is about is not in contrast to the notion of nomological explanation but is, instead, perfectly compatible with it (Hayek, 1967c, pp. 58ff). Hayek’s intention in emphasizing the role of subjective knowledge in human action is, quite apparently, not to claim a special methodological status – whether praxeological or hermeneutical – for economic and social analysis. To the contrary, his concern is with “economics as an empirical science” (1948a, p. 44), it is with an empirical, explanatory approach to “the role which assumptions and propositions about the knowledge possessed by different members in society play in economic analysis” (ibid., p. 33). And such an empirical approach, he insists, must be based on conjectures about how knowledge is acquired and expectations are formed (Hayek, 1979, p. 57), on “empirical propositions . . . about how people will learn” (1948a, p. 55). These conjectures, Hayek emphasizes, are empirically testable “assumptions about causation” (ibid., p. 46) and, as such, are “of a fundamentally different nature” not only from the propositions of formal equilibrium analysis (ibid., p. 55), they are also “rather different from the general assumptions from which the Pure Logic of Choice starts” (ibid., p. 46). What is, in the present context, even more important than Hayek’s programmatic methodological arguments is the fact that, from his 1936 lecture on “Economics and Knowledge” (1948a) on, Hayek systematically pursued an empirical subjectivist research agenda that focuses on the issue of how imperfect human agents – instead of fictitious, perfectly rational homines oeconomici – acquire and communicate the subjective knowledge of the world that allows them relatively successfully to operate within their respective problem environments, and relatively successfully to cooperate with, and coordinate their actions with, other agents who are equally limited in their understanding of the complexities of the world around them. Hayek’s entire life work can be viewed as a systematic effort to explore different aspects of this fundamental issue. His theory of the spontaneous order of the market seeks to explain how the price mechanism operates as a system of communication by which the fragments of knowledge dispersed among myriads of agents in an extended network of exchange relations are utilized to effectively transmit throughout the system information about changes in relative scarcities. His theory of competition as a discovery procedure seeks to explain how the market functions as an open experimental arena in which, by way of trial and error, continuously new and superior solutions to economic problems are discovered (solutions which

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may in turn, of course, generate new problems of their own). His theory of cultural evolution seeks to explain how the inter-personal and inter-group variety in acquired practices, artifacts, normative beliefs and conjectural knowledge feeds into a process of competitive selection that results in an inter-generational accumulation of experience-based problem-solving knowledge. Finally, and of particular interest in the present context, there is Hayek’s theory on how the human mind operates as the “repository” of subjective knowledge, an empiricist theory of mental phenomena that is outlined in detail in his The Sensory Order – An Inquiry into the Foundations of Theoretical Psychology (1952) as well as in some of his other contributions devoted to epistemological issues (1967a, b, c, d; 1978b; 1979, pp. 31ff). About the theoretical perspective laid out in The Sensory Order W. B. Weimer (1982, p. 281) has said that it “is compatible with . . . the resurgence of cognitive psychology (post-Chomsky and psycholinguistics), as well as the methodological views of science advanced by Karl Popper.” Even though it has found much less attention than other parts of Hayek’s work, the significance of The Sensory Order in the context of his overall research program has been well recognized by Hayek-experts such as Bruce Caldwell (2000, p. 9), while experts in modern cognitive neuroscience have praised Hayek’s contribution as anticipating, in essence, ideas that have only more recently gained wider recognition in this field.77 In The Sensory Order Hayek took up and expanded ideas that he had outlined several decades earlier as a young student in a manuscript, entitled Beitr¨age zur Theorie der Entwicklung des Bewusstseins (Contributions to a Theory of How Consciousness Develops) (Hayek, 1920). In the abstract of this early paper he had explicitly stated that it was his ambition to propose a theory of the mind compatible with the world view of the natural sciences.78 The term “sensory order” is used by Hayek (1982, p. 288) to refer to an organism’s internal (mental) representations or “models” of the outer world, models that embody knowledge of relevant contingencies in the organism’s problem environment. Of particular significance in the present context is Hayek’s claim that these internal representations or models provide the clue to our understanding of adaptive or purposive behavior (Hayek, 1952, pp. 122ff). The fact that these internal models allow the organism to anticipate the likely consequences from different kinds of behavior is, in his view, the essential ingredient of purposive, problem-solving behavior. In this sense, Hayek notes, even machines governed by programs – such as, for example, “automatic pilots for aircraft” (ibid., p. 126) – may be said to exhibit “purposive” (problem-solving) behavior. Though such machine-behavior is, of course, very primitive compared to the complexities of human behavior, it has in common with the latter that it owes its problem-solving capacity to the existence

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of programs in which knowledge of relevant contingencies of the environment is incorporated.79 In Hayek’s account it is through the mind’s “internal representations” – through models, rules or dispositions80 – that all human perception as well as human action is guided, from our pre- or sub-conscious adaptations to our most deliberate and reflected responses to problems (Hayek, 1952, pp. 86, 145; 1967c, p. 45).81 It is, he argues, only on the basis of the knowledge already incorporated in such internal representations that we are able, on the one hand, to single out in our perceptions those aspects of “the inexhaustible totality of everything” (Hayek, 1979, p. 121) that are of relevance to us and, on the other hand, to select the appropriate, problemsolving course of action from an open-ended set of potential responses (Hayek, 1978b, p. 38).82 As Hayek (1973, p. 30) puts it: “We never act, and could never act, in full consideration of all the facts of a particular situation, but always by singling out as relevant some aspects of it.” The “singling out,” in our perception as well as in our action, is guided by “schemata of thought” (ibid., p. 31), by conjectural expectations or “abstractions”83 that provide the “basis of man’s capacity to move successfully in a world very imperfectly known to him” (ibid., p. 30).84 Hayek (1967b, p. 23) explicitly agrees with K. R. Popper’s argument that “observation is always observation in the light of theories,”85 and like Popper he interprets “theory” in the broadest possible sense, to include the most basic genetically coded behavioral dispositions as well as the most reflected scientific conjectures, an interpretation captured in Popper’s statement, “from the amoeba to Einstein is just one step” (Popper, 1972, p. 246).86 And just like Popper he views the growth of knowledge in all forms as a process of trial and error-elimination, as experience-based “modification of previous knowledge” (Popper, 1972, p. 71). As Hayek (1952, p. 143) phrases it, “all we know about the world is of the nature of theories and all “experience” can do is to change these theories.”87 More specifically, Hayek interprets the process through which mental models, rules or dispositions become better adapted to the relevant problem environment as a process of classification and reclassification that is controlled by success and failure (Hayek, 1952, p. 147).88 In case of “expectations which will not be borne out by events” a reclassification or a “change of the frame of reference” is induced, controlled by, as Hayek puts it, “the pragmatic needs of the individual and the species” (ibid., pp. 145, 168).89 In Hayek’s account, the evolution of the mental order proceeds as a continuous reorganization of the classificatory apparatus in light of which external events are interpreted, at the level of biological evolution as well as at the level of behavioral learning and at the level of conceptual thinking (Hayek, 1952, p. 107; 1967c, p. 52). At all levels, rules and dispositions better adapted to the actual contingencies in the world are a fruit not of pre-adapted “foresight” but of tentative

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conjectures and ex-post selection by consequences.90 While the “knowledge” that has been accumulated over the evolutionary history of our species is incorporated, as genetically coded conjectures, in our sense (and other) organs, the capability of learning allows an organism to accumulate experience-based problem-solving knowledge over its lifetime that is incorporated in memory-coded models, rules or dispositions (Hayek, 1952, pp. 53, 106, 108, 129ff, 166; 1967c, p. 51). At the level of “conceptual thinking,” in particular in science, knowledge grows by way of deliberate conjectural reclassifications that progressively replace “the classification of events which our senses provide” (Hayek, 1979, p. 31), in order to account for problems we encounter in the world of our experience, “problems which can be answered only by altering the picture which our senses give us of that world” (Hayek, 1952, p. 173). While Hayek’s ambition is to provide a naturalistic, explanatory account of mental phenomena, he emphasizes that, due to the complexity of the processes involved, “we shall never be able to achieve more than an explanation of the principle on which the mind operates, and shall never succeed in fully explaining any particular mental act” (Hayek, 1952, p. 34). In the impossibility of a “full explanation” (ibid., p. 439) of particular acts he sees, however, no reason at all to discard the standard notion of causal explanation. We can, as he argues, hold the view that every single action of a human being is caused by “the inherited structure of his body (particularly of its nervous system) and of all the external influences which have acted upon it since birth” (Hayek, 1967b, p. 37) and, at the same time, insist that, “in spite of our knowledge of the principle on which the human mind works” (ibid.), we will in general not be able to explain single actions because it is impossible for us “to state the full set of particular facts which brought it about that the individual did a particular thing at a particular time” (ibid.).91 The limits of explanation and prediction in the realm of human action are, in the sense explained, for Hayek not a matter of fundamental methodological differences between the natural sciences and the sciences of human action. They are due to the uniqueness and novelty that characterizes the operation of a complex rule-governed system such as the human mind, a system that can adapt to a complex and changing environment through the simultaneous, combined application of models or rules (Hayek, 1952, p. 130).92 As he puts it: “It is this determination of particular actions by various combinations of abstract propensities which makes it possible for a causally determined structure of actions to produce ever new actions it has never produced before, and therefore to produce altogether new behavior such as we do not expect from what we usually describe as a mechanism. Even a relatively limited repertory of abstract rules that can thus be combined into particular actions will be capable of “creating” an almost infinite variety of particular actions” (Hayek, 1978b, p. 48).

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7. CONCLUSION My purpose in writing this paper has been to take issue with a tradition in Austrian economics that claims that recognizing the subjectivist determinants of human action requires economics (as well as the other social sciences) to adopt a different methodology than the causal explanatory approach of the natural sciences. In the preceding sections I have sought to counter this claim in a number of ways. I have examined the arguments that have been advanced in defense of this claim, and I have given reasons why these arguments must be doubted (Section 3). I have discussed the research program of evolutionary psychology as an example of theoretical developments in modern psychology and cognitive science that seek to account, in an explicitly naturalistic manner, for the cognitive foundations of human action (Section 4), and I have cited E. Mayr’s and K. R. Popper’s concepts of program- or conjecture-based behavior as theoretical paradigms that show how human purposefulness can be analyzed within a causal explanatory framework (Section 5). Finally, I have argued that an outlook at subjectivism that is perfectly compatible with these naturalistic approaches can, indeed, be found within the Austrian tradition itself, namely in F. A. Hayek’s theory of rule-based perception and action (Section 6). To the extent that modern Austrian economics, explicitly or implicitly, adheres to the methodological dualism advocated by authors like Mises and Lachmann, the arguments developed in this paper call for a reorientation. They are meant to show that the subjectivist research program of the Austrian tradition need not be associated at all with an anti-naturalistic methodology, but can well be pursued within a causal explanatory framework. They are an invitation to turn “the Austrian school . . . into an evolutionary school” (Witt, 2003, p. 26) or, to borrow a phrase from J. H. Barkow (1992, p. 635), to practice Austrian economics as “an evolutionarily informed and psychology-compatible social science.”

NOTES 1. With reference to Carl Menger, F. A. Hayek speaks of “that methodological individualism which is closely connected with the subjectivism of the social sciences” (Hayek, 1979, p. 64). 2. The principle of methodological individualism has been the subject of extensive debate in the social sciences. For a detailed examination of that debate see Vanberg (1975). 3. U. Witt (1989, p. 410) “There (in neoclassical economics, V. V.) the subjective imponderabilities . . . are simply assumed away: Perfect information or, more recently, rational expectation models hypothesize a one-to-one relationship between “objective” conditions and the individual agent’s perception of these.” – L. Lachmann (1977, p. 158)

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“From our point of view, the crucial significance of the emergence of expectations as a problem rests in the fact that . . . they have thus far proved refractory of all attempts to incorporate them into the formal apparatus of the late classical economics of our time.” 4. This is, of course, also the central message of H. A. Simon’s critique of the neoclassical concept of rationality. As Simon (1997, p. 25) puts it: “Neoclassical theory, put in the simplest terms, proceeds as though the facts of the real world are known . . . Now, if you think people can deal with the world as it really is, so that you do not have to worry about their subjective view of it, then in order to predict their behavior you simply calculate what would maximize utility in that real world . . . If you believe, however, that our minds are very limited, that we can only form a very approximate picture of the world, then . . . you need a theory of how we make our decisions: you need a theory of procedural rationality.” 5. U. Witt (1989, p. 417; 1992, p. 221) has argued in a similar direction, pointing out that Hayek’s “different attitude towards the subjectivism problem” is much closer to Carl Menger’s original, “psychologically inspired, empirically oriented” approach than to Misesian tradition in Austrian economics. 6. On the two forms of subjectivism G. P. O’Driscoll and M. J. Rizzo (1985, p. 22) note: “The first form is most closely related to the traditional subjective theory of value and we shall call it ‘static subjectivism.’ In this case, the mind is viewed as a passive filter . . . The second form, on the other hand, views the mind as an active, creative entity . . . This form of subjectivism we shall call ‘dynamic subjectivism.’ ” 7. About L. Robbins’ (1935) influential attempt to infuse Austrian subjectivism into mainstream economics I. Kirzner (1992b, p. 126) notes: The “subjectivism which Robbins brought to synthesis from Vienna was severely limited to the ‘static’ aspects of subjectivism.” – On this issue see also J. Wiseman (1985). 8. As he notes, Mises adopts “the rather heavy term ‘sciences of human action’ ” (1978, p. 9) only reluctantly for want of a better term: “The German language has developed a term that would have been expedient to denote the totality of the sciences dealing with human action as distinguished from the natural sciences, viz., the term Geisteswissenschaften.” 9. As Mises emphasizes, to say that human action is purposive is to say that it is goal-directed, “aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means” (Mises, 1978, p. 34), it is not to say that it is “objectively rational” as judged by an observing third party. Rejecting common interpretations of the rationality postulate in economics he notes that “economics does not deal with an imaginary homo oeconomicus . . . but with homo agens as he really is, often weak, stupid, inconsiderate, and badly instructed” (1990, p. 24). – I have discussed Mises’ views on human action and rationality in more detail in Vanberg (2004). 10. Mises (1990, p. 21) “Not what a man chooses, but that he chooses counts for praxeology” (ibid., p. 21). – What praxeology asserts about “action as such” is, as Mises (1978, p. 44) argues, meant to be “strictly valid without any exception for every action.” 11. Mises (1990, p. 21) “Praxeology is not based on psychology and is not a part of psychology . . . Psychology deals with the internal processes determining the various choices in their concreteness.” 12. Mises prefers, indeed, to use the terms “thymology” and “thymological” instead of “psychology” and “psychological” in order to separate the kind of psychology that he favored – namely a psychology that is concerned with “the mental activities of men that

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determine their actions” (Mises, 1978, p. 47) – from what he considered a too narrowly positivist “experimental psychology” (ibid., p. 47). 13. Mises (1978, p. 50) “Understanding . . . refers not to the field of praxeology and economics, but to the field of history. It is a thymological category.” 14. Mises (1978, p. 70) “If one accepts the terminology of logical positivism and especially also that of Popper, a theory or hypothesis is ‘unscientific’ if in principle it cannot be refuted by experience. Consequently, all a priori theories, including mathematics and praxeology, are ‘unscientific.’ This is merely verbal quibble.” 15. M. Rothbard (1990, p. 317) has summarized Mises’ apriorism as follows: “He assumes nothing about the wisdom of man’s ends or about the correctness of his means. He ‘assumes’ only that men act, i.e. that they have some ends, and use some means to try to attain them. This is Mises’ Fundamental Axiom, and it is this axiom that gives the whole praxeological structure of economic theory built upon it its absolute and apodictic certainty . . . For this Axiom is true for all human beings, and everywhere, at any time, and could not even conceivably be violated.” 16. I have critically examined Mises’ arguments in some detail in Vanberg (1975, pp. 85ff). – See also Vanberg (2004, p. 21). 17. A theory or conjecture that – as Rothbard (1990, p. 317) puts it – “could not even conceivably be violated” cannot tell us anything about the world of our experience because it allows for all conceivable states of the world. It does not tell us what is factually impossible but only what is logically impossible and, therefore, inconceivable. 18. Mises (1978, p. 121) “(H)uman reaction is determined by ideas, a phenomenon the description of which is beyond the reach of physics, chemistry and physiology. There is no explanation in terms of the natural sciences.” 19. Mises (1990, p. 25) “But as long as we do not know how external (physical and physiological) facts produce in the human ‘soul’ definite thoughts and volitions resulting in concrete acts, we have to face an insurmountable dualism . . . Reason and experience show us two separate realms: the external world of physical and physiological events and the internal world of thought, feeling, and purposeful behavior. No bridge connects – as far as we can see today – these two spheres.” – See also Mises (1957, p. 1). 20. Mises (1978, p. 121) “(T)he natural sciences have no intellectual tool to deal with ideas and with finality.” 21. Mises (1978, p. 43) “The natural sciences do not know anything about final causes. For praxeology finality is the fundamental category.” 22. Mises (1978, p. 69) “There are in this orbit no such things as experimentally established facts. All experience in this field is . . . experience of complex phenomena.” 23. Lachmann (1977, p. 169) “The concept of ‘Purpose,’ for example, has long been discarded by the older natural sciences like physics, and has now even been expunged from biology. Yet, it remains an indispensable tool of the social sciences. Where human action is concerned, a purely behavioristic approach can answer none of our questions. It certainly cannot explain, i.e. make intelligible, a single human act.” 24. Lachmann (1977, p. 95) – Lachmann (ibid., p. 35) notes about the relation between Max Weber and Ludwig von Mises: “Their personal acquaintance was brief, though, confined to the few summer months Weber spent at the University of Vienna in 1918. Both men shared an interest in neo-Kantian philosophy and an aversion to the cruder brands of positivism and behaviorism.” – I have compared Mises’ and Weber’s versions of subjectivism in some detail in Vanberg (1975, pp. 85ff, 101ff).

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25. Lachmann (1977, p. 153) defines Verstehen as the “method which explains human action in terms of plans, constituted by mental acts and linking an imagined future to an active present.” 26. Lachmann (1977, p. 153) “The alternative principle of explanation is, of course, that of ‘response to stimulus.’ ” 27. A somewhat different emphasis is implied when Lachmann (1977, p. 173) notes: “Not the psychological causes of human action, but their logical consequences form the subject matter of the analytical social sciences.” – See also ibid., p. 168. 28. With reference to a Verstehen approach that inquires into the subjective meaning of actions Lavoie (1991, p. 482) notes: “I see no reason to interpret subjectivism in this way . . . Meaning can be viewed as something that resides ‘within’ the inter-subjective, and this is taking place out in the open all the time and all around us.” 29. For a critique of this new, hermeneutical branch of the Austrian tradition see H. Albert (1988) who concludes that “the anti-naturalistic hermeneutics in the spirit of Heidegger . . . leads to a methodological subjectivism which has nothing in common at all with the original subjectivism of the Austrian School” (ibid., p. 593). – Albert’s main objection is that “nothing can be gained . . . by wiping out the important difference between the problem of the interpretation of words and sentences and the problem of the explanation of human action by using the term ‘hermeneutical’ in the loose way which we owe to modern hermeneutical philosophy” (ibid., p. 595). 30. Though in this regard, too, Lavoie (1991, p. 477) argues somewhat ambiguously when he notes: “The point is not to abandon the study of causation, but to recognize the fact that many of the relevant causes we are looking for in economics are themselves meanings.” 31. It is interesting to note that from C. Menger to L. von Mises the “Austrian” perspective on this issue has changed. Menger (1963, p. 59, fn. 18) argued: “The contrast between the theoretical natural sciences and the theoretical social sciences is merely a contrast of the phenomena which they investigate from a theoretical point of view. It is by no means a contrast of method.” – Mises (1978, p. 45) voices the opposite view when he states: “What distinguishes the sciences of human action from the natural sciences is not the events investigated, but the way they are looked upon.” 32. See e.g. Hayek (1979, p. 78) “The attitude which, for want of a better term, we shall call the ‘objectivism’ of the scientistic approach to the study of man and society, has found its most characteristic expression in the various attempts to dispense with our subjective knowledge of the working of the human mind, attempts which in various forms have affected almost all branches of social study.” 33. Recollecting his early reading of Popper’s original German version (published in 1935) of The Logic of Scientific Discovery Hayek notes that he had been led, “already, to the understanding of what became Popper’s main systematic point: that the test of empirical science was that it could be refuted, and that any system which claimed that it was irrefutable was by definition not scientific” (Hayek, 1994, p. 51). And he continues: “I was not a trained philosopher; I didn’t elaborate this. It was sufficient for me to have recognized this, but when I found this thing explicitly argued and justified in Popper, I just accepted the Popperian philosophy for spelling out what I had always felt” (ibid.). 34. Hayek (1967a, p. 20) “(A)s the advance of the sciences penetrates further and further into more complex phenomena, theories which merely provide explanations of the principle . . . may become more the rule than the exception. Certain developments of recent

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years, such as cybernetics, the theory of automata or machines, general systems theory, and perhaps also communication theory, seem to belong to this kind.” 35. Hayek (1967b, p. 31) “Probably the best illustration of a theory of complex phenomena . . . is the Darwinian theory of evolution by natural selection.” 36. About the Darwinian theory Hayek (1967b, p. 32) notes: “The theory as such, as is true of all theories, describes merely a range of possibilities. In doing this it excludes other conceivable courses of events and thus can be falsified. Its empirical content consists in what it forbids.” 37. Hayek (1967a, p. 16) “It is undoubtedly a drawback to have to work with theories which can be refuted only by statements of a high degree of complexity.” – Hayek (1967b, p. 28) “Such a theory will, of course, in Popper’s terms, be one of small empirical content.” 38. Hayek (1967b, p. 29) “The advance of science will thus have to proceed in two different directions: while it is certainly desirable to make our theories as falsifiable as possible, we must also push forward into fields where, as we advance, the degree of falsifiability necessarily decreases. This is the price we have to pay for an advance into the field of complex phenomena.” 39. J. O’Driscoll and M. Rizzo (1985, p. 22ff.) appear to take this view when, in their discussion of the methodological implications of “dynamic subjectivism,” they note that Hayek’s non-deterministic concept of pattern explanation is “consistent with dynamic subjectivism” (ibid., p. 27). 40. Citing the views of A. Sch¨utz and F. Machlup, R. Koppl (1994, p. 72) points out that an “understanding” approach need not be “anti-theoretical” and need not imply a dualism “according to which quite different epistemological principles apply to mental and physical phenomena.” 41. When L. Robbins (1981, p. 3.) notes that explanations in economics “must to some extent be teleological” he clearly uses the term “teleological” in this sense. He does not want to deny at all that explanations in economics are subject to “the usual logical requirements of a science” (ibid., p. 9). He only wants to emphasize “that explanations of economic relationships must involve considerations of purposes” (ibid., p. 3). 42. H. Simon (1997, p. 79) “About thirty years ago there occurred in psychology a ‘cognitive revolution,’ which resuscitated older methodologies – rejected by Behaviorism – for studying complex human thinking, problem solving and decision making; and which introduced powerful new methodologies.” – H. Simon sees in the cognitive revolution the prospects for a theory of the mind on which a “subjectivist” economics can be based. As he argues: “Unless we have a theory of how the human mind operates, we have few grounds on which to build an economic theory that will talk about the kind of uncertain world we live in . . . I believe that we have made great progress toward building a theory of human thinking in the last 30 years, and therefore I am optimistic about the opportunities to apply it to economics” (ibid., p. 26). 43. Modern cognitive psychology explicitly seeks to account for internal, dispositional variables that intervene between “external events” and behavioral responses. They are, therefore, hardly a just target of Mises’ (1978, p. 37) comment: “The same external events produce in different men and in the same men at different times different reactions. The natural sciences are helpless in face of this ‘irregularity.’ ” 44. L. Cosmides and J. Tooby (1994c, p. 42) “Indeed, a theoretical synthesis between the two fields seems inevitable, because evolutionary biologists investigate . . . the set

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of adaptive information-processing problems the brain evolved to solve, and cognitive scientists investigate the design of the circuits or mechanisms that evolved to solve them.” 45. Tooby and Cosmisedes (1992, p. 64) “It is, therefore, meaningful to ask what kind of cognitive design features would have constituted good solutions to adaptive problems that persisted over many generations. Evolutionary biology and hunter-gatherer studies supply definitions of the recurrent adaptive problems humans faced during their evolution, and cognitive psychology describes the information-processing mechanisms that evolved to solve them.” 46. H. Albert (1988, p. 592) points to the discrepancy between Mises’ evolutionary arguments and his methodological dualism when he notes: “Mises himself refers to the fact that the human mind has acquired its structure in the course of evolution . . . This implies that there are general laws of its functioning which can in principle be discovered.” 47. Cosmides and Tooby (1994b, p. 97) “Cognitive programs that systematically violate this constraint cannot be selected for . . . Evolvability constraints . . . specify the class of mechanisms that can, in principle, evolve.” 48. Cosmides and Tooby (1994a, p. 329) “Natural selection could equip humans’ cognitive specializations with design features and problem-solving strategies that exploited the presence of these problem-specific regularities to solve particular classes of problems in efficient ways appropriate only to this class. . . . For the problem domains they are designed to operate on, specialized problem-solving methods perform in a manner better than rational.” 49. Cosmides and Tooby (1994b, p. 88) “(H)umans are equipped with a diverse range of adaptations designed to perform a wide variety of tasks, from solicitation of assistance from one’s parents, to language acquisition, to modeling the spatial distribution of local objects, to coalition formation and cooperation, to the deduction of intentions on the basis of facial expression.” – See also Cosmides and Tooby (1992, p. 166). 50. It has to be noted that Chomsky’s theory is itself subject to the kind of objections that are raised against “modularity theories” in general, including evolutionary psychology. See e.g. Tomasello (1999, p. 94, 203). 51. It is worth noting that some of F. A. Hayek’s arguments on the issue of “Verstehen” or “understanding” are very much compatible with the outlook of evolutionary psychology. See Hayek (1967c, p. 46ff.). 52. Cosmides and Tooby (1987, p. 282) “Behavior is . . . elicited by information, which is gleaned from the organism’s external environment, and, proprioceptively, from its internal states. . . . The evolutionary function of the human brain is to process information in ways that lead to adaptive behavior.” – Cosmides and Tooby (1994a, p. 328): “The brain is a complex computational device, a system that takes sensory information as input, transforms it in various ways, stores it, analyzes it, integrates it, applies decision rules to it, and then translates the output of those rules into the muscular contractions that we call ‘behavior.’ ” 53. The term “program” is explicitly employed in analogy to its use in information science. As Tooby and Cosmisedes (1992, p. 66) note: “(A)n information-processing program, whether in an organism or in a computer, is a set of invariant relationships between informational inputs and ‘behavioral’ outputs.” 54. Tooby and Cosmisedes (1992, p. 103) “The inexhaustible range of possibilities latent in behavior, categorization, interpretation, decision and so on, is not just an abstract philosophical point. It is an implacable reality facing every problem-solving

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computational system. . . . Any design for an organism that cannot generate appropriate decisions, inferences, or perceptions . . . is lost in an ocean of erroneous possibilities.” 55. It could be just as well be directed against “hermeneutical Austrians” when Tooby and Cosmisedes (1992, p. 22) note in reference to an other advocate of “hermeneutics”: “For example, Clifford Geertz advocates abandoning the ground of principled causal analysis entirely in favor of treating social phenomena as ‘texts’ to be interpreted just as one might interpret literature.” 56. I have discussed Mayr’s approach in more detail in Vanberg (2002, p. 15ff.). 57. E. Mayr (1961, p. 1504) “We biologists have long felt that it is ambiguous to designate such programmed, goal-directed behavior ‘teleological,’ because the word teleological has also been used in a very different sense.” 58. Such instructions or decision-rules can, of course, reach any degree of complexity by additional specifications added to the if-clause and the then-clause. 59. Mayr (1961, p. 1502) “It is characteristic of these genetic codes that the programming is only in part rigid. Such phenomena as learning, memory, non-genetic structural modification, and regeneration show how ‘open’ these programs are.” 60. Adopting the distinction between proximate and ultimate causes of behavior Cosmides and Tooby (1987, p. 281f.) note: “(T)he psychology of an organism consists of the total set of proximate mechanisms that cause behavior . . . (B)ehavior is an effect produced by a causal system: proximately by psychological mechanisms.” 61. This is, as explained above, the explicit aim of evolutionary psychology. As Cosmides and Tooby (1987, p. 283) put it: “Evolutionary psychology . . . relates explanations in terms of adaptive strategy to explanations in terms of proximate mechanisms . . . Psychological mechanisms constitute the missing causal link between evolutionary theory and behavior . . . (I)t is the proximate mechanisms that cause behavior that promise to reveal the level of underlying order for a science of human behavior.” 62. Mayr (1961, p. 1506) “Causality in biology is not in real conflict with the causality of classical mechanics.” 63. I have discussed Popper’s arguments in more detail in Vanberg (2002, p. 19ff.). 64. K. R. Popper (1972, p. 145) “The tentative solutions which animals and plants incorporate into their anatomy and their behavior are biological analogues of theories and vice versa: theories correspond . . . to endosomatic organs and their ways of functioning. Just like theories, organs and their functions are tentative adaptations to the world we live in.” 65. The “conjectures” built into our (sense-)organs can, Popper (1972, p. 146) notes, be regarded as “the biological predecessors of linguistically formulated theories.” 66. Popper does, in fact, explicitly – and approvingly – refer to Mayr’s concept of program-based behavior (Popper, 1987, p. 151). 67. The name “evolutionary epistemology” appears to have been coined by Donald T. Campbell (1974). 68. Surprisingly, even though the research program of evolutionary epistemology predates the emergence of evolutionary psychology, authors who publish in the latter field seem to have taken no notice of its existence. 69. M. Tomasello (1999, p. 216) refers to these three levels of evolutionary adaptation when he notes: “Modern adult cognition of the human kind is the product of genetic events taking place over many millions of years in evolutionary time but also of cultural events taking place over many tens of thousands of years in historical time

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and personal events taking place over many tens of thousands of hours in ontogenetic time.” 70. In his survey of the field W. W. Bartley (1987, p. 20f.) lists F. A. Hayek among its “founders,” besides K. R. Popper, D. T. Campbell, Ernst Mayr and Konrad Lorenz. 71. As Hayek has later stated it in an other context: “But the concrete knowledge which guides the actions of any group of people never exists as a consistent and coherent body. It only exists in the dispersed, incomplete, and inconsistent form in which it appears in many individual minds, and the dispersion and imperfection of all knowledge are the two basic facts from which the social sciences have to start” (1979, p. 49f.) 72. In his later seminal article on “The Use of Knowledge in Society” Hayek noted about the prominence of “equilibrium analysis” in economics: “But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency” (1948c, p. 87). 73. Kirzner (1992b, p. 132) recognizes Hayek’s concern with the role of knowledge as “a decisive, explicit extension of subjectivism in modern economics.” 74. Hayek specifically notes that in our efforts to explain human action we must remain aware of the difference between what is known by “the observing economist” (1948a, p. 39) and what is “known to the persons whose behavior we try to explain” (ibid.). And he points to the obvious – though in standard rational choice accounts often ignored – fact that “no superior knowledge the observer may possess about the object, but which is not possessed by the acting person, can help in understanding the motives of their actions” (1948b, p. 60). – On this issue see also Hayek (1979, p. 51). 75. In fact, in a footnote to his often quoted remark “that every important advance in economic theory during the last hundred years was a further step in the consistent application of subjectivism” Hayek (1979, p. 52) states: “This is a development which has probably been carried out most consistently by Ludwig von Mises.” 76. For a comparison to Mises’ view on the role of “understanding” in the social sciences see Mises (1978, p. 50, 71; 1990, p. 8f.). 77. J. M. Fuster (1995, p. 87ff.) “The first proponent of cortical memory networks on a major scale was neither a neuroscientist nor a computer scientist but, curiously, a Viennese economist: Friedrich von Hayek . . . Although devoid of mathematical elaboration, Hayek’s model clearly contains most of the elements of those later network models of associative memory . . . The main reason for dwelling here on Hayek’s model is simply that it has certain properties . . . that conform exceptionally well to recent neurobiological evidence on memory.” – Fuster (ibid., p. 89) points to G. Edelman as “one of the theoreticians of the brain to have acknowledged the importance of Hayek’s contribution” (Fuster ibid., p. 90). See G. Edelman (1987, p. 25). 78. In retrospect, Hayek (1982, p. 289) has noted about the writing of The Sensory Order: “When I then, about 1946, began looking at the current psychological literature, I found to my amazement that my problem seemed to be in exactly the same state in which I had left it 25 years before.” – Hayek’s principal reference at the time was D. O. Hebb’s (1949) neuropsychological theory which has been of major influence on the development of modern cognitive neuroscience. – It is worth noting that J. H. Holland (whose theory of complex adaptive systems is very much compatible with Hayek’s views in The Sensory Order) cites Hebb’s theory as the major inspiration for his own work (Holland, 1998, p. 19). – On Holland’s theory see Vanberg (2004, p. 30ff.).

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79. Hayek (1952, p. 126) “Such machines . . . would lack the capacity of learning from experience. But although for this reason such machines cannot be described as brains, with regard to purposiveness they differ from a brain merely in degree and not in kind.” 80. Hayek uses the terms “models,” “rules” and “dispositions” alternatively to describe the mental events that take place “between the input of (external and internal) stimuli and the output of action” (Hayek, 1982, p. 288). – While in The Sensory Order he mostly speaks of “models,” in later publications he prefers to speak of “rules of action (or dispositions)” (Hayek, 1978b, p. 43). As he notes: “(D)ispositions toward kinds of movements can be regarded as adaptations to typical features of the environment, and the “recognition” of such features as the activiation of the kind of disposition adapted to them . . . (A)ll the “knowledge” of the external world which such an organism possesses consists in the action patterns which the stimuli tend to evoke . . . (W)hat we call knowledge is primarily a system of rules of action” (ibid., p. 41). 81. On the “connection between the rules governing perception and the rules governing action” (1967c, p. 56) Hayek notes: “(T)he perception of events can also be regarded as a subsummation of particular stimuli, or groups of stimuli, as elements of an abstract class to which a response possessing certain characteristics is appropriate” (1978b, p. 40). 82. Cosmides and Tooby (1987, p. 297) refer to the same issue when they note: “There are an infinite number of dimensions that could be used to cave the environment into categories; there is no assurance that a general-purpose information processing system would ever . . . guide such a system toward the appropriate dimensions.” 83. Hayek (1952, p. 143) “(A)ll sensory perception is therefore in a sense “abstract,” it always selects certain features or aspects of a given situation . . . Even the so-called elementary sensory qualities are in this sense ‘abstractions’.” – See also Hayek (1978b, p. 44). 84. Hayek (1952, p. 142) “Perception is thus always an interpretation, the placing of something into one or several classes of objects.” – On “the general point that all perception involves a theory or hypothesis” see also Hayek (1967b, p. 23f.; 1967c, p. 53; 1978b, p. 37f.; 1979, p. 119). 85. Hayek (1978b, p. 43) emphasizes the correspondence between his notion of “the primacy of the rules of action (or dispositions)” and Popper’s argument “that the capacity to generalize comes first and the hypotheses are then tested and confirmed or refuted according to their effectiveness as guides to action.” 86. Hayek (1978b, p. 46) “(T)he capacity for abstraction manifests itself already in the actions of organisms to which we surely have no reason to attribute anything like consciousness.” – See also Hayek (1952, p. 108). 87. In a footnote Hayek (1952, p. 143) adds: “I owe this way of putting it to my friend K. R. Popper, who, however, may not entirely agree with this use I am making of his ideas.” 88. About the general outlook he adopted in The Sensory Order Hayek has noted in retrospect that he was led “to interpret the central nervous system as an apparatus of multiple classification or, better, as a process of continuous and simultaneous classification and constant reclassification on many levels (of the legion of impulses proceeding in it at any moment), applied in the first instance to all sensory perception but in principle to all kinds of mental entities, such as emotions, concepts, images, drives, etc., that we find to occur in the mental universe” (1982, p. 289). 89. Hayek (1979, p. 36, fn. 8) “The classification of the stimuli in our central nervous system is probably highly ‘pragmatic’ in the sense that it . . . stresses those relationships

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between the external world . . . and our body which in the course of evolution have proved significant for the survival of the species.” 90. Hayek (1978b, p. 42) “It seems to me that the organism first develops new potentialities for actions and that only afterwards does experience select and confirm those which are useful as adaptations to typical characteristics of its environment. There will thus be gradually developed by natural selection a repertory of action types adapted to standard features of the environment.” 91. Hayek (1967a, b, c, d, p. 37) “The individual personality would remain for us as much a unique and unaccountable phenomenon . . . whose specific actions we could generally not predict or control, because we could not obtain the information on all the particular facts which determined it.” 92. Hayek’s essential argument – namely that an apparatus that builds models by combining more basic rules “is of much greater efficiency than could be any . . . apparatus which contained, as it were, a few fixed models of typical situations” (1952, p. 131) is very similar to the central argument in J. H. Holland’s theory of complex adaptive agents, namely that such agents use “building blocks to generate internal models” of the ever new problem situations they encounter (Vanberg, 2004, p. 31).

ACKNOWLEDGMENT An anonymous referee’s helpful comments are gratefully acknowledged.

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Chomsky, N. (1980). Rules and representations. New York: Columbia University Press. Cosmides, L., & Tooby, J. (1987). From evolution to behavior: Evolutionary psychology as the missing link. In: J. Dupr´e (Ed.), The Latest on the Best – Essays on Evolution and Optimality (277–306). Cambridge, MA and London: MIT Press. Cosmides, L., & Tooby, J. (1992). Cognitive adaptations for social exchange. In: J. H. Barkow, L. Cosmides & J. Tooby (Eds), 163–228. Cosmides, L., & Tooby, J. (1994a). Better than rational: Evolutionary psychology and the invisible hand. American Economic Review, Papers and Proceedings, 84, 327–332. Cosmides, L., & Tooby, J. (1994b). Origins of domain specificity: The evolution of functional organization. In: L. A. Hirschfeld & S. A. Gelman (Eds), Mapping the Mind – Domain Specificity in Cognition and Culture (pp. 85–116). Cambridge and New York: Cambridge University Press. Cosmides, L., & Tooby, J. (1994c). Beyond intuition and instinct blindness: Toward an evolutionarily rigorous cognitive science. Cognition, 50, 41–77. Cosmides, L., Tooby, J., & Barkow, J. H. (1992). Introduction: Evolutionary psychology and conceptual integration. In: J. H. Barkow, L. Cosmides & J. Tooby (Eds), 3–15. Dufourt, D., & Garrouste, P. (1992). Criteria of scientificity and methodology of the social sciences: Menger, Mises and Hayek. In: R. F. H´ebert (Ed.), Themes on Economic Discourse, Method, Money and Trade, Selected Papers from the History of Economics Conference 1991, Perspectives on the History of Economic Thought (Vol. IX, pp. 18–36). Aldershot: Edward Elgar. Edelman, G. (1987). Neural Darwinism: The theory of neuronal group selection. New York: Basic Books. Fuster, J. M. (1995). Memory in the Cerebral cortex – An empirical approach to neural networks in the human and nonhuman primate. Cambridge, MA and London, England: MIT Press. Hayek, F. A. (1920). Beitr¨age zur Theorie der Entwicklung des Bewusstseins (typescript dated “September 1920”) Hoover Institution Archives, F. A. von Hayek Collection, Box 93, Folder 1. Hayek, F. A. (1948a). Economics and knowledge. In: Individualism and Economic Order (pp. 33–56). Chicago: University of Chicago Press. Hayek, F. A. (1948b). The facts of the social sciences. In: Individualism and Economic Order (pp. 57–76). Chicago: University of Chicago Press. Hayek, F. A. (1948c). The use of knowledge in society. In: Idem, Individualism and Economic Order (pp. 77–91). Chicago: University of Chicago Press. Hayek, F. A. (1952). The sensory order – An inquiry into the foundations of theoretical psychology. Chicago: University of Chicago Press. Hayek, F. A. (1967a). Degrees of explanation. In: Studies in Philosophy, Politics and Economics (pp. 3–21). Chicago: University of Chicago Press. Hayek, F. A. (1967b). The theory of complex phenomena. In: Studies in Philosophy, Politics and Economics (pp. 22–42). Chicago: University of Chicago Press. Hayek, F. A. (1967c). Rules, perception and intelligibility. In: Studies in Philosophy, Politics and Economics (pp. 43–65). Chicago: University of Chicago Press. Hayek, F. A. (1967d). Kinds of rationalism. In: Studies in Philosophy, Politics and Economics (pp. 82–95). Chicago: University of Chicago Press. Hayek, F. A. (1973). Rules and order. Law, legislation and liberty (Vol. 1). London and Henley: Routledge & Kegan Paul. Hayek, F. A. (1976). The mirage of social justice. Law, legislation and liberty (Vol. 2). London and Henley: Routledge & Kegan Paul. Hayek, F. A. (1978a). The pretence of knowledge. In: New Studies in Philosophy, Politics, Economics and the History of Ideas (pp. 23–34). Chicago: University of Chicago Press.

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Hayek, F. A. (1978b). The primacy of the abstract. In: New Studies in Philosophy, Politics, Economics and the History of Ideas (pp. 35–49). Chicago: University of Chicago Press. Hayek, F. A. (1979 [orig. 1952]). The counter-revolution of science. Indianapolis: Liberty Press. Hayek, F. A. (1982). The sensory order after 25 years. In: W. B. Weimer & D. S. Palermo (Eds), Cognition and the Symbolic Processes (Vol. 2, pp. 287–293). Hillsdale, NJ: Lawrence Erbaum. Hayek, F. A. (1994). Hayek on Hayek – An autobiographical dialogue. In: S. Kresge & L. Wenar (Eds). London: Routledge. Hebb, D. O. (1949). The organization of behavior: A neuropsychological theory. New York: Wiley. Holland, J. H. (1998). Emergence: From chaos to order. Reading, MA: Perseus Books. Kirzner, I. M. (1978). Foreword to second edition. In: Mises 1978 (pp. v–ix). Kirzner, I. M. (1992a). Carl Menger and the subjectivist tradition in economics. In: Idem, The Meaning of Market Process – Essays in the Development of Modern Austrian Economics (pp. 70–85). London and New York: Routledge. Kirzner, I. M. (1992b). Ludwig von Mises and Friedrich von Hayek: The modern extension of Austrian subjectivism. In: Idem, The Meaning of Market Process – Essays in the Development of Modern Austrian Economics (pp. 119–136). London and New York: Routledge. Kirzner, I. M. (1995). The subjectivism of Austrian economics. In: G. Meijer (Ed.), New Perspectives on Austrian Economics (pp. 11–22). London and New York: Routledge. Koppl, R. G. (1994). Ideal type methodology in economics. In: P. J. Boettke (Ed.), The Elgar Companion to Austrian Economics (pp. 72–76). Aldershot: Edward Elgar. Lachmann, L. M. (1977). Capital, expectations, and the market economy – Essays on the theory of the market economy. Edited with and Introduction by W. E. Grinder. Kansas City: Sheed Andrews and McMeel. Lachmann, L. M. (1982). Ludwig von Mises and the extension of subjectivism. In: I. M. Kirzner (Ed.), Method, Process, and Austrian Economics – Essays in Honor of Ludwig von Mises (pp. 31–40). Lexington, MA and Toronto: Lexington Books. Lavoie, D. (1991). The progress of subjectivism. In: N. de Marchi & M. Blaug (Eds), Appraising Economic Theories – Studies in the Methodology of Research Programs (pp. 470–491). Aldershot: Edward Elgar. Lavoie, D. (1994a). Introduction: Expectations and the meaning of institutions. In: Idem (Ed.), Expectations and the Meaning of Institutions – Essays in Economics by Ludwig Lachmann (pp. 1–19). London and New York: Routledge. Lavoie, D. (1994b). The interpretive turn. In: P. J. Boettke (Ed.), The Elgar Companion to Austrian Economics (pp. 54–62). Aldershot: Edward Elgar. Mackie, J. L. (1974). The cement of the universe – A study in causation. Oxford: Clarendon Press. Mayr, E. (1961). Cause and effect in biology. Science, 134, 1501–1506. Mayr, E. (1992). The idea of teleology. Journal of the History of Ideas, 53, 117–135. Menger, C. (1963). Problems of economics and sociology. Urbana: University of Illinois Press. Meyer, W. (2002). Grundlagen des o¨ konomischen Denkens. Edited by H. Albert & G. Hesse. T¨ubingen: Mohr Siebeck. Mirowski, P. (1989). More heat than light – Economics as social physics, physics as nature’s economics. Cambridge: Cambridge University Press. von Mises, L. (1957). Theory and history: An interpretation of social and economic evolution (reprint 1978). New Rochelle, NY: Arlington House. von Mises, L. (1978) The ultimate foundations of economic science – An essay on method (2nd ed.). Kansas City: Sheed Andrews and McMeel.

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THE NEW FABLE OF THE BEES: MULTILEVEL SELECTION, ADAPTIVE SOCIETIES, AND THE CONCEPT OF SELF INTEREST David Sloan Wilson In 1705 Bernard Mandeville published a humorous allegory in verse portraying human society as a bee hive in which every individual is motivated by personal greed but the effect is to make the society hum along as a unit. The following passage conveys the general tone. As Sharpers, Parasites, Pimps and Players, Pick-pockets, Coiners, Quacks, Sooth-Sayers, And all those, that, in Enmity With down-right working, cunningly Convert to their own Use the Labour Of their good-natur’d heedless Neighbour: These were called Knaves; but, bar the Name, The grave Industrious were the Same. All Trades and Places new some Cheat, No Calling was without Deceit.

Mandeville’s fable of the bees, along with Adam Smith’s metaphor of the invisible hand, has long been used to convey the idea that a well-functioning society can be forged out of individual self-interest.1 This idea has become such a tenet of modern thought that for many it is an unquestioned axiom and for decades it has served as the foundation of formal economic theory.

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Since Mandeville wrote his fanciful tale, an authentic scientific theory has arisen that explains how beehives and other adaptive animal societies evolve. This theory has much to say about human societies, but it fundamentally challenges the concept of individual self-interest as we know it. In this essay I will update the fable of the bees based on modern evolutionary theory. The updated version retains Mandeville’s emphasis on self-organization, in which an adaptive society can operate without any centralized intelligence. However, it rejects the concept of self-interest as an adequate description of either the thoughts or actions that enable individuals to self-organize into adaptive societies.

WHAT IS MULTILEVEL SELECTION THEORY? The Fundamental Problem of Social Life and its Potential Solution Darwin’s theory of natural selection, which explains how individual organisms can become exquisitely adapted to their environments, does not explain the evolution of adaptive societies with equal ease. To understand the nature of the problem, imagine a mutant individual who behaves in a way that increases the survival of everyone in her society, including herself, to an equal degree. Such a “no-cost public good” might not appear very feasible (and will soon be amended), but is useful for illustrative purposes. By increasing the fitness of everyone, the mutant trait will not increase in frequency within the society (other than by drift, which can equally cause a decrease in frequency). This example illustrates the elementary fact that natural selection is based on relative fitness. It’s not enough for a mutant trait to increase its own survival and reproduction; it must do so more than alternative traits in the population. The relative nature of fitness makes the evolutionary forces within a population insensitive to the welfare of the population as a whole. If providing a public good requires a private cost, which seems reasonable, then the prognosis for the evolution of adaptive societies becomes even worse. The public benefits count for nothing, no matter how great, while the private cost, no matter how small, causes the mutant type to constitute a smaller fraction of the population. The final outcome is a population devoid of public goods providers, whose members demonically strive to widen their slice of the pie while remaining oblivious to the size of the pie. I have called this the fundamental problem of social life (Wilson, 2002). Darwin was aware of this problem and proposed a solution. Suppose that a population consists of not one but many social groups. In this case, our mutant no-cost public good provider does not increase her relative fitness within her group, but she does increase the fitness of her group, relative to other groups

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in the total population. The mutant trait can spread through the total population on the strength of among-group selection, even if it is selectively neutral within groups. If there is a cost of providing the public good, then the fate of the mutant trait will depend upon the relative strength of the opposing forces of within- and among-group selection. Darwin’s potential solution to the fundamental problem of social life is elegant and perhaps even obvious in retrospect. After all, if natural selection is based on relative fitness, it makes sense that group-level adaptation is based on the relative fitness of groups. The modern version of Darwin’s idea is called multilevel selection theory (Sober & Wilson, 1998). Very simply, adaptation and natural selection can potentially occur at any level of the biological hierarchy. Adaptation at a given level requires a process of natural selection at that level. It is potentially undermined by lower levels of selection and in turn potentially undermines higher levels of selection. This theoretical framework has the capacity to explain the behavior of individuals who demonically work to undermine their groups (within-group selection), individuals who angelically work on behalf of their groups (the bright side of among-group selection) and avenging angels who work on behalf of their groups to destroy other groups (the dark side of among-group selection). We might not like the dark sides of animal and human nature, but they exist and require a theory to explain them. Even with this briefest of introductions, the discerning reader can probably see how multilevel selection theory has the potential to explain the good, the bad, the beautiful and the ugly.

The Rejection and Revival of Multilevel Selection Theory In the middle of the 20th century, the likelihood of natural selection above the level of the individual was rejected with such force that the atmosphere of taboo still hangs like a stale odor over current discussions. Nevertheless, this categorical rejection proved to be mistaken, as I and others have documented elsewhere (Michod, 1999; Sober & Wilson, 1998; Wilson, 1998, 1999). Today multilevel selection theory is used to study an extraordinary array of topics, from the origin of life to the nature of religion. I will touch upon a few of the applications to pave the way for our examination of self interest. One of the most important applications has been termed the major transitions of life (Hammerstein, 2003; Maynard-Smith & Szathmary, 1999; Michod, 1999). Until a few decades ago, evolution was thought to take place entirely by small mutational change. Now a second evolutionary pathway has been identified, in which social groups evolve to be so integrated that they become higher-level organisms in their own right. The single organisms of today, such as you and I,

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are the social groups of past ages. Each transition, from groups of organisms to groups as organisms, requires a shift in the balance between levels of selection, restricting the within-group processes that undermine the integrity of the group, making team work the only game in town. For example, imagine a primordial cell in which the genes are independent agents. Some contribute to the economy of the cell, producing public goods that can be used by all. Other genes selfishly replicate, increasing their representation within the cell without contributing to the common good. The evolution of chromosomes neatly solved this problem, by binding the genes into a single structure that replicates as a unit. In the absence of within-cell selection, natural selection becomes concentrated at the between-cell level. This kind of transition has been proposed to explain the origin of life as a society of cooperating molecular reactions, the origin of nucleated cells as a society of bacterial cells, and the origin of multicellular organisms as a society of single cells. The social insects, including the bees in their hives that inspired Mandeville, are among the newest major transitions of life (Camazine et al., 2001; Seeley, 1995; Seeley & Buhrman, 1999). The industrious honeybees can work to increase the fitness of the colony, relative to other colonies, or to increase their own fitness, relative to other members of the same colony. The reason that social insect colonies can justly be called superorganisms is because among-colony selection dominates within-colony selection. Higher-level selection is strong in part because social insect colonies are initiated by a small number of individuals (minimally one queen fertilized by a single male), reducing genetic variation within groups and increasing it among groups. The theory of kin selection is based on this genetic relatedness and was originally regarded as an alternative to group selection. However, kin selection is now interpreted as a special case of group selection in which high relatedness within groups favors altruism by increasing genetic variation among groups (Hamilton, 1975). Moreover, many social insect colonies are initiated by more than one queen who mate with more than one male. Evolutionary biologists are increasingly turning to social control mechanisms analogous to the chromosome, rather than genetic relatedness, to explain why social insect colonies hum along so well as adaptive units. For example, it would genetically “pay” a honeybee worker to lay her own eggs rather than selflessly raising the offspring of the queen – were it not for the fact that the eggs would be eaten and the deviant worker attacked by other workers. These “policing” behaviors, as they are called, evolved to suppress within-group selection, making between-group selection the only game in town, just like the evolution of the chromosome. Actually, it is an exaggeration to say that between-group selection becomes the only game in town. It is important to stress that none of these policing mechanisms are completely successful. There are rogue genes that avoid the fellowship of chromosomes

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and rogue bees that manage to dodge the police. Within-group selection happens in these otherwise highly adaptive nonhuman societies, no less than in human social groups.

Multilevel Selection and Human Evolution Multilevel selection theory and its many applications in the biological world provide a panoramic background for the study of human evolution. To the best of our knowledge, our ancestors lived in nomadic groups of a few dozen to at most a few hundred individuals. These groups merged and divided into a wide variety of groupings for specific activities. Just as we participate in family groups, sports groups, learning groups, fighting groups, decision making groups, and so on, each organized around a specific purpose, our ancestors participated in family groups, gathering groups, hunting groups, raiding groups, and so on. Almost everything was done in a social context; to be alone was to be in grave danger. In every social context, opportunities existed to increase the fitness of oneself relative to others in the same group, or to increase the fitness of one’s group relative to other groups. We evolved the behavioral propensities to capitalize on both options. We also evolved the propensity to limit the self-serving behaviors of our social partners, thereby concentrating natural selection at the between-group level. In short, we have evolved the equivalent of chromosomes in cells and policing in honeybees, thereby qualifying at least crudely as the newest major transition of life (Boehm, 1999; Sober & Wilson, 1998). Modern hunter-gatherer societies and indeed most small human groups exhibit an organization that anthropologist and primatologist Chris Boehm (1993, 1999) has called reverse dominance. Instead of dominant individuals benefiting at the expense of subordinants within their groups, the subordinants are capable of collectively ganging up on would-be dominants. Perhaps this balance of power was achieved through the use of weapons that made everyone lethal or cognitive skills that improved the ability to form alliances. In any case, it resulted in a form of guarded egalitarianism and a quantum jump in the capacity for collective action. Under the constant gaze of their fellows, eternally vigilant against being bossed around, our ancestors were largely constrained to behave in ways that were agreed upon by consensus. The opportunities for widening one’s own slice of the pie within the group were not entirely eliminated, but they were severely curtailed. The features that set us apart from all other species, including our capacities for culture, language, and symbolic thought (all communal activities) are increasingly being explained in terms of this shift from primarily within-group to primarily among-group selection.

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It might seem that this scenario accords perfectly with the concept of selfinterest, since social control makes it in everyone’s interest to cooperate. This will soon become the main focus of our attention, but for the moment we need to appreciate that the mechanisms of social control evolve primarily by among-group selection. If I reward you for supplying a public good or punish you for failing to do so, I have provided a second order public good at my own private expense (e.g. Heckathorn, 1990, 1993). Social control systems that cause groups to function adaptively evolve because better controlled groups outcompete less well controlled groups. A good social control system requires time, energy, and risk on the part of individuals and ultimately requires the provision of public goods at private expense, as surely as voluntary acts of altruism (Fehr, Fischbacher & Gachter, 2002; Fehr & Gachter, 2002; Sober & Wilson, 1998). Why should these speculations about the distant past concern the modern social theorist? There is a widespread tendency to regard evolution as irrelevant because our behaviors are guided by culture and learning instead of instinct. This view is as mistaken and has the same stale odor of taboo as the rejection of group selection. Learning and the capacity for culture are genetically evolved adaptations that enable us to adapt to our environments faster than genetic evolution alone. They are evolutionary processes in their own right, and like the mammalian immune system, they are elaborately constructed to reach biologically adaptive outcomes. Cultural evolution is as multilevel as genetic evolution (Boyd & Richerson, 1985; Richerson & Boyd, in press). A culturally acquired trait can spread on the strength of within- or between-group selection, just like a genetically acquired trait. Indeed, culture is largely responsible for the human major transition, since acquired traits are much more likely to become uniform within groups and vary among groups than genetic traits. Human history and current events can be regarded as an ongoing process of cultural multilevel selection, whose dynamics are influenced by psychological traits that evolved by genetic multilevel selection in the distant past (Wilson, 2002). Close attention to evolution as a multilevel process is required to understand these complex but ultimately comprehensible subjects. At the formal theoretical level, multilevel selection theory has two virtues. First, it provides a complete accounting system for evolutionary change. To build a multilevel selection model, one must specify a global population that consists of a number of local groups. The dynamics within groups, the manner in which groups arise and disappear, and other parameters that define the structure of the global population must all be specified. Only then can global evolutionary change be monitored as a combination of within- and among-group processes. As we shall see, all models of social evolution must assume a multi-group population structure but in many cases the assumptions are not made explicit and the models do not provide a complete accounting system for evolutionary change.

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The second virtue is that the distinction between levels of selection captures the essence of what is required for groups to evolve into adaptive units. If we merely want to know if a given trait evolves, it is sufficient to calculate its change in frequency in the global population, without caring whether its advantage resides within or among groups. If we want to ask the more focused question of when groups evolve into adaptive units, then it becomes critical to partition global evolutionary change into within- and among-group components. Multilevel selection theory carves the evolutionary process at its natural joints for the particular question that Mandeville was addressing with his fable of the bees. It is important to stress that this multilevel framework needs to be employed for all traits associated with human sociality – not just conventional altruism but also social control, cultural processes involving imitation and learning, and traits conventionally regarded as self-interested in a benign sense. In all cases the question to ask is “Does trait x replace alternative traits by virtue of a relative fitness advantage within groups or between groups?” When this nested series of fitness comparisons is carefully employed, the set of group-level adaptations includes but extends far beyond traits that are conventionally regarded as altruistic.

WHAT IS INDIVIDUAL SELF-INTEREST? Multilevel selection theory explains adaptive groupings as a product of grouplevel selection. Mandeville and the tradition that he represents explain adaptive groupings as a product of individual self-interest. On the surface, it would be difficult to imagine two positions more opposed to each other. To proceed further we must understand what is meant by the concept of individual self-interest. One possibility is that it will provide an alternative theory that explains adaptive groupings better than multilevel selection theory. Another possibility is that it provides an alternative perspective, that explains adaptive groupings only when multilevel selection theory arrives at the same conclusion. A third possibility is that it simply fails to provide a coherent account of adaptive groupings. Unfortunately, there is no single “it” when it comes to the concept of individual self-interest, but rather a number of concepts that are rarely distinguished and often incompatible with each other. At least three layers of diversity can be identified. (1) The evolutionary concept of self-interest is based on survival and reproduction, but it includes a number of different formulations, as I will show. (2) The economic concept of self-interest is based on maximizing a utility that is often unspecified and therefore broader than the evolutionary concept of self-interest, with many different specific formulations.

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(3) Self-interest can be defined in terms of behavioral actions or psychological motives. In evolutionary biology this distinction is nicely captured by the more general distinction between ultimate and proximate causation. All adaptations must be explained in terms of their effects on survival and reproduction (behavioral actions) but also in terms of the proximate mechanisms that cause organisms to act as they do (psychological motives). These explanations are complementary and one can never substitute for the other. Economic models often ignore this complementarity by including psychological and material costs and benefits in a single utility function. In this essay I will concentrate largely on evolutionary concepts of self-interest (1) and the proximate/ultimate distinction (3). However, I doubt that the expanded range of utilities considered by economic models will alter my basic conclusions. Let us begin by considering the diversity of concepts of self-interest that exist within evolutionary biology. Self-Interest as Maximizing Relative Fitness Within Groups Within the framework of multilevel selection theory, it is easiest to associate self-interest and group-interest with within- and among-group selection respectively. Thus, purely self-interested individuals are a product of pure within-group selection and are driven exclusively to maximize their relative fitness within groups. Purely group-interested individuals are a product of pure among-group selection and are driven exclusively to maximize the fitness of their group, relative to other groups in the total population. It is obvious that by these definitions, the claim that adaptive groups can be forged out of self-interest is as wrong as it can possibly be. The essential insight of multilevel selection theory is that natural selection within groups is insensitive to the welfare of the group, as we have seen. If a disposition to behave that evolves entirely by within-group selection benefits the whole group, it does so only as a coincidental byproduct. To claim that relative fitness maximization within groups miraculously results in adaptive groups is to ignore the reasoning that led to the rejection of group selection in the 1960s and all the subsequent developments that led to its revival. Self-Interest as Maximizing Absolute Individual Fitness Despite the importance of relative fitness comparisons in multilevel selection theory, the everyday concept of self-interest is often framed in absolute terms. Purely self-interested individuals are driven to maximize their welfare without

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regard to others, not in comparison to others. If I help you in the course of helping myself, that is no better or worse than if I hurt you, since my only goal is my own welfare, construed atomistically. At the formal theoretical level, most economic models and many evolutionary models of self-interest are similarly based on the maximization of an absolute quantity. In economic models the quantity is a utility function whose details are often left unspecified. In evolutionary models the quantity is fitness, defined in terms of survival and reproduction. In both cases, the models axiomatically assume that the absolute value of the quantity will be maximized. Economists take it as a given that individuals are utility maximizers. Similarly, when an evolutionary biologist predicts that an animal will cooperate rather than defect because its fitness as a cooperator is higher than its fitness as a defector, the evolutionary biologist is assuming that the animal has evolved to maximize its absolute fitness (Wilson, 2004). What justifies this assumption? All evolutionary biologists acknowledge that natural selection is based on relative fitness, so the absolute fitness criterion must be justified in terms of relative fitness. This is the case for nonsocial traits that influence only the fitness of the actor. In a population with two types, A and S, if A’s absolute fitness is higher than S then its relative fitness is higher as well. However, the situation becomes more complicated for traits that influence the fitness of others in addition to the actor, as we have already seen. If the population consists of a single group and A-types are public good providers that increase everyone’s fitness (including their own) by x units at a private cost of y units, then their relative fitness is lower and they will decrease in frequency despite having increased their absolute fitness whenever x − y > 0. In this case the absolute fitness criterion cannot be justified in terms of relative fitness and fails to correctly predict what evolves. Continuing this example, suppose that our A and S types live in an infinite population randomly subdivided into groups of size N within which the public goods are shared. A-types are less fit than S-types within every group, but groups with more A-types contribute more to the total gene pool than groups with fewer A-types. It turns out that for these particular assumptions, the trait evolves by among-group selection, despite being selectively disadvantageous within groups, whenever x − y > 0; that is, whenever A-types increase their own absolute fitness. Another way to state the same result is by noting that in randomly formed groups, an A-type’s effect on itself (x − y) causes evolutionary change but its effect on other members of its group does not because they are just a random draw from an infinite population (Grafen, 1984; Nunney, 1985). To summarize, for traits that influence the fitness of others in addition to the actor, the absolute fitness criterion can be justified in terms of relative fitness, but only given certain assumptions about the population structure. If there is only one

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group or if variation in the frequency of A among groups is either above or below random, then self-sacrificing or spiteful traits that violate the absolute fitness criterion can evolve. In addition, very plausible social interactions can cause the absolute fitness criterion to fail even in randomly formed groups. Since this point is not widely appreciated, I will illustrate it with two elaborations of our example involving public good providing A-types and freeloading S-types (see Wilson, 1998, 2004; Wilson & Kniffin, 1999 for extended treatments). In the first elaboration, instead of just two types consider a range of strategies of the form “act as an A-type if there are fewer than x other individuals acting as an A-type in your group,” in which x varies from 0 to N, where N is the size of the group. This range of strategies includes the original unconditional S-type (x = 0) and unconditional A-type (x = N), but the inclusion of the intermediate types alters the outcome of the model by causing behavioral variation among groups to be less than random, even in randomly formed groups. This happens because the intermediate strategies tend to compensate for each other, with those less sensitive to providing the public good “turning off” in the presence of those more sensitive. A group will be entirely altruistic only when it consists entirely of the x = N type, because every other type reverts to selfishness in the presence of a sufficient number of altruists. Similarly, a group will be entirely selfish only when it consists entirely of the x = 0 type, because every other type reverts to altruism in the presence of a sufficient number of selfish individuals. The below-random behavioral variation among groups caused by these social interactions has an effect on the evolution of public good provision similar to below-random genetic variation in the original model. In the second elaboration, suppose that A and S are socially transmitted behaviors rather than genetically innate. However, the process of social transmission is governed by innate rules that evolve by genetic evolution. Groups are formed at random by individuals bearing their innate transition rules and an acquired behavior (A or S) from their previous interactions. The behavioral composition of the groups then changes according to the transmission rules. Under plausible conditions, transmission rules can evolve that create above-random behavioral variation, even in randomly formed groups. All of us are familiar with the internal and external pressures to conform, promoting uniformity within groups and differences among groups. The above-random behavioral variation among groups caused by these social interactions has an effect comparable to above random genetic variation in the original model. How do these elaborations escape the argument that effects on others in randomly formed groups have no effect on global evolutionary change? This argument assumes that no one else in the group will respond to the actions of the focal individual. If others either withdraw or contribute their own social benefits in

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reaction to the focal individual’s action, then the calculation of costs and benefits that ignores the response becomes invalid. For example, imagine an individual who decides to provide a public good because his share of it exceeds his private cost (x − y > 0). That individual will be disappointed if another member of his group stops contributing to the public good based on his decision, leaving him stuck with the cost (−y). Similarly, an individual who decides not to provide a public good because his share does not exceed his private cost (x − y < 0) has made the wrong choice if others would have provided public goods on the basis of his decision. In short, the absolute fitness criterion can be justified in terms of relative fitness only for a narrow range of parameter values. Departures from randomness at the behavioral level can invalidate the absolute fitness criterion, as surely as departures from randomness at the genetic level. This fact is not widely appreciated because the core evolutionary models of social behavior (such as kin selection) assume that behaviors are coded directly by genes, thereby ignoring the many plausible mechanisms that can generate nonrandom behavioral variation in randomly formed groups. Let us now take stock of the absolute fitness criterion. Models that employ the criterion must specify the same basic parameters as multilevel selection models – a global population that consists of a number of local groups, the dynamics within groups, the manner in which the groups arise and disappear, and so on. Nothing new has been added – these are properties of the social environment, not any particular theoretical framework. The absolute fitness criterion is a claim about what evolves in a particular social environment. As we have seen, the claim is not general but holds only for a narrow range of parameter values. Earlier I stated that multilevel selection theory has the virtue of being a complete accounting system for evolutionary change. The absolute fitness criterion does not possess this virtue. Even when the absolute fitness criterion can be justified in terms of relative fitness, it only accounts for what evolves in the total population. More is required to address the specific question of when groups evolve into adaptive units. According to multilevel selection theory, this happens precisely when among-group selection outweighs within-group selection. Behaviors that satisfy the absolute fitness criterion can evolve by either within- or among-group selection – in the later case, when the individual’s share in the public good outweighs the private cost. When we use the absolute fitness criterion to ask the central question “can adaptive groups be formed out of self-interested individuals?”, the answer is “yes,” but only under the conditions already specified by multilevel selection theory; i.e. when among-group selection outweighs within-group selection. The concept of self-interest per se adds nothing. This point can be illustrated with an example from the social insects – the real life equivalent of Mandeville’s fable. In the desert fungus-growing ant

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Acromyrmex versicolor, colonies are initiated by groups of queens rather than by single individuals. The queens must do the work of the colony until the first generation of workers is born. One queen becomes a specialized above-ground forager, gathering vegetation for the fungus garden, while the others remain below ground to excavate the tunnels and cultivate the garden. Foraging above ground is more dangerous than staying below ground so the forager substantially reduces her fitness compared to the other queens in her colony (Rissing et al., 1989; Wilson, 1990). How can we explain this apparent example of altruistic behavior? The first impulse of biologists was to assume that the queens are genetically related, but DNA evidence revealed that the groups are randomly formed. The next impulse was to assume that the forager was forced to assume her role on the basis of aggressive interactions, but behavioral observations revealed no evidence for fighting and the forager is not smaller than the other queens. The correct answer appears to involve a very strong form of among-group selection. Many colonies are initiated at the same time and the first to raise a generation of workers succeeds at becoming established in competition with the other colonies. If a specialized above-ground forager provides a sufficient competitive edge in among-group competition, the behavior can evolve despite its selective disadvantage within groups – even when the groups are randomly formed. Knowing all of this, we can imagine the specialized forager reasoning about her options as if she were a person who cares only about her absolute fitness: “If I don’t forage, I will be safer but my colony will lose in competition with other colonies. If I do forage, I might die but if I live my colony will prevail against other colonies and I will share their success. Therefore I will forage based only upon my self-interest. The fact that I have reduced my fitness compared to the other queens in my colony is irrelevant, because they are just a random draw from the total population.” This reasoning correctly predicts that above-ground foraging will evolve, but only because strong within-group selection is counterbalanced by even stronger among-group selection. Self-interest does not provide an explanation of the behavior that stands as an alternative to group selection. Instead, group selection is merely folded into the definition of self-interest. To conclude, the absolute fitness criterion adds nothing to the essential insight of multilevel selection theory, which is that adaptive groupings evolve by among-group selection.

Inclusive Fitness and Other Extended Definitions of Self-Interest When groups are non-randomly formed, effects on others – now a biased sample of the total population – produce evolutionary change in addition to effects on oneself. A common way to model these effects is with a self-term and an

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other-term appropriately weighted by a coefficient. In kin selection theory the coefficient is associated with the probability of sharing genes identical by descent, but more generally it can be interpreted as a covariance between the individual’s genotype and the genetic composition of its group (positive for above-random and negative for below-random variation). It might seem that these models straightforwardly show how self-interest is not sufficient to explain the outcome of evolution whenever the covariance term is nonzero. However, a shift in perspective enables both the self and other terms to be interpreted as components of an expanded definition of self-interest. In kin selection theory, individuals are said to maximize their own inclusive fitness, which is often explained as an interest in their own genes, regardless of the bodies in which they exist. In selfish gene theory, the self-interested agent is shifted from individuals maximizing their inclusive fitness to the genes themselves. Figure 1 shows how any trait that evolves in a multi-group population can be interpreted as a form of self-interest, no matter how self-sacrificial (from Sober & Wilson, 1998). The total population consists of two types, A and S, subdivided into two groups of size n = 100 (smaller circles). Both types have a baseline fitness

Fig. 1. Evolution in a Two-Group Population with an Altruistic A Type (Dark Shading) and a Non-Altruistic S Type (Light Shading). Note: Altruism is selectively disadvantageous within each group but favored sufficiently at the group level that the global frequency of a increases from 0.5 to 0.516.

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of 10 and A-types increase the fitness of a single recipient in their group by five units at a cost to their own fitness of one unit. They decrease their own absolute fitness, which means that this behavior would not evolve in randomly formed groups. However, the groups in Fig. 1 are highly segregated, with A at a frequency of p = 0.2 in group 1 and p = 0.8 in group 2. A-types have a lower fitness than S-types and decline in frequency within each group (within-group selection). However, the group with more A-types grows larger and contributes more to the total gene pool than the group with fewer A-types (between-group selection). The balance between levels of selection is such that A-types increase in frequency in the global population, despite decreasing in frequency within each group. Extreme variation among groups is required to produce this outcome. For real-world examples we must specify how the variation is created and maintained, especially at high and low frequencies of the altruist in the global population. Interesting forms of frequency-dependence can occur resulting in stable polymorphisms of the two types, as discussed by Sober and Wilson (1998, Chap. 1) for a parasite called the brain worm. For my present purpose, the important point is to have a clear numerical example of a trait that is selectively disadvantageous within groups but nevertheless increases in frequency in the global population by virtue of a selective advantage between groups. Knowing all of this, it is possible to imagine an individual deciding to become an A-type based only on its self-interest: “As an A-type, it’s true that I give up a unit of fitness but I also stand a higher chance of being in successful group two. As an S-type, it’s true that I save a unit of fitness but I also stand a higher chance of being in unsuccessful group one. The benefits of group membership outweigh the cost of the behavior; therefore I will become an A-type without caring about anyone else’s fitness.” This egoistic reasoning process arrives at the correct answer about what evolves because it includes the multi-group population structure in its calculation. It is important to stress that in most real-life situations, an individual who decides to become an A-type is not magically transported into other groups with a probability governed by its newly adopted behavior. It merely loses a unit of fitness compared to behaving as a S-type. The perspective of an omniscient egoist, standing on Mount Olympus and surveying the entire structure of a multi-group population before making its decision, is a heuristic device for the modeler, not a hypothesis that can be taken seriously for humans, much less nonhuman species (Sober, 1998). In its Olympian form, the concept of self-interest can account for anything that evolves by natural selection, a virtue shared by multilevel selection theory. However, it must never be forgotten that we are trying to answer a specific question – when do groups evolve into adaptive units? Multilevel selection theory’s other virtue is to address this question by distinguishing levels of

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selection. The Olympian form of self-interest does not share this virtue. The statement “everything that evolves is a form of self-interest” is no help at all. Furthermore, efforts to address the specific question from the Olympian egoistic perspective do not turn up any new principles but merely recreate the distinctions that already exist within multilevel selection theory. A good example of this futile exercise is selfish-gene theory, which averages the fitness of genes across all contexts and labels whatever evolves as “selfish” because it replaces that which did not evolve (Dawkins, 1976). By itself, the concept of selfish genes is silent on the question of whether individuals or groups qualify as adaptive units. To address this question, a separate concept of “vehicles” must be invoked, which tells us whether genes evolve by coordinating with other genes in the same organism (in which case the individual becomes the vehicle of selection) or the same group (in which case the group becomes the vehicle of selection). In this fashion, selfish gene theory must become as hierarchical as multilevel selection theory to address the issue at the center of Mandeville’s fable (Sober & Wilson, 1998; Wilson & Sober, 1994). In retrospect, I think that the concept of self-interest in both evolution and economics owes its popularity to at least two factors. First, natural selection and rational choice can both often be represented as an optimization process in which a single variable is maximized, even when it is a very complex function of other variables. Second, self-interest is a highly simplified and intuitive case of optimization, in which an individual juggles costs and benefits to maximize a single utility. Thus, any optimization argument can be made intuitive by employing the metaphor of self-interest. Unfortunately, the intuitive appeal of self-interest is obtained at a cost. The details of what constitutes self-interest must change with the particular optimization model, which means that there can be no single concept of self-interest. In addition, optimization in general is poorly suited for addressing the specific question of when groups evolve into adaptive units. Among-group selection by itself maximizes the relative fitness of groups and within-group selection by itself maximizes the relative fitness of individuals within groups, but the entire process of evolution in multi-group populations is a messy combination of these opposing forces, along with other forces that prevent adaptations from evolving in any sense. Showing how groups evolve into adaptive units requires a consideration of opposing forces, not a process in which a single quantity is being maximized.

Psychological Concepts of Self-Interest All of the preceding concepts of self-interest are based on how individuals act, regardless of how they think or feel. Another set of concepts is based on how

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Table 1. Psychological and Evolutionary Self-Interest are Defined on the Basis of Different Criteria, Giving Rise to Four Combinations. Evolutionary Selfishness

Altruism

Psychological Selfishness Altruism

individuals think and feel, regardless of how they act. As I mentioned previously, one way to relate these two sets of concepts to each other from an evolutionary perspective is with the distinction between proximate and ultimate causation. Adaptive behaviors exist because they cause organisms to survive and reproduce (ultimate causation) but also because of a set of psychological mechanisms that cause the organisms to exhibit the behavior (proximate causation). The question of whether the proximate psychological mechanism counts as self-interested is potentially independent of whether the behavior counts as self-interested in terms of its effects on fitness, which means that all four cells in Table 1 can potentially be occupied (from Sober & Wilson, 1998, p. 204). For example, one individual might be motivated to help others (evolutionarily altruistic) because she values the welfare of others as an end in itself (psychologically altruistic). Such an individual would occupy the lower right-hand cell of Table 1. Another individual might be motivated to help others (evolutionarily altruistic) but only as a means to making herself feel good (psychologically selfish). Such an individual would occupy the upper right-hand cell of Table 1. Psychological egoism is the claim that all psychological mechanisms that drive behavior count as self-interested, in which case the bottom row in Table 1 would be empty. As with the evolutionary concept of self-interest, we need to ask two questions: Is the claim of psychological egoism true, and does it shed any light on our specific question of when groups evolve into adaptive units? The first question is evaluated in detail in part II of Sober and Wilson (1998). To make a long story short, the claim cannot be refuted logically but is unlikely to be true based on evolutionary principles. Any behavior, no matter how other-oriented, can theoretically be caused by egoistic proximate mechanisms, but these mechanisms are often like inefficient and error-prone Rube Goldberg devices compared to simpler and more robust non-egoistic mechanisms. After all, if behaviors have been selected to be other-oriented, what simpler way to motivate them than by other-oriented proximate mechanisms? The empirical evidence for exclusive psychological egoism (bottom row of Table 1 empty) is

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nonexistent. On the contrary, the most careful research points to a mixture of selfand other-oriented mechanisms and the case for exclusive egoism survives only by postulating ever more remote and difficult to test egoistic hypotheses once the simpler ones have been eliminated (e.g. Batson, 1991). Even more important, the answer to the second question is “no,” regardless of the answer to the first question. Just like the extended evolutionary concepts of self-interest, psychological concepts suffer from being too ambitious. In their drive to explain everything as a form of self-interest, they lose their ability to ask more focused questions. Let us grant for the sake of argument that the bottom row of Table 1 is empty. Insofar as psychological egoism is sufficiently flexible to motivate both self- and other-oriented behaviors (both columns of Table 1), it remains as silent as selfish gene theory on the factors that cause groups to evolve into adaptive units (the first column vs. the second column). I will not dwell further on psychological concepts of self-interest, in part because most proponents of self-interest in evolutionary biology and economics do not dwell on them either. Even though self-interest is sometimes defended as the way that people actually think, this position is usually abandoned in favor of the much looser position that people act “as if” they are self-interested, regardless of how they actually think, returning us to the realm of behavior that we have already examined. The impulse to think of genes and organisms that don’t think at all (such as bacteria and plants) as self-interested makes it clear that the concept of self-interest is serving primarily as a heuristic device for the human modeler, not a claim about the mechanisms that cause behavior in the proximate sense.

A NEW THEORETICAL FRAMEWORK FOR THE STUDY OF ADAPTIVE HUMAN SOCIETY I conclude that evolutionary concepts of self-interest do not provide a framework for explaining how groups evolve into adaptive units. The version based on relative fitness within groups shows that self-interest is the problem, not the solution. The more extended versions explain adaptive groupings only insofar as they overlap with the outcome of among-group selection. The most grandiose versions of self-interest become synonymous with “anything that evolves by natural selection” but this is a weakness rather than a strength when it comes to addressing the specific question at the heart of Mandeville’s fable. On the other hand, multilevel selection theory is sufficiently general as an accounting method for evolutionary change, and sufficiently focused on the question of how groups evolve into adaptive units, to provide a theoretical

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framework for the study of human society. Group selection became such a heresy in the middle of the 20th century that few people know what needs to be retained and what needs to be rejected in the light of subsequent developments. What needs to be retained is the fundamental insight that group-level adaptation requires group-level selection. What needs to be rejected is the notion that among-group selection is always weak compared to within-group selection. Once we appreciate that natural selection is truly a multilevel process, especially in human genetic and cultural evolution, then we can use multilevel selection theory to identify the factors that cause human groups to function well or poorly as adaptive units. It is beyond the scope of this essay to outline how evolutionary theory in general and multilevel selection theory in particular provide a new theoretical foundation for the study of human society. Fortunately, it is also unnecessary, because a growing number of economists, political theorists, anthropologists, psychologists, and evolutionary biologists are already at work building the foundation (e.g. Boehm, 1999; Bowles & Gintis, 1998; Fehr, Fischbacher & Gachter, 2002; Henrich, 2004; Hodgson, 1993, 2001; Ofek, 2001; Rubin, 2002; Sober & Wilson, 1998; Wilson, 2002). An excellent example is provided by the recent edited volume Genetic and Cultural Evolution of Cooperation (Hammerstein, 2003), which employs the same multilevel selection framework to study the evolution of human society and the evolution of single organisms, with economists playing a key role in the integration. This essay contributes to the effort by showing that the concept of self-interest does not provide an alternative. My parting generality is that adaptive human groups must be explained in terms of among-group processes – in the ancient past, resulting in innate psychological mechanisms that evolved by genetic multilevel selection, and the more recent past, resulting in products of cultural multilevel selection. Switching from individual self-interest to among-group processes as our explanatory framework is a paradigmatic change, even before we consider the details. The new fable of the bees leads in a different direction than Mandeville ever imagined.

NOTE 1. An historically astute reviewer pointed out that Smith did not agree with Mandeville in his Theory of Moral Sentiments (III. 1.3). However, Smith’s theory of moral sentiments was itself neglected in the development of the modern concept of self-interest. Many of the mechanisms discussed in Smith’s book could have emerged from group-level adaptations in terms of multilevel selection theory. They are self-organizing but not self-interested in the sense of evolving by within-group selection.

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REFERENCES Batson, C. D. (1991). The altruism question: Toward a social-psychological answer. Hillsdale, NJ: Lawrence Erlbaum. Boehm, C. (1993). Egalitarian society and reverse dominance hierarchy. Current Anthropology, 34, 227–254. Boehm, C. (1999). Hierarchy in the forest. Cambridge, MA: Harvard University Press. Bowles, S., & Gintis, H. (1998). Is equality passe? Boston Review, 23(6), 4–26. Boyd, R., & Richerson, P. J. (1985). Culture and the evolutionary process. Chicago: University of Chicago Press. Camazine, S., Deneubourg, J.-L., Franks, N. R., Sneyd, J., Theraula, G., & Bonabeau E. (2001). Self-organization in biological systems. Princeton: Princeton University Press. Dawkins, R. (1976). The selfish gene. Oxford: Oxford University Press. Fehr, E., Fischbacher, U., & Gachter, S. (2002). Strong reciprocity, human cooperation, and the enforcement of human social norms. Human Nature, 13, 1–25. Fehr, E., & Gachter, S. (2002). Altruistic punishment in humans. Nature, 415, 137–140. Grafen, A. (1984). Natural selection, kin selection and group selection. In: J. Krebs & N. Davies (Eds), Behavioural Ecology: An Evolutionary Approach (pp. 62–84). Oxford: Blackwell Scientific Publications. Hamilton, W. D. (1975). Innate social aptitudes in man: An approach from evolutionary genetics. In: R. Fox (Ed.), Biosocial Anthropology (pp. 133–155). New York: Academic Press. Hammerstein, P. (2003). Genetic and cultural evolution of cooperation. Cambridge, MA: MIT Press. Heckathorn, D. D. (1990). Collective sanctions and compliance norms: A formal theory of group-mediated social control. American Sociological Review, 55, 366–384. Heckathorn, D. D. (1993). Collective action and group heterogeneity: Voluntary provision vs. selective incentives. American Sociological Review, 58, 329–350. Henrich, J. (2004). Cultural group selection, coevolutionary processes, and large-scale cooperation. Journal of Economic Behavior and Organization, 53, 3–55. Hodgson, G. M. (1993). Economics and evolution. Cambridge, UK: Polity Press. Hodgson, G. M. (2001). How economics forgot history. New Brunswick, NJ: Routledge. Maynard Smith, J., & Szathmary, E. (1999). The origins of life: From the birth of life to the origin of language. Oxford: Oxford University Press. Michod, R. (1999). Individuality, immortality, and sex. In: L. Keller (Ed.), Levels of Selection in Evolution (pp. 53–74). Princeton, NJ: Princeton University Press. Nunney, L. (1985). Group selection, altruism, and structured-deme models. Am. Nat., 126, 212–230. Ofek, H. (2001). Second nature: Economics origins of human evolution. Cambridge, UK: Cambridge University Press. Richerson, P. J., & Boyd, R. (in press). The nature of cultures. Chicago, IL: University of Chicago Press. Rissing, S. W., Pollock, G. B. et al. (1989). Foraging specialization without relatedness or dominance among co-founding ant queens. Nature, 338, 420–422. Rubin, P. (2002). Darwinian politics: The evolutionary origin of freedom. New Brunswick, NJ: Rutgers University Press. Seeley, T. (1995). The wisdom of the hive. Cambridge, MA: Harvard University Press. Seeley, T. D., & Buhrman, S. C. (1999). Group decision making in swarms of honey bees. Behavioral Ecology and Sociobiology, 45, 19–31.

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Sober, E. (1998). Three differences between evolution and deliberation. In: P. Danielson (Ed.), Modeling Rationality, Morality, and Evolution (pp. 408–422). Oxford: Oxford University Press. Sober, E., & Wilson, D. S. (1998). Unto others: The evolution and psychology of unselfish behavior. Cambridge, MA: Harvard University Press. Wilson, D. S. (1990). Weak altruism, strong group selection. Oikos, 59, 135–140. Wilson, D. S. (1998). Hunting, sharing and multilevel selection: The tolerated theft model revisited. Current Anthropology, 39, 73–97. Wilson, D. S. (1999). A critique of R. D. Alexander’s views on group selection. Biology and Philosophy, 14, 431–449. Wilson, D. S. (2002). Darwin’s Cathedral: Evolution, religion and the nature of society. Chicago: University of Chicago Press. Wilson, D. S. (2004). What is wrong with absolute individual fitness? Trends in Ecology and Evolution, 19, 245–248. Wilson, D. S., & Kniffin, K. M. (1999). Multilevel selection and the social transmission of behavior. Human Nature, 10, 291–310. Wilson, D. S., & Sober, E. (1994). Reintroducing group selection to the human behavioral sciences. Behavioral and Brain Sciences, 17, 585–654.

GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM: COMPATIBLE AND COMPLEMENTARY Douglas Glen Whitman ABSTRACT Various authors allege that the theory of group selection is inconsistent with methodological individualism, and therefore analysts must reject at least one of these principles. The present article argues for their compatibility. The meaning of methodological individualism is clarified, and the new version of group selection (articulated by Wilson & Sober, 1994, 1998) is explained. The two principles are then incorporated into a single methodological approach. Group selection affects the assumptions made about the kind of individuals who populate social scientific models, while methodological individualism requires models’ conclusions to follow from the actions and interactions of those individuals.

INTRODUCTION In his theory of cultural evolution, Friedrich Hayek (1991) explicitly adopts the notion of group selection as an evolutionary force that leads societies to adopt group-beneficial rules and practices. Group selection is a hypothetical process in which traits (whether genetic or cultural) evolve because members of groups that practice them experience greater reproductive success than members Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 221–249 Copyright © 2004 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07010-3

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of groups that do not. In his earlier work (especially Hayek, 1952), Hayek emphasizes the importance of methodological individualism in the social sciences. Methodological individualism is the practice of explaining social phenomena in terms of the behaviors and interactions of individuals, rather than those of “collective” constructs such as groups, classes, or ideologies. In an influential article, Viktor Vanberg (1986) argues that group selection and methodological individualism are incompatible, a position that has gathered the assent of other social scientists. Vanberg alleges a shift in Hayek’s thinking, “from the notion that behavioral regularities emerge and prevail because they benefit the individual practicing them, to the quite different notions [sic] that rules come to be observed because they are advantageous to the group” (1986, p. 83). Although Vanberg argues for scrapping group selection in favor of methodological individualism, others – notably, Geoffrey Hodgson (1991) – have lobbied for the opposite path of scrapping methodological individualism in favor of group selection. Hodgson points to “an inconsistency in Hayek’s work between, on the one hand, the ideas emanating from his individualist roots, and, on the other, his growing commitment to an evolutionary perspective. In an evolutionary context, methodological individualism has to be either redefined or abandoned” (1991, p. 78). Hodgson agrees with Stephan Boehm that “Hayek is by no means the champion of methodological individualism that he claims to be” (Boehm, 1989, quoted in Hodgson, 1991, p. 78). Where Vanberg and Hodgson agree is that Hayek has erred by embracing both group selection and methodological individualism. Some biologists, too, accept the proposition that group selection and methodological individualism cannot coexist. Wilson and Sober (1994, 1998), who have argued strenuously for the acceptance of group selection theory within evolutionary biology, have indicated an opposition to methodological individualism. After observing the prominence of group-level theorizing in the early social sciences, they note: More recently, the group-level perspective has fallen on hard times, although to different degrees in different disciplines. Social groups are seen not as adaptive units in their own right but as by-products of individual self-interest (Wilson & Sober, 1998, p. 133).

Wilson and Sober also favorably cite D. T. Campbell’s denunciation of methodological individualism: Methodological individualism dominates our neighboring field of economics, much of sociology, and all of psychology’s excursions into organizational theory. This is the dogma that all human social group processes are to be explained by laws of individual behavior – that groups and social organizations have no ontological reality – that where used, references to organizations, etc. are but convenient summaries of individual behavior . . . We must reject

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methodological individualism as an a priori assumption, make the issue an empirical one, and take the position that groups, human social organizations, might be ontologically real, with laws not derivable from individual psychology . . . (Wilson & Sober, 1994, p. 599, ellipses in original).

Later, Wilson and Sober indicate a desire to “tear down the edifice of individualism” (1998, p. 330) by which they seem to mean both methodological individualism (as distinct from group functionalism) and psychological individualism (as distinct from altruism). They argue that methodological individualism owes its popularity in the social sciences to the desire to avoid the seeming mysticism of holistic approaches: . . . [T]he reason for individualism’s growing attractiveness was not the confirmation of a novel empirical theory that entails that individualism must be true (Wright, Levine & Sober, 1992). The term methodological individualism is therefore apt, in that this version of individualism is not grounded in any particular scientific theory (ibid. p. 329).

Thus, Wilson and Sober view the evidence in favor of group selection as evidence against methodological individualism (which they think should be an empirical rather than methodological proposition). In short, proponents of group selection and proponents of methodological individualism agree on one thing: you cannot have both. If you accept one, you must reject the other. The ambition of this paper is to put to bed, at long last, the notion that methodological individualism (hereafter, MI) and group selection (hereafter, GS) are fundamentally incompatible. It is true that MI places some constraints on GS. Such conditions are fully consistent with the new GS theory as articulated by Wilson and Sober (1994, 1998), which resists the tendency of early GS theorists like V. C. Wynne-Edwards (1962) to assume group-beneficial evolutionary processes as the norm. But that conclusion is a far cry from Vanberg’s dismissal of GS as “theoretically vague, inconsistent with the basic thrust of Hayek’s [methodologically] individualist approach, and faulty judged on its own ground” (1986, p. 97), as well as Hodgson’s claim that the use of both concepts constitutes “a major internal inconsistency in Hayek’s work” (1991, p. 69). In defending the compatibility of MI and GS, I am greatly assisted – and anticipated – by Zywicki (2000), which recognizes the viability of Sober and Wilson’s (1998) revised version of GS and its applicability to Friedrich Hayek’s (1979, 1992) theory of cultural evolution. I wish to expand on Zywicki’s point by directly addressing the implications for MI of accepting GS. The principle of MI requires that in a satisfying social scientific theory, the choices and behavior of individuals, as affected and constrained by the physical

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environment, must build up to the system effects at any given point in time. While the behavior of individuals is affected and constrained by the institutional environment as well, MI posits that the institutional environment itself can in principle be fully explained by the behavior of past and present individuals (again, as affected by the physical environment). I will contend that MI, understood in this way, is indeed a necessary condition for a satisfying theory. But it is not sufficient for a good theory, because it severely underdetermines the assumptions theorists can make about the preferences and beliefs of agents. A good theorist must also ask what sort of individuals are likely to populate the system in question – a question that inevitably brings in an evolutionary standpoint. The evolutionary forces at work may include group-level as well as individual-level selection.

APOLOGIA: A BRIEF DEFENSE OF METHODOLOGY It is not without trepidation that I enter a musty methodological debate, and I therefore offer the following justification for doing so. There is a popular and respectable view, in economics and many other sciences, that methodology is a distraction from the hard work of creating and testing hypotheses. Competing hypotheses should be judged by evidence, not by methodology. With respect to the GS controversy, for example, one might argue that the proof should be in the empirical pudding; the justification for GS is its predictive power, if any, not its methodological credentials. But I must disagree with this perspective, for two reasons. First, the definitions of terms such as “testing,” “evidence,” and even “hypothesis” are not self-evident, but methodology-laden. For instance, the hypothesis that “a species will exhibit characteristic X” assumes that a species is something that can be observed and studied, and likewise for characteristic X. Similarly, in the social sciences, the notion that “markets” or “societies” behave in particular ways relies on definitions for those terms. Methodology affects what will be considered adequate definitions, and hence what will count as evidence for the hypotheses in question. Second, methodology inevitably affects the direction of scientific research. If, for instance, GS were rejected on methodological grounds, then evolutionary researchers would be led to seek different sorts of explanations for observed phenomena. They might spend less time even looking for the kind of phenomena that might be explained by GS. If, on the other hand, GS were approved on methodological grounds, then researchers would be more inclined to search for phenomena that might be explained on those grounds and less inclined to look for alternative hypotheses. And the approach that says “methodology is not important, just let the evidence speak” is, itself, a methodology that in some measure approves

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of GS – and any other hypothesis, for that matter. If the pursuit of science were costless, this perspective would be unobjectionable: every potential hypothesis could be pursued without distracting from any other. But in the real world of scientific research, scarcity requires trade-offs. Methodology is the discussion about how our limited scientific resources would be most gainfully deployed. The question, then, is whether further research on GS is worthy of our effort and attention.

EXPLAINING AND DEFENDING METHODOLOGICAL INDIVIDUALISM The Meaning and Purpose of Methodological Individualism To understand the meaning and purpose of MI, it will prove useful to consider the arguments made in its defense by Hayek (1952). Importantly, this means I am adopting a particular definition of MI that others may not share. It is possible that some versions of MI are indeed incompatible with GS. However, since it is Hayek whom Vanberg (1986) and Hodgson (1991) accuse of having strayed from his own methodological program, it seems fair to consider Hayek’s conception of MI. Hayek’s defense of MI, which he also refers to as the “individualist and ‘compositive’ method of the social sciences” (1952, pp. 61–76), depends on two notions about the role of ideas in generating human action. The first of these is the subjective character of social scientific data. The social sciences must deal regularly with data that do not “exist” objectively as do the data of the natural sciences. The reason is that the data themselves are concepts or ideas. Hayek offers the example of the words “hammer” and “barometer”: If the reader will attempt a definition he will soon find that he cannot give one without using some term such as “suitable for” or “intended for” or some other expression referring to the use for which it is designed by somebody. And a definition which is to comprise all instances of the class will not contain any reference to its substance, or shape, or any other physical attribute. An ordinary hammer and a steamhammer, or an aneroid barometer and a mercury barometer, have nothing in common except the purpose for which men think they can be used (Hayek, 1952, pp. 44–45).

Other examples abound; “money,” “property,” “government,” and so on all have definitions that require reference to the (shared) perceptions and intentions of individuals. There do not exist physical tests for their existence. Hayek understands that “methodological collectivism,” the alternative to MI, relies upon the apprehension of subjective wholes:

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Closely connected with the “objectivism” of the scientistic approach is its methodological collectivism, its tendency to treat “wholes” like “society” or the “economy,” “capitalism” (as a given historical “phase”) or a particular “industry” or “class” or “country” as definitely given objects about which we can discover laws by observing their behaviour as wholes. While the specific subjectivist approach of the social sciences starts, as we have seen, from our knowledge of the inside of these social complexes, the knowledge of the individual attitudes which form the elements of their structure, the objectivism of the natural sciences tries to view them from the outside; it treats social phenomena not as something of which the human mind is a part and the principles of whose organisation we can reconstruct from the familiar parts, but as if they were objects directly perceived by us as wholes (Hayek, 1952, p. 92, emphasis added).

MI does not prevent the social scientist from apprehending the existence of wholes, but rather cautions against trying to derive the laws of their behavior based on alleged observations of the whole (note the emphasized part of the quotation above). Such caution is justified by the fact that we cannot, in fact, observe wholes directly; we infer their existence through the apprehension of particular events and phenomena. For instance, a language is never observed in its entirely; instead, it is observed in innumerable individual acts of communication that appear to draw on similar vocabulary and rules. The second notion behind Hayek’s compositive method is the distinction between constitutive and speculative ideas (Hayek, 1952, pp. 61–65). Constitutive ideas are those ideas that actually motivate people in their choices and behavior. They include concepts such as money and law, preferences, and beliefs about how the world works. Such beliefs may or may not be valid, but they are still relevant because they affect behavior. For instance, a superstitious belief in the good fortune brought by rabbits’ feet is real, in the sense that it actually leads people to produce and buy the feet of rabbits. Such ideas (whether valid, invalid, or neither) are called “constitutive” because they constitute the social phenomena that a social scientist wishes to understand and explain. Speculative ideas, on the other hand, are the ideas people (particularly social scientists) use to explain social phenomena. They are theories, models, and more rudimentary concepts used to understand the operation of the social world. Speculative ideas often take the form of “meta-ideas,” in that they are ideas about the existence and interaction of other ideas. The truth status of speculative ideas, unlike that of constitutive ideas, is of the essence for the social scientist, at least if he wants his theory to have explanatory or predictive power. The two categories of ideas are not hermetically sealed from each other. Insofar as one’s speculative ideas about how the social world works affect one’s behavior, they are also constitutive ideas. And to that extent, social scientists must treat them as given just like other constitutive ideas. For instance, if consumers believe an economic theory that predicts a recession, they may alter their consumption; if voters believe a politician’s claim that protectionist policies will increase their purchasing power, they may cast their votes for that politician. But the social

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scientist must carefully distinguish between those ideas he accepts as constitutive (he thinks real people believe them) from those he accepts as speculative (he believes them himself, at least provisionally). Otherwise, he runs the danger of accepting popular but potentially false ideas as part of his own theory. Just as it would be wrong to conclude that rabbits’ feet are lucky simply because some people think so, it would be wrong to conclude that a popular economic theory is correct because some people think it is. The danger is a serious one, as it is not uncommon for people to have anthropomorphic ideas, which attribute person-like characteristics to non-human entities. What does “society” want? What are the interests of “the state?” Both questions assume that entities composed of many individuals may be characterized as having something akin to preferences that they will act to achieve. That assumption may or may not be justified; it is the job of the social scientist to discover when and if it is. Hayek explicitly recognized the avoidance of as-yet-unjustified speculative ideas as the root of MI: That he [the social scientist] consistently refrains from treating these pseudo-entities as facts, and that he systematically starts from the concepts which guide individuals in their actions, is the characteristic feature of that methodological individualism which is closely connected to the subjectivity of the social sciences (Hayek, 1952, p. 64).

People have ideas, often shared ones. Those ideas motivate their behavior, and their behavior results in social phenomena. But the only ideas that actually motivate behavior are constitutive. Speculative ideas only motivate behavior when they become constitutive, as people believe them and act on them. MI is a mental device whose primary function is to force scientists to sharply distinguish (others’) constitutive ideas from (their own) speculative ideas. To put it another way, MI is a bulwark against the accidental intrusion of unproven hypotheses into one’s initial assumptions. Employing some collective entity X in one’s theory means assuming, implicitly, that X is both real and subject to certain behavioral regularities. That assumption may not be justified. By forcing the analyst to carefully distinguish his own ideas from those of agents in his models, MI prevents the social scientist from relying on speculative conclusions before they have been justified by an analysis of constitutive premises.

Methodological Individualism, Scientific Reductionism, and Emergent Properties MI is, strictly speaking, a social scientific perspective. Its central claim regards the proper mode of explaining human social phenomena, not all phenomena in all sciences. Admittedly, there exists an affinity between MI and scientific

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reductionism, but there is no necessary connection. MI contends that human social phenomena can be explained in terms of human ideas, but it takes no position on whether all human ideas can be reduced to more basic phenomena such as electrical impulses, hormones, and genes. Indeed, social scientists often pair MI with the doctrine of methodological dualism, which contends that social scientific methods differ fundamentally from those of the natural sciences.1 In the social sciences, the analyst may begin with mental phenomena such as preferences and beliefs, and use these concepts to explain social phenomena, without necessarily knowing the physical processes that underlie or generate the preferences and beliefs. As Ludwig von Mises argues, “we do not know how external events – physical, chemical, and physiological – affect human thoughts, ideas, and judgments of value. This ignorance splits the realm of knowledge into two separate fields, the realm of external events, commonly called nature, and the realm of human thought and action” (1981, p. 1). Adopting this point of view does not mean that we are uninterested in the physical processes that (may) generate mental events – only that it is possible for social science to proceed without waiting for the natural sciences to discover the minute workings of the brain first. In short, MI neither implies nor denies reductionism. MI says social phenomena can and should be understood in terms of individual psychology; it does not take a position on whether individual psychology can be understood in terms of something even more basic.2 Nonetheless, methodological individualists and scientific reductionists have something in common: they share a dissatisfaction with explanations of macro phenomena that do not make explicit reference to the micro units that comprise them. The central question here is whether higher-order entities (that is, entities comprised by smaller-scale entities and their relationships) exhibit emergent properties, and if so, whether all such emergent properties derive from the properties of the constituent entities and their interaction. MI admits the existence of emergent properties of social systems (such as the price system, the state, the institution of money).3 But MI insists that, at least in principle, those properties can be explained by the actions and interactions of individuals who take part in those systems. The ideas and behavior of individuals may be affected by institutional arrangements, such as firms and legislatures; but those institutions themselves can be explained by the ideas and behavior of present and past individuals.4 Moreover, the MI theorist is suspicious of alleged emergent properties that have not yet been so explained. For instance, if someone asserts that a legislature’s actions manifest a “general will” of the public5 or the maximization of some well-defined social welfare function,6 the MI theorist will be skeptical until a process is found by which a “general will” or social welfare function could emerge from individual choices and behavior. Arrow’s Theorem

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(Arrow, 1951) is the celebrated conclusion that no such social welfare function exists, if we require such a function to satisfy a number of intuitive conditions. Black’s Median Voter Theorem (Black, 1958), on the other hand, identifies some narrow conditions under which the preferences of a particular voter may be regarded as the preference set that guides legislative choices. The scientific reductionist has similar, though not identical, concerns. He, like the methodological individualist, wishes to place foundations under emergent properties. He wishes to explain the behavior of molecules in terms of atoms and their interaction; he wishes to explain atoms in terms of subatomic particles and their interaction; and so on. There is, however, an important difference: in the natural sciences, the existence of many emergent properties can be verified independently of their explanation.7 A molecule can be isolated and observed under lab conditions, whether we know the relations of its component atoms (or even that such component atoms exist) or not. A social welfare function, on the other hand, cannot be observed. It does not exist in the same sense as a molecule; its reality, if any, is more akin to that of a logical deduction or a mathematical calculation. Without logical proof, we have no strong independent reason to believe it exists at all. Yet emergent characteristics of social systems do exist. Prices do have a tendency to reflect scarcity. Black’s Median Voter Theorem does provide a reasonable explanation for some kinds of legislative outcomes. In certain types of banking systems, such as those with fiat money, bad money does tend to drive out good (Gresham’s Law). Far from denying the usefulness of such conclusions, MI embraces them if they have been justified in terms of the choices and behavior of individuals. If they have not yet been justified, the MI theorist will remain skeptical; they might be true, but they have the status of unproven hypotheses.

Methodological Individualism as a Minimal Requirement MI does not purport to provide sufficient conditions for good social science. Rather, it guards against one type of error. Other errors must be avoided by means of other principles, or just careful thought and research. Here, I wish to make four points about what MI does not require. First, MI does not specify the content of agents’ ideas. MI says the theorist should begin with a notion about the constitutive ideas held by the agents being modeled, including their preferences and beliefs, but it places no constraint on what type of preferences and beliefs they might have. A theory in which agents are assumed to love work and despise leisure might be criticized as unrealistic, but it would not violate MI.

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It follows that MI does not specify whether agent preferences will be selfish, altruistic, or something else entirely.8 This point deserves emphasis, because the association of MI with selfishness seems to have motivated Wilson and Sober’s opposition to it. This image of ‘selfish individuals’ may also [like the ‘selfish gene’] be metaphorical, but it is more insidious because it can be taken literally. In other words, it is possible to believe that individuals really are intentional systems motivated entirely by self-interest and this is, in fact, the individualistic perspective that pervades the social sciences (Wilson & Sober, 1994, p. 601; emphasis added).

Wilson and Sober’s conflation of MI with self-interest has been noted by Eric Alden Smith: . . . MI per se does not entail an assumption of selfishness or self-interest. Put as simply as possible, MI asserts that the properties of any group result from the actions and interactions of its individual members (Elster, 1983; Smith & Winterhalder, 1992); this can remain true even if these individuals are altruistic, dedicated to the collective good, and so on (Smith, 1994, p. 637).

Second, MI does not specify exactly how individuals make choices. They might be perfectly rational actors, boundedly rational actors, rule followers, or even automatons. Naturally, the assumptions made in this regard will have substantial consequences for the predictions made, and some assumptions might be criticized as unrealistic. Economists steeped in the rational-choice tradition are apt to criticize models that place too much emphasis on cultural programming while ignoring people’s responsiveness to incentives (thus treating people as either rule followers or automatons). And that criticism might be valid – as might a criticism of economic approaches that assume rational agents with unreasonably high calculative abilities. On these matters, MI is silent. Third, MI does not deny the existence of collective wholes. It simply requires their behavior to be explained in terms of their components’ behavior, as holistic explanations run the risk of ascribing agency where it does not exist. “Even where individual actions and intentions are coordinated to achieve a collective outcome, there is no justification for attributing agency to the collectivity, as if it had eyes that see and hands that move” (Smith, 1994, p. 637). Fourth, MI does not require the exclusive use of spontaneous order or “invisible hand” explanations. Vanberg (1986) sees MI and spontaneous-order explanations as closely connected: “[Methodological individualism] is behind Adam Smith’s notion of the ‘invisible hand’ as it is behind Adam Ferguson’s conception of social institutions as ‘the result of human action but not of human design’ ” (Hayek, 1967a, b, pp. 96ff; Vanberg, 1986, p. 80). But while spontaneous-order explanations of social outcomes are generally consistent with MI, they are not required by it.

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An explanation that relies on a collective decision-making process, such as voting or consensus-building, is consistent with MI if the choices of individuals within the process can be explained. For instance, consider the question of why people drive on one side of the road. An invisible-hand explanation would focus on the instability of any other proposed equilibrium. Rational individuals who know that 51% or more of the population tend to drive on the right will choose to drive on the right themselves – and as a result, everyone will eventually drive on the right (or the left, if the initial majority happens to lean that way). But this is not the only account consistent with MI. An explicit collective decision could also have done the job: the religious or political leaders of the society decreed that everyone should drive on the right. This is, indeed, what happened in Sweden in 1963 (Lucas, 2002). There is nothing unMI about this story, as long as we recognize that individuals make the laws and individuals follow them. The explanation of a collective choice on something more controversial than selecting the side of the road would need to include some reason why dissenters are willing (or forced) to go along with the outcome, as well as the reasons why the designated decision-makers made the choice they did. Because MI has so often been used in conjunction with particular assumptions and approaches, including rationality, self-interest, and spontaneous order, we must be especially careful not to confuse them. MI’s association with other methodological notions and social scientific perspectives is mostly attributable to the dominance of MI in economics, but the connection is historical, not definitional.

THE REJUVENATED THEORY OF GROUP SELECTION The Old Group Selection Theory In its earliest manifestation, GS theory was little more than an assertion, backed by some empirical observations, that organisms tended to evolve group-beneficial traits – that is, traits yielding benefits in terms of long-run reproduction for all or most other members of a group, even while (possibly) creating costs for the individual organism expressing the trait. For instance, Wynne-Edwards (1962) observed a tendency of animal populations to limit their population density to the optimal level allowed by the physical environment, even when individual organisms within the population could benefit themselves by reproducing more at the expense of the rest. If intraspecific [within-species] selection was all in favour of the individual, there would be an overwhelming premium on higher and ever higher individual fecundity, provided it resulted in a greater posterity than one’s fellows. Manifestly this does not happen in practice; in fact the

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reproductive rate in many species, and recruitment of adults in others, is varied according to the current needs of the population (Wynne-Edwards, 1962, p. 19).

Economists will recognize the situation described as a kind of tragedy of commons;9 in essence, Wynne-Edwards observed that some animal populations appeared to have overcome the commons problem. But how could the problem have been solved? Subsequent works in evolutionary biology, most notably Williams (1966), argued that it would not be solved because the group-level solution is vulnerable to subversion from within. Any trait that allows an individual organism to contribute more offspring to the next generation relative to other organisms without the trait will tend to grow in the population, and any trait that causes it to leave fewer offspring relative to others will thus tend to be pushed out. As a result, group-beneficial traits cannot survive in the long run, despite Wynne-Edwards’s statement that when group-level and individuallevel selection conflict, “group-selection is bound to win” (Wynne-Edwards, 1962, p. 20). This powerful critique led many evolutionary biologists to reject GS theory for much of the latter half of the century. Wilson and Sober (1994, 1998) have since resurrected GS theory. The new theory, while repudiating the notion that groupselection is “bound to win,” elucidates some conditions under which it can win. I discuss the new GS below. Here, however, I wish to observe that even the old GS can coexist, albeit uneasily, with MI. No one ever doubted that if some or all members of a group displayed certain types of traits (such as a tendency to limit offspring or to warn of predators), the entire group could benefit. The claim of those opposed to GS is simply that such “altruistic” members will cease to exist in the long run, because they will be weeded out. In the context of cultural evolution (the only context in which MI is applicable), this would be equivalent to the claim that individuals could not possess certain kinds of preferences and beliefs, because such individuals would tend to be driven out by individuals with different preferences and beliefs. Now, that argument may indeed be true under some conditions, but it is not an argument required by MI. As discussed earlier, MI does not specify the content of agents’ ideas. An objection to the old GS based on MI can be constructed by observing a key difference between biological and cultural evolution. In biological evolution, traits are “built into” organisms, and therefore a trait will be expressed as long as there are individual organisms born with it in a given generation; whereas in cultural evolution, the individual organism may choose to adopt a different trait. Thus, an MI-consistent account must consider whether individuals will, in fact, choose to retain group-beneficial traits. When addressing this question, we

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should recall that MI does not require a specific decision-making mechanism (like rationality) for individuals; they could be rule-followers, for instance. Notably, Hayek’s (1988, p. 21) theory of cultural evolution downplays the role of reason while emphasizing the human capacity for imitation, which lends support to a rulefollowing conception of human nature. This perspective may partially explain why Hayek willingly embraced the old GS. The point here is not to defend the old GS. The point is that the error of the old GS was only tangentially related to MI. The real fault of the old GS was its failure to explain how a process of group-level selection could ever overcome the process of individual-level selection. That task was left to the new GS theorists.

The New Group Selection Theory In explaining and defending the new GS, it will be helpful to consider explicitly the mathematical reasoning offered by Sober and Wilson (1998). Much of Sober and Wilson’s discussion focuses on the evolution of altruistic traits, i.e. traits which are both group-beneficial and create a cost to the individual organism. Although altruistic traits are not a necessary element of GS theory, they do pose the greatest challenge to that theory. (Later, I will consider treating altruism as a feature of social equilibria, rather than as a feature of traits.) The simplest explanation for how GS could enable the evolution of altruistic traits relies on an application of Simpson’s Paradox, which says that the proportion of observations with some property in an aggregate group may be smaller than the proportion of observations with that property in every subgroup comprising the aggregate. For instance (to use one popular example),10 hospital A may save a larger fraction of all its patients than hospital B, even though hospital B saves a larger fraction of its elderly patients than hospital A and a larger fraction of its young patients than hospital A. This could occur because hospital B treats a disproportionately large number of elderly patients, who have a lower survival rate than young patients. As applied to group selection, Simpson’s Paradox indicates that an aggregate population might display an increase in the proportion of its members with an altruistic trait, even though each subgroup within the population experiences a decrease in the proportion of members with that trait. This occurs because the subgroups with more altruists contribute disproportionately to the aggregate population. Suppose there exist two subsets of a larger population of some organism. Each subset has 100 members. Both subsets have some members who are disposed toward altruism: they will make personal sacrifices in terms of reproduction for

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the benefit of the group. But subset A has a larger fraction of altruists than subset B – say, 80% versus 20%. The overall population thus has 50% altruists. Each subset will reproduce for one generation before being combined into a single larger population. In the meantime, the proportion of altruists in each subset will shrink, because they contribute fewer offspring than do the non-altruists. To be specific, let us say each non-altruist contributes (on average) 10% more offspring than does each altruist. As a result, subset A’s second generation will have 78.43% altruists (versus 80% before), and subset B’s second generation will have 18.52% altruists (versus 20% before). Thus, the proportion of altruists in each subgroup declines. Then the two subsets combine into a single population, but not in equal numbers. The group with a larger fraction of altruists will contribute disproportionately because they benefited more from the actions of the altruists. Suppose that the size of subset A increased by a ratio of 2 (to 200 members), while B increased by a ratio of only 1.2 (to 120 members). Then the combined population has 320 members, with 179 altruists (157 from A and 22 from B). The fraction of altruists in the aggregate population has increased, from an initial 50% before to just over 55% now. In short, the altruistic fraction of the whole group increased, even while the altruistic fraction of each subgroup decreased. This is Simpson’ Paradox at work. Two aspects of this process bear emphasis. First, the result depends crucially on the numbers chosen. If I had posited a wider disparity in the number of offspring contributed by altruists and non-altruists, then the fraction of altruists in the whole population could have decreased. If I had posited a smaller disparity in growth rates of the subsets, then again, the fraction of altruists in the whole population could have decreased. The point – one that the new GS theorists have emphasized – is that the importance of GS depends on the relative strength of within-group and between-group selection. Second, without additional conditions being imposed, the process described only works for one generation. Suppose that, after recombining into a single population, the population never split up again. Then there would only be one group, and within-group selection would result in a diminishing fraction of altruists in each generation. Or suppose that the population did split up again, but the altruists were distributed equally among subsets, so that each group had the same fraction of altruists. Without variation in the representation of altruists, the groups would not contribute disproportionately to the whole population when they combined again. In order to make the process work iteratively, we need additional conditions on the evolutionary process. Specifically, the altruists must periodically be reconcentrated so that some groups have greater representation of altruists than others. This can happen through chance if the groups are small enough. As an

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extreme example, suppose the whole population fissions into a large number of two-member groups – that is, mating pairs. Random mating will result in some fraction of two-altruist pairs, some fraction of a two-non-altruist pairs, and some fraction of half-altruist pairs. Variation thus results automatically from a random process. This is the case of kin selection, encompassed as a special case of GS.11 Even if groups are somewhat larger than two members, there will still be random variation among groups in the representation of altruists. But as the “sample size” gets larger, groups come to resemble the overall population, with insufficient variation to cause differential contributions to the whole population due to altruism. If groups are large enough, then GS requires the existence of a sorting process whereby altruists have a better-than-random tendency to group together.

Addressing Potential Objections to the New Group Selection Theory What objections might an MI theorist have to the version of GS theory just presented? The difficulty with answering this question is that, as presented, the GS theory is one of natural science, whereas MI is a principle of social science. Nonetheless, it is not difficult to imagine an application of the argument to cultural evolution; indeed, Wilson and Sober (1998) do attempt to extend their approach to the cultural context (pp. 149–158). In this section, I will grapple with some possible objections from the MI standpoint, keeping in mind the earlier observations about the actual content of the MI principle. The first objection to the new GS theory, as with the old GS theory, is that it is implausible that any individual will be altruistic. This objection is easily dismissed: MI does not specify what sort of preferences and beliefs individuals must have. As noted earlier, MI has no necessary connection with the assumption of selfinterest, despite often being used alongside it. Altruism is one sort of preference an individual might have, perhaps as a result of biological evolution, perhaps as a result of cultural transmission of values. The critic of GS might argue that such preferences (however acquired) will tend to be weeded out when they appear. Whether the weeding process will always be effective, however, is the question at hand. To assert that it will is to beg the question. And even if the assertion turns out to be correct, it is not an assertion dictated by MI. A second objection might be that individual incentives are being ignored. This turns out, however, to be a variant of the first objection. Incentives are inherently a matter of preferences, as what constitutes a sufficient incentive for one individual may not be sufficient for another. An individual that cares about maximizing its own offspring, and nothing else, will not, if it has a choice, be altruistic toward unrelated individuals. But MI does not specify that individuals must value producing their

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own offspring. To assert that they do – or more precisely, that they have traits leading them to act as if they do – is again to beg the question. The same rebuttal would apply to the assertion that individuals must value some specific goal other than maximization of offspring, such as maximization of a selfish utility function. A third objection might be that the theory asserts the existence of group-level emergent properties. First, this is simply untrue, as the new GS theory recognizes that the conditions for group-level emergent properties will not always exist. A greater differential in reproduction between altruists and non-altruists, for example, could reverse the results and lead to the evolution of selfishness. The absence of a fission-and-regrouping process could also reverse the results. Second, as discussed earlier, MI does not deny the existence of emergent properties; it merely asks for their justification in terms of the relations among lower-level entities. That is precisely what the Simpson’s Paradox version of GS does: it explains how a specific type of natural selection under special conditions can lead to group functionalism. A fourth objection might be that the conditions required for the process to work – a large enough reproductive advantage for subgroups with more altruists, a small enough reproductive advantage for non-altruists over altruists within subgroups, a process of fission and regrouping within a larger population – are unrealistic or too rare to be important. This, however, is an empirical objection, not an objection based on the principles of MI. One might make a similar objection against Black’s Median Voter Theorem, on grounds that the assumption of a one-dimensional policy spectrum is unrealistic. Whether that’s true or not, it does not mean the Theorem violates MI. MI is a necessary, not a sufficient, condition for a satisfying social scientific theory.

A Simple Game Theoretic Extension While GS theory is often deployed to explain the (possible) existence of altruistic behavior, GS is not defined by altruism. GS may be manifested in cases where altruism is not required; in such cases, within-group selection may be weak or non-existent, and thus group-beneficial behavior evolves easily. Two simple games can be used to make this point. Public good problems, and other situations in which selfish behaviors can lead to inferior results for all (and hence for the group), are often represented in the form of a prisoners’ dilemma, as shown in Fig. 1. In this figure, S is a dominant strategy for both participants in the game, and therefore S/S is the predicted equilibrium, even though both players would be better off if the outcome were A/A. In Fig. 2, we have what is commonly called a coordination game. Just as in Fig. 1, both players are better off with A/A than with S/S. But in this game,

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Fig. 1. Prisoners’ Dilemma.

there are two equilibria: A/A and S/S. Which equilibrium will occur depends crucially on the history of the game. In a biological context, a population could end up in the inferior S/S equilibrium simply because a large enough majority of the founding population’s members had the S trait. In a choice context, no one would have an incentive to depart (unilaterally) from the S strategy. Absent group selection, there is no basis for assuming that either equilibrium would prevail. With group selection, however, we can imagine a process that leads to the emergence of the superior outcome: subgroups of the overall population could reach different equilibria, and those groups in the superior A/A equilibrium would outproduce or outperform those groups in the S/S equilibrium. Figures 1 and 2 differ in just one respect: the payoff from playing S when the other player plays A. Anything that reduces the size of this payoff in Fig. 1 moves it closer to Fig. 2, until eventually Fig. 1 is transformed from a prisoners’ dilemma into a coordination game. How does such a transformation occur in the real world? The mechanisms are well known, even if the processes of transformation are not. In some prisoners’ dilemma situations, such as the overuse of a common resource (an example to be discussed more fully in the next section), privatization is a potential solution. But other solutions exist as well, one of the most common being the establishment of social norms to punish uncooperative behavior. The use of “trigger” strategies and similar devices can provide a means of enforcing cooperative behavior in repeated prisoners’ dilemmas, in which case the cooperative equilibrium and the uncooperative equilibrium of the repeated game are equivalent to the multiple equilibria of the coordination game.

Fig. 2. Coordination Game.

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If prisoners’ dilemmas can be transformed into coordination games, GS might seem superfluous in the explanation of how group-beneficial outcomes can evolve. That conclusion is unwarranted, for two reasons. First, as argued above, attaining the group-beneficial equilibrium in a coordination game is not to be taken for granted. Some groups might reach the superior equilibrium while others fail. (Some cartels succeed in enforcing high prices, while others do not.) Second, obeying norms that transform one game into another may itself sometimes involve a degree of unselfish behavior. If the members of a society are expected to impose a punishment on a norm-violator, the act of imposing the punishment can be costly to the person imposing it. In such a case, the enforcement of norms to solve a public good problem is itself a kind of public good; this is known as the second-order public good problem (Wilson & Sober, 1998, p. 144). How can the second-order public problem be overcome? The answer suggested by the new GS theory is that agents’ attitudes may be internal to the model. If some societies have members with inherent or ingrained preferences that reinforce group-beneficial norms – including punishment of non-cooperators, toleration and social support of property claims, and so on – those societies will contribute a disproportionately large number of members to future generations relative to other societies. In cultural evolution, this effect can be exaggerated by the ability of individuals to change their allegiances. Individuals with the ability to choose among societies will naturally choose those that have managed to solve (or mitigate) their public-good problems. Furthermore, some second-order public good problems involve less costly activities than the first-order public good problems they are intended to solve. The lower is the costliness of performing group-beneficial activities, the weaker will be the pressure of within-group selection relative to between-group selection. Wilson and Sober use this argument to explain the sharing of meat in huntergatherer societies, even though the act of hunting imposes disproportionate costs on the hunter, including the possibility of death. Such societies typically have a variety of rewards for hunters who do share their meat, such as privileged mate selection, and punishments for those who don’t, such as ostracism. Let’s call hunting and sharing the primary behavior and the rewards and punishments that others confer on hunters the secondary behaviors (Ellickson, 1991) . . . The evolution of the secondary behavior (the rewards and punishments) can be analyzed in exactly the same way as the evolution of the primary behavior. By causing another individual to perform an altruistic primary behavior such as hunting and sharing, the secondary behavior increases the fitness of the entire group. At the same time, the secondary behavior is likely to require at least some time, energy, or risk for the individual who performs it. The secondary behavior therefore requires group selection to evolve . . . (Wilson & Sober, 1998, pp. 143–144).

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The broader point is that within-group selection interacts with between-group selection. Some genetic or cultural traits may evolve because they weaken or even eliminate within-group selection, thereby increasing the likelihood of groupbeneficial traits evolving.

INTEGRATING EVOLUTION AND METHODOLOGICAL INDIVIDUALISM A Combined Approach As the foregoing discussion makes apparent, MI leaves a lot of things unspecified. It does not say what people believe, what people want, or what means they will use to achieve their goals. That may seem unsatisfying, but one principle cannot be expected to do all the work. MI is one methodological principle; it is not the only one. In this section, I will outline a methodological approach that incorporates both MI and evolutionary forces – including, at least potentially, group selection. This approach is not original to this article; earlier statements (or at least hints) of this approach can be found in the work of Langlois (1983, 1985, 1986), Koppl and Whitman (2003), and most likely other works unknown to this author. The central notion of the approach is that any (satisfying) social scientific model will have two components: a story about what sort of individuals populate the model, and a story about how individual actions and interactions lead to the overall system effects predicted or explained by the model. In the former story, evolutionary considerations take center stage, because they shape what kind of assumptions the modeler is justified in making about agents’ preferences, initial beliefs, and mental capacities. Are individuals selfish or altruistic, or some combination of both? Are they rational, boundedly rational, or rule-following?12 The answers to these questions depend on the selective mechanisms – or to use Langlois’s (1986) language, “system constraints” – that agents face or have faced historically.13 Some mechanisms have operated to shape all human beings at a genetic level in the distant past, such as the need to avoid predators, the need to procreate, the need to acquire sustenance, etc. Other mechanisms are more recent and culturally specific. One example of a culturally specific selective mechanism is the discipline of profit and loss in capitalist economies: firms that persistently make losses tend to be liquidated. As a result, existing firms are more likely to exhibit the characteristic of profit maximization, or at least loss avoidance, than they would be in the absence of the system constraint. (Notice that this selective constraint requires the existence of

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other social phenomena, such as money and property, whose existence may also demand social scientific explanation.) The latter story, in which individual actions and interactions lead to the overall system effects, is where MI enters the picture. By deciding what sort of individuals populate his model, the modeler implicitly creates one or more ideal types (Whitman & Koppl, 2003). The choices of agents in the model must follow from their assumed characteristics, combined with whatever constraints are imposed by the physical and institutional environment. Note again that the origin of specific institutions may also require explanation, though not necessarily by the model in question – one scientist cannot explain everything! MI is a minimal condition, satisfied with relative ease. A theorist could assume a variety of things about agents in his model, creating ideal types whose behavior follows from whatever characteristics he has assumed. But there is no guarantee that the predictions or explanations will be accurate, because the initial assumptions may be wrong. Suppose, for instance, that a theorist begins by assuming the existence of altruistic agents. If there are in fact not many altruists in the relevant population, then the model’s predictions are likely to be inaccurate. MI is thus necessary but not sufficient for the construction of a fully satisfying model. In order to make a judgment about the likely accuracy of the model, we would need to know something about the system constraint. Only this kind of knowledge can indicate what sort of agents actually populate the social world to be explained. GS fits into this framework as one kind of system constraint that might be, or historically might have been, effective in shaping the set of relevant agents. The crucial question is whether a GS process constitutes a strong or weak system constraint. The answer will depend on a variety of factors, including: (a) the relative strength of the advantage conferred on individuals living in groups with members who perform group-beneficial (altruistic) tasks; (b) the relative disadvantage suffered by the individuals who perform those tasks; (c) the tendency, or not, of the population to separate into smaller groups that periodically regroup; and (d) the tendency, or not, of those people exhibiting group-beneficial characteristics to form groups with each other. Inasmuch as GS may operate counter to individual-level selection, these two may be considered distinct system constraints that can wholly or partially offset each other. The stronger is one relative to the other, the more effective will be the weeding process, which allows the theorist to make more specific assumptions about the agents in his model. For instance, very strong individual-level selection combined with weak group-level selection would tend to weed out altruism, so in this context the theorist would be justified in assuming selfish agents. If the strength of the two forms of selection were reversed, the theorist would be justified in assuming

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altruistic agents. However, it is conceivable that the two forces could balance each other, leading to a polymorphic equilibrium wherein both types (selfish and altruistic) are substantially represented in the population. Indeed, Wilson and Sober (1994) suggest this is the most likely outcome: “We should expect a diversity of motives in the human repertoire that is distributed both within and among individuals” (p. 601). In this context, the theorist is compelled to make weaker assumptions: rather than assuming selfish or altruistic agents, he will have to allow for both.

Incorporating Institutions The role of institutions in this structure deserves special attention. As noted above, the institutional environment constrains the actions of individuals. Typically, institutions involve patterns of actions or strategies adopted by current and previous members of society, which impose themselves on new members of a society by punishing (explicitly or implicitly) the adoption of alternative strategies. For example, imagine a new member of a society in which people drive on the right side of the road. Although it is within the new driver’s choice set to drive on the left, he nonetheless will choose to drive on the right. Any individual who chose to drive on the left would tend be eliminated from the society. And the fact that today’s new drivers choose to drive right perpetuates the institution, so that tomorrow’s new drivers will do so as well. Thus, the existing equilibrium creates a system constraint that affects both who is in the society and how they will choose to behave. The same may be said, albeit with less confidence, about norms that have evolved to solve free-rider problems, such as respect for private property. Such norms may induce individuals to behave in a manner that appears “altruistic” even though the behavior is in fact motivated by self-interest. In this sense, we may say that altruism is not just a property of individual preferences (although it may be that as well), but is rather a property of a social equilibrium. The tendency to act in a groupbeneficial manner may be transmitted from generation to generation not merely by genes or socialization, but by the incentive for new generations to conform their behavior to that of overlapping previous generations. For MI to be satisfied within a single model, it is enough to show that, given the existing institutions, individuals will act in a way that sustains them (or, possibly, undermines them). Someone analyzing the behavior of American drivers need not explain why America is a society that drives on the right, only why new drivers’ behavior will sustain that norm. But the MI approach insists that the emergence of an institution, such as right-side driving or enforcement of property rights in land, can in principle be explained in terms of the behavior of individuals in the past, as constrained by the physical and institutional environment that faced

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them. Obviously, evolutionary forces can affect the evolution of institutions; GS, in particular, would be felt in the differential contribution of groups with different institutions to the overall human population. In what follows, I will offer two examples of phenomena whose explanation might be assisted by the use of GS thinking: profit-maximizing firms, and norms for avoiding overuse of common resources. For both phenomena, I will offer speculative arguments about how GS might have been involved in their emergence. But I do not claim that these are phenomena are in fact attributable to GS; first, because other explanations may prove superior, and second, because further research would be required to show that the conditions for GS actually existed in these cases. The point here is to offer simple GS accounts of economic phenomena that are consistent with the strictures of MI. These two examples will also help show how the interplay of within-group and between-group selection can influence social outcomes.

Example: The Theory of the Firm To what extent are we justified in assuming that firms act to maximize profits? Firms are, after all, collectives. A firm that acts to maximize profit will clearly prosper relative to other firms. But according to the critics of GS theory, that is not sufficient, as any collective may be vulnerable to subversion from within. As Zywicki (2000) argues, Firms are mechanisms for carrying out team production. (Alchian & Demsetz, 1972). The firm with the best survival prospects, therefore, is the one that maximize[s] the team’s joint product while minimizing the costs of this team production. But the creation of this team production structure opens the door for shirkers who seek to free ride on the efforts of the other members of the team. The hierarchical structure of a firm may be understood as a mechanism for minimizing these shirking costs so as to prevent free riding (p. 85).

The standard critique of GS is that within-group selection will always outstrip between-group selection. If this critique were correct, then we might never be justified in assuming a profit-maximizing firm. But there is no reason to assume, a priori, that one form of selection is stronger than the other. If opportunities for shirking and free-riding within the firm are relatively small, and the discipline of profit and loss is relatively strong, then the outcome could indeed be profitmaximizing firms. Firms that fail to control their internal incentive problems will tend to be eliminated by competition with other firms; as a result, most employees will find themselves working in firms that address incentive problems with some measure of success.

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It might be objected that firms typically implement specific structures designed to deal with shirking and free-riding, including stock options for managers, incentive pay, frequent monitoring, and so on. These structures make the “altruistic” behavior not truly altruistic; e.g. the frequently monitored worker has an incentive not to slack. Nonetheless, there is a still a free-rider problem, because the enforcement of norms to solve a public good problem is itself a kind of public good; this is the second-order public good problem. If there are monitors whose job is to prevent shirking, why don’t the monitors themselves shirk? The obvious reply is that the monitors themselves are given incentives by their superiors, who are given incentives by their own superiors, all the way up the chain to the top of the organization. At the top we will find residual claimants – owners – who have a financial incentive to implement whatever cost-effective structures are needed to overcome shirking problems. Two responses are relevant here. First, the emergence of a residual claimant structure can itself be seen as an evolved response to the public good problem that arises from team production without a residual claimant. By reducing (but not eliminating!) the free-riding problem, residual claimants reduced the strength of within-firm selection, thus giving greater relative strength to between-firm selection. Firms with residual claimants outperformed those without them. Without the selective pressure of profit-and-loss, which operates at the firm level, residual claimants might not have been necessary. Second, while sole proprietorships have unitary residual claimants, what are we to make of corporations and partnerships? When responsibility is distributed, the possibility of free riding arises again. Since there exist multiple means of trying to control opportunistic behavior within the firm, and since there is an external constraint (the discipline of profit and loss) that rewards firms that control destructive internal behavior, we predict evolution of the most effective devices for internal control of incentive problems. GS favors practices that minimize the strength of within-group selection. The firm is an instructive example, because it shows how emergent properties of higher-order entities can be used as a kind of shorthand. While the firm is not actually a single individual, for some purposes it may be usefully treated as an individual acting with the particular goal of maximizing profit. Profit maximization is an emergent property of a system in which groups organized for team production compete in the context of strong profit-loss discipline. But it may not always be acceptable to make the assumption of profit maximization (consider firms in communist economies, where the discipline of profit and loss is absent). This is the constraint imposed by MI: the behavior of individuals within a firm must build up to the behavior of the firm itself. The willingness of economic theorists to look within the firm to examine internal incentive problems is the hallmark of the MI approach. But that is not sufficient for a compelling theory of the firm, as we

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should also enquire into the evolution of the firm’s internal culture, which guides the attitudes and behaviors of the individuals who comprise it. GS theory provides a reason why firm-beneficial attitudes persist: those firms that failed to inculcate such attitudes were less likely to survive. The application of GS to the theory of the firm is far from unproblematic. One condition for the new GS to work in biology is the differential reproduction of groups; what is the cultural analog of reproduction in the case of firms? Since firms are potentially infinitely lived, “reproduction” might have to be interpreted as persistence. Or reproduction might take the form of firms that imitate the structures and practices of existing firms. I will not attempt to answer here whether these conditions are sufficiently similar to the conditions necessary for GS in biological evolution. Profit-maximizing firms might be seen as the outcome of selection among groups, but other explanations might perform better. For example, residual claimants could be the accidental by-product of private property, an institution that evolved earlier and possibly for different reasons.

Example: The Tragedy of the Commons The tragedy of the commons (Hardin, 1968) is a classic case in which individually rational behavior leads to an undesirable outcome for the group (or more precisely, for each member of the group). The over-exploitation of common assets is not just a human phenomenon, as animal populations may overburden their local environments by excessive reproduction. Indeed, this was precisely the problem addressed by V. C. Wynne-Edwards (1962) in his early version of GS theory. Wynne-Edwards did not, like Wilson and Sober, ground his theory in an understanding of the interplay between within- and between-group selection. Nonetheless, the commons tragedy provides fertile ground for the application of the new GS theory. To what extent can populations of animals or humans be expected to display group-beneficial strategies in their use of assets? The answer to this question bears on the validity of, for instance, Harold Demsetz’s (1967) theory of property rights, which asserts that “property rights arise when it becomes economic for those affected by externalities to internalize benefits and costs” (p. 97). In the human context, the most commonly recognized solution to the commons problem is to privatize the asset in question (say, land), so that individual members of the population have exclusive stewardship over smaller plots. This solution is not as simple as it might appear, as it typically requires some kind of enforcement apparatus. Pure self-enforcement might be sufficient, and if it were, privatization would occur on its own. But if some kind of social enforcement is necessary,

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then a second-order public good problem arises: why should individual members contribute to the costly enforcement process by refraining from good opportunities to steal, refusing to trade with known property rights violators, and so on? In this context, an opponent of GS theory might conclude that privatization will not occur. But that conclusion would only follow from a situation in which between-group selection is too weak relative to within-group selection. It might turn out, on the contrary, that the individual incentive to deviate from propertyenforcing norms is relatively small compared to the gains from cooperation. If so, then societies composed mostly of individuals with an inherited or ingrained inclination to follow those norms will prosper relative to other societies. They would contribute a disproportionate number of members to future societies, thereby spreading the property-enforcing norms. Of course, privatization is not the only potential solution to the commons problem. Another possibility is the enforcement of norms that directly limit individuals’ consumption of the common resource. Such norms are common in primitive societies. Their enforcement, just like the enforcement of propertynorms, may be subject to a second-order public good problem; and yet they persist. One possible explanation is that the enforcement of group-beneficial norms is eased by the inherent tendency of individuals to detect and punish people perceived as “cheaters” – a tendency reinforced by a GS process. For an analysis of the tragedy of the commons to satisfy MI, the social outcome – whether overuse or efficient use of assets – must result from the attitudes of individuals and the constraints they face. If individuals are entirely selfish, then we do not predict a solution to the commons problem except in the presence of small numbers and very low monitoring costs. If individuals are entirely altruistic, then we predict commons problems to be solved with little effort. If individuals have both selfish and altruistic attitudes, then we predict commons problems to be solved (sometimes) through a combination of monitoring and individual forbearance. But which of these assumptions about individual attitudes is most appropriate? In other words, what sort of agents should populate our economic models? Here, evolutionary theory, and GS theory specifically, can be of assistance. The stronger was between-group selection in the shaping of human psychology, the more justified we are in assuming some degree of altruism in the current population of humans. As in the case of firms, the application of GS to the tragedy of the commons is not unproblematic. Among other things, there is the historical question of whether private property did, in fact, emerge at a time when human populations consisted of small competing groups, and whether those groups exchanged members in a fashion approximating the fission-and-reconcentration pattern required for group selection. In addition, even if norms for the avoidance of the tragedy of the

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commons (such as private property) could emerge from a GS process, other processes could possibly explain the same transformation. Such processes could include deliberate or non-spontaneous decision-making, such as the choice by a legislature to establish private property rights in assets previously owned in common. Even if GS explains the emergence of private property in some cases, it does not explain it in all cases.

CONCLUSIONS The notion that MI and GS conflict derives from an overextension of both principles. MI is taken to imply self-interest, rationality, spontaneous order, and denial of the existence of groups. GS is taken to imply that groups will always exhibit group-beneficial characteristics. Both characterizations are mistaken. MI is a relatively minimal requirement that says group properties must be built up from individual actions and interactions, and GS (at least in its modern form) says that groups will exhibit group-beneficial characteristics only under specific circumstances that do not always obtain. In this article, I have offered speculative discussions about incentive problems in the context of firms and common-pool resources. I have suggested, in each case, that GS could be invoked as a (partial) explanation of how such problems are solved. But the main point of the article – that there is no contradiction between GS and MI – does not depend on the correctness of these examples. Once MI and GS are properly defined and constrained, the appearance of conflict disappears. Both can be incorporated into a single methodological approach based on individual choice in the presence of system constraints. MI dictates that individual choices lead to social outcomes; GS is one force (among many) that determines what sort of individuals are present in the system. To accept this position, one need not agree that GS is a significant force in biological or cultural evolution. That is ultimately an empirical question, one that should not be foreclosed by the rejection of GS theory on erroneous methodological grounds.

NOTES 1. Later, Hayek (1967a, b) adopts a more nuanced approach, wherein the dividing line is not between natural and social sciences, but between simple and complex phenomena. As a result, even some natural sciences might have to adopt a form of methodological dualism, because their basic elements cannot easily be reduced to more constituent parts. “Where

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we have to deal with a complex situation in which observation discloses only very limited regularities, be it in the ‘applied’ branches of physics or in biology or in the social sciences, we usually ask to what extent our existing knowledge of the forces at work, or of the properties of some of the elements of the complex, may account for what we observe. We endeavor to find out whether this may be derived by deduction from what we know about the behavior under simpler conditions of some of the factors involved” (Hayek, 1967a, b, p. 10). However, there are other features of the social sciences that distinguish them from all natural sciences: “Another and perhaps more important peculiarity of the social sciences is due to the fact that here the recognition of the different kinds of facts rests largely on a similarity between the observer and the observed persons” (Hayek, 1967a, b, p. 18, Note 15). 2. To be more precise, MI says social phenomena should be reduced to individual psychology (and environmental factors), while MD says no further reduction is required. Elsewhere (Hayek, 1952), Hayek argues that it may be impossible to reduce human action to something even more basic. But this position is distinct from both MI and methodological dualism, neither of which takes any position on this matter. 3. Langlois (1983) refers to the position that emergent properties of social systems do not exist as “na¨ıve methodological individualism,” to distinguish it from the version of MI which seeks the explanation of emergent properties. “Far from denying the importance of emergent phenomena, the economist and philosopher Friedrich A. Hayek . . . reminds us that the entire objective of the social sciences is to explain how the behavior of individuals leads to orderly patterns and institutions that none had consciously planned – to explain, in other words, the emergent results of individual action” (Langlois, 1983, p. 583). However, as I argue below, MI does not require the absence of conscious planning. 4. Hayek (1952) unfortunately does not make this point explicit. It is clear, however, than many of the “wholes” that Hayek says require compositive explanations are institutions that individuals may take as given, such as money and language. “It makes no difference for our present purpose whether the process [of emergence of an order] extends over a long period of time, as it does in such cases as the evolution of money or the formation of language, or whether it is a process which is constantly repeated anew, as in the case of the formation of prices or the direction of production under competition” (p. 71). 5. See, generally, Rousseau (1762). 6. See Arrow (1951) and subsequent literature. 7. But this is not always true even in the natural sciences. To the extent that they deal with complex emergent phenomena that cannot be observed directly, some natural sciences may face a problem similar to that of the social sciences. See Notes 1 and 2. 8. Not to imply that altruism and selfishness are only properties of preferences. They might also be properties of institutions or social equilibria. See the final section on “Integrating Evolution and Methodological Individualism.” 9. In fact, Wynne-Edwards illustrated the basic problem with the case of overfishing, an example also used by Hardin (1968) to illustrate the tragedy of the commons. 10. See, for instance, Zhang (nd). 11. “As we have seen, however, kin selection is a special case of a more general theory – a point that Hamilton (1975, 1987) was among the first to appreciate. In his own words, ‘it obviously makes no difference if altruists settle with altruists because they are related . . . or because they recognize fellow altruists as such, or settle together because of some pleiotropic effect of the gene on habitat preference’ ” (Wilson & Sober, 1998, p. 134).

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12. This sentence is not meant to indicate that rule-following is necessarily irrational, only that it might be. 13. Langlois (1985) also refers to the notion of a “compositional principle,” such as selection or an invisible hand principle, that leads from individual actions to social results. Langlois’s approach is similar, though not identical, to that taken here.

ACKNOWLEDGMENTS I wish to thank Roger Koppl, an anonymous referee, and all of the commentators for their helpful analysis and suggestions.

REFERENCES Alchian, A. A., & Demsetz, H. (1972). Production, information costs, and economic organization. American Economic Review, 62, 777–795. Arrow, K. J. (1951). Social choice and individual values. New York: Wiley. Black, D. (1958). The theory of committees and elections. Cambridge: Cambridge University Press. Boehm, S. (1989). Hayek on knowledge, equilibrium and prices: Context and impact. Wirtschaftspolitische Blatter, 36, 201–213. Demsetz, H. (1967). Toward a theory of property rights. American Economic Review, 57, 13–27. Reprinted (1998). In: A. W. Katz (Ed.), Foundations of the Economic Approach to Law (pp. 93–102). New York: Foundation Press. Ellickson, R. C. (1991). Order without law: How neighbors settle disputes. Cambridge, MA: Harvard University Press. Elster, J. (1983). Explaining technical change: A case study in the philosophy of science. Cambridge: Cambridge University Press. Hardin, G. (1968). The tragedy of the commons. Science, 162, 1243–1248. Hayek, F. A. (1952). The sensory order. Chicago: University of Chicago Press. Hayek, F. A. (1967a). Studies in philosophy, politics, and economics. Chicago: University of Chicago Press. Hayek, F. A. (1967b). Degrees of explanation. In: F. A. Hayek (Ed.), Studies in Philosophy, Politics and Economics. Chicago: University of Chicago Press. Hayek, F. A. (1979). Law, legislation and liberty, volume 3: The political order of a free people. Chicago: University of Chicago Press. Hayek, F. A. (1991). The fatal conceit: The errors of socialism. Chicago: University of Chicago Press. Hodgson, G. M. (1991). Hayek’s theory of cultural evolution: An evaluation in light of Vanberg’s critique. Economics and Philosophy, 7, 67–82. Koppl, R., & Whitman, D. G. (2004). Rational-choice hermeneutics. Journal of Economic Behavior and Organization (forthcoming). Langlois, R. (1983). Systems theory, knowledge, and the social sciences. In: F. Machlup & U. Mansfield (Eds), The Study of Information: Interdisciplinary Messages. New York: Wiley. Langlois, R. (1985). Knowledge and rationality in the Austrian school: An analytical survey. Eastern Economic Journal, 9, 309–330.

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Langlois, R. (1986). The new institutionalist economics: An introductory essay. In: R. Langlois (Ed.), Economics as a Process: Essays in the New Institutionalist Economics. Cambridge: Cambridge University Press. Lucas, B. (2002). Which side of the road do they drive on? Web page accessed 8 April 2003. http://www.travel-library.com/general/driving/drive which side.html. Mises, L. von (1981 [1957]). Theory and history: An interpretation of social and economic evolution. Auburn University, Alabama: Ludwig von Mises Institute. Smith, E. A. (1994). Semantics, theory, and methodological individualism in the group-selection controversy. Behavioral and Brain Sciences, 17, 636–637. Smith, E. A., & Winterhalder, B. (1992). Natural selection and decision-making: Some fundamental principles. In: E. A. Smith & B. Winterhalder (Eds), Evolutionary Ecology and Human Behavior. Aldine de Gruyter. Vanberg, V. (1986). Spontaneous market order and social rules: A critical examination of F. A. Hayek’s theory of cultural evolution. Economics and Philosophy, 2, 75–100. Williams, G. C. (1966). Adaptation and natural selection: A critique of some current evolutionary thought. Princeton, NJ: Princeton University Press. Wilson, D. S., & Sober, E. (1994). Reintroducing group selection to the human behavioral sciences. Behavioral and Brain Sciences, 17, 585–608. Wilson, D. S., & Sober, E. (1998). Unto others: The evolution and psychology of unselfish behavior. Cambridge, MA: Harvard University Press. Wright, E., Levine, A., & Sober, E. (1992). Marxism and methodological individualism. In: Reconstructing Marxism – Essays on Explanation and the Theory of History (pp. 107–128). London: Verso Books. Wynne-Edwards, V. C. (1962). Animal dispersion in relation to social behavior. Edinburgh: Oliver & Boyd. Zhang, J. (nd). What is Simpson’s Paradox? Web page, accessed 8 April 2003. http://www.ma.iup.edu/ ∼zhang/simpson.html. Zywicki, T. (2000). Was Hayek right about group selection after all? Review essay of Unto others: The evolution and psychology of unselfish behavior, by Elliot Sober and David Sloan Wilson. Review of Austrian Economics, 13, 81–95.

ON GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM – A REPLY TO DOUGLAS GLEN WHITMAN Elliott Sober and David Sloan Wilson We admire the clarity of Whitman’s paper and agree with its principal thesis – that hypotheses of group selection, when understood within the framework of multi-level selection theory that we presented in Unto Others, are compatible with methodological individualism (MI), when this is understood in terms of Whitman’s exposition of the views of Friedrich Hayek. Below we briefly describe the reason for this compatibility. We then turn our attention to the thesis of MI itself, breaking it into pieces, commenting on the plausibility of those separate elements, and then referring MI to some recent philosophical work about reductionism.

METHODOLOGICAL INDIVIDUALISM AND GROUP SELECTION ARE COMPATIBLE According to Whitman, Hayek’s conception of MI pertains just to the relationship of individual psychology and the social sciences, and is neutral on broader questions about reductionism in other scientific domains. Since hypotheses of group selection frequently concern organisms that are taken to be mindless (e.g. viruses and social insects), it is clear that they do not come into contact with MI Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 251–259 Copyright © 2004 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07011-5

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thus construed. And even when group selection hypotheses make claims about human evolution, as do the hypotheses we discuss in Chapters 4 and 5 of Unto Others, there is, once again, a relationship of mutual irrelevance. The reason is that MI addresses what biologists call the question of proximate mechanism, whereas hypotheses about natural selection are part of the project of ultimate explanation (Mayr, 1961). An example used in Unto Others helps to illustrate this distinction. If one asks why sunflowers turn towards the sun, there are two ways in which this question might be understood. One might wish to understand how the machinery inside of each plant causes the plant to exhibit phototropism. Or one might want to understand the evolutionary processes that caused this behavior to evolve. Both types of understanding are important, and there is no conflict between them. By the same token, when a human society exhibits some property – e.g. the type of egalitarianism among adult males that Boehm (1999) argues is characteristic of nomadic hunter-gatherers – we might seek both a proximate and an ultimate explanation of that arrangement. MI constrains the former problem; it asserts that a group’s having that property must be understood in terms of the beliefs and desires of the individuals in the group (with properties of the physical environment brought in where necessary). But even if the question of proximate mechanism gets answered in the way that MI insists, the question is left open as to whether the group phenotype is the result of natural selection, and if it is, whether group selection was involved. MI says nothing about the form that an evolutionary explanation must take; it concerns proximate explanation only. The first half of Unto Others is concerned to develop and defend hypotheses of group selection; the second half addresses the debate in psychology between psychological egoism (the view that all of our ultimate motives are egoistic) and motivational pluralism (the view that human beings have both egoistic and altruistic ultimate motives). Although this part of the book addresses a question about proximate mechanism, once again MI, as Whitman understands it, has nothing to say about the question discussed. The reason is that MI does not commit itself on what sorts of ultimate desires people have – they can be purely egoistic, or purely altruistic, or a mixture of both. For Whitman, MI is concerned just to make sure that group properties are built up out of the beliefs and desires of individual human beings, whatever those beliefs and desires turn out to be. Before turning to the narrower thesis of MI that Whitman discusses, we want to explain why we have understood MI in a wider sense, one that has implications concerning the nature of evolutionary processes. When opponents of group selection hypotheses describe what sort of selection hypothesis they view as legitimate, they usually say that they are happy to invoke the process of individual selection. In one of the central texts of the group selection debate

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that raged in the 1960s, Williams (1966) advances a methodological principle – when an observation is consistent with a group selection hypothesis and also with a hypothesis of purely individual selection, we should prefer the latter. This is individualism of a methodological variety, hence our inclination to view the group selection controversy as pertaining to MI in at least one legitimate sense of that phrase. The attack on group selection during the 1960s was mainly given over to methodological and conceptual arguments against group selection that, upon reflection, turned out to be entirely irrelevant. One of them is the subversionfrom-within argument that Whitman describes. If a group somehow were to consist entirely of altruistic individuals, a selfish mutant or migrant would sooner or later appear, and since that selfish individual would out-compete the resident altruists, selfishness would gradually sweep through the population and altruism would go extinct. The conclusion is supposed to be that altruism is inherently unstable. This argument was invoked repeatedly, as if it were a mantra that wards off an evil spirit; what purveyors of this argument neglected to mention is the significance of the assumption that the imagined process takes place within the confines of a single group. If there is no variation among groups, there is no group selection. Although it is true that in the absence of group selection, pure individual selection will drive altruism to extinction, the subversion-from-within “argument” says nothing whatever about what group selection might be able to accomplish. One cannot show that a process is powerless to bring about a given result by imaging a situation in which the process does not occur. Other arguments from this period were no better – e.g. “group selection can’t be right because it is the gene, not the individual or the group, that is the unit of heredity.” This deplorable battery of a prioristic arguments coexisted along side a better way of thinking about group selection, one that held that the existence and power of group selection as an empirical question to be decided on a trait-by-trait and lineage-by-lineage basis. Here we can mention Williams’ (1966) insight that a population’s sex ratio provides a test case for group versus individual selection, and Hamilton’s (1967) development of a model of sex ratio evolution in which both group and individual selection are represented. We viewed this empirical line of attack on the problem as the light and the way – as replacing empty and irrelevant methodological considerations with something substantive. This is why Sober (1981) argued that the group selection controversy provides a model for how the debate about MI in the social sciences might be transformed into something empirical. If all sides agree that properties of wholes are built up from properties of parts, empirical questions nonetheless remain about the levels at which different causal processes occur.

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WHITMAN’S VERSION OF METHODOLOGICAL INDIVIDUALISM, AND ITS PLAUSIBILITY We take it that Whitman agrees that MI can be viewed as a special instance of reductionism. This means that if there are general arguments against reductionism – “general” in the sense that they are meant to apply no matter which specific sciences are considered – that these will bear on MI. Defenders of MI therefore need to attend to such arguments (one of which we will describe shortly), even if, for example, they are neutral on the question of whether biology reduces to physics. We discern three different theses at work in Whitman’s exposition of MI – there is a thesis about constitution, about evidence, and about explanation. Constitution: Broadly speaking, MI holds that human social wholes are “built up” from individual human beings and their physical environments. We take this to mean that if the individuals in one group have the same distribution of properties (including relational properties) as the individuals in another, and if the individuals in the first group live in a physical environment that is qualitatively identical with the environment inhabited by the individuals in the second group, then the properties of the two groups must also be the same. “No social difference without an individual difference” might be the slogan for MI, broadly construed, and we have no reason to disagree with it. However, we sense that Whitman has something more specific in mind here. Notice that the broad construal of MI does not specify which properties of individuals are the ones that determine the properties of social wholes. However, Whitman says in one place that it is the “choices and behaviors” of individuals and their physical environment that do the building up. Whitman’s discussion in other passages of the subjective character of social experience (as mediated by “constitutive ideas”) leads us to suspect that Whitman is thinking that it is the beliefs, desires, emotions, and sensations that individuals experience that (along with the physical environment) suffice to determine all properties of social wholes (or at least the ones that are of interest to the social sciences). This more specific thesis strikes us as less than obvious. Why should we be certain that there are no other properties of individuals that need to be taken into account if the determination thesis is to be true? Even if common sense psychology is true, why think that it is complete? If psychological theories undreamt of in common sense psychology are needed to explain individual behavior, why shouldn’t properties of social wholes depend on the properties recognized in those new theories? Evidence: Whitman claims that the social and the natural sciences differ in an important respect. “In the natural sciences, the existence of many emergent

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properties can be verified independently of their explanation,” but this is not the case in the social sciences. For Whitman, social science generalizations are plausible only to the degree that we can explain them in terms of individual psychology; in contrast, the generalizations of individual psychology can be plausible without our already having worked out the neuroscience details of how brains give rise to minds. The reason for this asymmetry, Whitman says, is that “we cannot, in fact, observe wholes directly, we infer their existence [only] through the apprehension of particular events and phenomena.” We find this part of MI implausible. First, we believe that the distinction between having evidence for a generalization and having an explanation for why the generalization is true is just as important for the social sciences as it is for the natural sciences. Before Newton, it was well-known that the phases of the moon are correlated with the tides; the evidence for this correlation was overwhelming, but it wasn’t explained until Newton developed his theory of gravity. A similar point seems to attach to Durkheim’s description of the waxing and waning of suicide rates. Why couldn’t data on suicide rates in one or more societies convince us that there is a general pattern here, even if we have no very plausible explanation of why the pattern obtains? Another example may be found in the near-universality of incest taboos – we know that the pattern obtains cross-culturally, even if we are very uncertain as to the explanation of such taboos from the point of view of individual psychology. Whitman argues for the evidential thesis that he takes to be part of MI by claiming that we cannot observe social wholes directly, but that point doesn’t seem to justify the evidential thesis – even if the tides and the moon were inferred entities rather than observables, we still could have evidence for the generalization without being able to explain its truth. And the fact that suicide rates are statistically inferred from samples doesn’t prevent us from having a lot of confidence in claims about those rates. The same holds for a society’s having an “incest taboo” – this social fact is somehow inferred from the laws, religious teachings, and moral precepts that exist in a society. We can infer the existence of taboos without having a full explanation of why they exist. Explanation: Whitman says that “[w]hile the behavior of individuals is affected and constrained by the institutional environment . . ., MI posits that the institutional environment itself can in principle be fully explained by the behavior of past and present individuals” (again as affected by the physical environment). Whitman does not explicitly endorse the following assertion, but we suspect that it is part of the picture he has in mind – that facts about social wholes cannot in principle fully explain the behavior of individuals. Adding this further claim turns what Whitman says into a thesis of explanatory asymmetry. Whitman’s MI is not committed to the claim that the properties of social wholes are causally inert. The inflation rate in a society at a given time, its class structure,

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etc. – all of these can have effects on individuals and also on later temporal slices of the social wholes themselves. And of course, the beliefs and desires of individuals at a time have effects on the properties of social wholes and on later time slices of individuals. However, there is a determination relation running from parts to wholes that exist at the same time, but not from wholes to part, and it is not puzzling why this should be the case. The reason is that the relationship between properties of social wholes and properties of individuals is typically one-many. For example, if we specify whether each of the individuals in a group is an altruist, that set of individual facts determines the frequency of altruism in the group, but the group frequency (unless it is 0% or 100%) doesn’t settle what trait each of the individuals has. In the language of recent work in philosophy, properties of groups are multiply realizable – when a group has a given property, this can be realized by many different assignments of properties to the individuals in the group. So we agree with Whitman’s claim about in-principle complete explanation – that this flows from parts to whole, but not in the other direction. We note, however, that the explanations that scientists construct in practice are almost never complete, especially not in the social sciences. This means that the asymmetry thesis we are attributing to Whitman does not show that an individual-level explanation will always be better than a group-level explanation. Both will be incomplete, so on what grounds is the former always better? There is an influential anti-reductionist line of thinking in recent philosophy of mind and philosophy of science that bears on this issue of explanatory asymmetry. It began as a claim about explanation in the social sciences (Garfinkel, 1981) and then got generalized into a thesis about parts and wholes, no matter what the levels of organization are at which those parts and wholes are located. Putnam (1975) illustrates the idea at work here by way of a simple example. Suppose a wooden board has two holes in it. One is circular and has a 1 inch diameter; the other is square and is 1 inch on a side. A cubical peg that is 15/16ths of an inch on each edge fits through the square hole, but not the circular one. What is the explanation? Putnam says that the explanation is provided by the macro-properties just cited of the peg and the holes. He denies that the micro-properties of molecules or atoms or particles in the peg and the piece of wood explain this fact. The micro-description that permits one to deduce the proposition that needs to be explained is long and complicated and brings in a welter of irrelevant detail. To explain why the peg goes through one hole but not the other, it doesn’t matter what micro-properties the molecules have, as long as the peg and board have the macro-properties I mentioned. According to Putnam, the macro-properties are explanatory, while the micro-properties that underlie those macro-properties are not. He concludes from this that reductionism is false.

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Notice that the macro- and micro-properties of the peg-board system exhibit the same one-many relationship that social and individual facts exhibit. Applied to explanations in the social sciences, Putnam’s claim would be that group-level explanations of what happens to a social whole are superior to individual-level explanations of the same phenomenon. An economist might seek to explain why the inflation rate goes up in a given time period by describing the money supply, the unemployment rate, and other properties of the economy. Would it be better to explain this event by describing the choices and behaviors of each of the individuals in the economy? Putnam says no because he values generality; the micro-story about Tom, Dick and Harry, probably won’t apply to other episodes of inflation in this and other economies, whereas the macro-story may succeed in doing so. Although Putnam claims that the macro-story is explanatory and the micro-story is not explanatory at all, we are inclined to take a more pluralistic view (Sober, 1999). We think that micro-details are often explanatorily relevant; though they may not be of interest in some lines of inquiry, they may be so in others. Although generality is often a virtue of explanations, it is not the only one; detail is often valued as well. The point is that these virtues are in conflict, which means that there are various good explanations of a given phenomenon and that different good explanations will exemplify different suites of explanatory virtues. Reductionism – the claim that explanation in terms of the properties of parts is always superior to explanation in terms of the properties of wholes – is mistaken, but so is the opposite view – the claim that explanation in terms of wholes is always superior to explanation in terms of parts. The point of rejecting reductionism is not to substitute one monistic thesis for another, but to embrace a pluralistic account of the explanatory virtues. The idea that there is a conflict between explanatory generality and explanatory detail connects with our earlier discussion of the proximate/ultimate distinction. Cohan (1984) performed an artificial selection experiment in which he selected for longer wings in ten isolated laboratory populations from the same species of Drosophila. There was a response to selection in each population, with wings at the end of the experiment being longer than they were at the start. However, the genetic and developmental mechanisms that allowed the flies to exhibit longer wings varied from population to population. When we ask why flies at the end of the experiment have longer wings than flies at the beginning, we can provide ten (or more) distinct proximate explanations, or a single story at the level of ultimate explanation. Ultimate explanation thus permits a kind of unification and generality that proximate explanations often fail to provide (Sober, 1994, Section 7.3).

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THE RATIONAL KERNEL OF METHODOLOGICAL INDIVIDUALISM In spite of our reservations about some of the details that comprise Whitman’s conception of MI, we are sympathetic with his desire to prevent “the accidental intrusion of unproven hypotheses into one’s initial assumptions.” To speak about the inflation rate, the ideology, the money supply, or the class-structure in a given society can be problematic if it is not clear what would count as evidence that would allow these claims to be tested. Explicitly reducing such talk to a detailed description of the beliefs and preferences of individuals would suffice to render these claims about social wholes transparent, if attributions of beliefs and preferences to individuals were not subject to similar problems. However, even supposing that attributions of beliefs and desires to individuals is unproblematic, we doubt that this type of reductionist account is always necessary. Surely economists have methods for measuring various properties of economies (i.e. estimating their values, subject, as is always the case in science, to error) that do not require them to assemble descriptions of the beliefs, desires, and actions of each individual in the population. In just the same way, physicists can measure the temperature in a chamber of gas without needing to measure the kinetic energies of the molecules that comprise the gas. Reductionism is one mode of clarification, but it is not the only one. Furthermore, it is important to recognize that the beliefs and desires that other people have are not things that we directly observe; they are inferred from the behaviors we observe. Even if each person has introspective access to his or her own beliefs and preferences, it would be wrong to view the beliefs and desires that the agents in a society have as something that each person knows directly. Psychological claims that are made in the 3rd person are “theoretical” in the sense that we evaluate them by seeing how well they predict and explain what we observe. In summary, we agree that it is desirable to identify and avoid untested or untestable assumptions, but we don’t see that this problem always arises in connection with hypotheses about social wholes, or that the problem attaches only to such hypotheses. And when it does arise, the solution need not be reductionistic.

ACKNOWLEDGMENTS We thank Daniel Hausman and an anonymous referee for useful suggestions.

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REFERENCES Boehm, C. (1999). Hierarchy in the forest – the evolution of egalitarian behavior. Cambridge: Harvard University Press. Cohan, F. (1984). Can uniform selection retard genetic divergence between isolated conspecific populations? Evolution, 38, 495–504. Garfinkel, A. (1981). Forms of explanation – rethinking the questions of social theory. New Haven: Yale University Press. Hamilton, W. (1967). Extraordinary sex ratios. Nature, 156, 477–488. Mayr, E. (1961). Cause and effect in biology. Science, 134, 1501–1506. Putnam, H. (1975). Philosophy and our mental life. In: Mind, Language, and Reality. New York: Cambridge University Press. Sober, E. (1981). Holism, individualism, and the units of selection. In: P. Asquith & R. Giere (Eds), Proceedings of the Biennial Meetings of the Philosophy of Science Association (Vol. 2, pp. 93–101). Reprinted. In: Hodgson (Ed.), Economics and Biology (1995, pp. 399–427). Edward Elgar Publishing. Sober, E. (1994). Philosophy of biology. Boulder: Westview Press. Sober, E. (1999). The multiple realizability argument against reductionism. Philosophy of Science, 66, 542–564. Williams, G. (1966). Adaptation and natural selection. Princeton: Princeton University Press.

COMMENT ON “GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM: COMPATIBLE AND COMPLEMENTARY” BY DOUGLAS GLEN WHITMAN Richard N. Langlois My compliments to Glen Whitman on a carefully argued paper that makes an important point: methodological individualism is not what you think it is; and, contrary to what many have argued, methodological individualism is not in conflict with the notion of group selection in the theory of cultural evolution. Of course, part of the reason I like Whitman’s paper so much is that, as some of his footnotes hint, I have been saying many of the same things for a long time1 (Langlois, 1983, 1985, 1986). My view – and, I think, Whitman’s view – on methodological individualism is more-or-less the following. There are three possible claims. (1) We can construct wholes only from the parts, that is, we cannot use any information to construct wholes not contained within the parts. Social wholes are “nothing other” than the behavior of individuals. (2) We cannot analyze wholes without careful attention to the parts, which exist separately from the wholes. But to understand wholes we must also add information – like compositional principles, filtering mechanisms, institutions, etc. – that are not logically derived from a consideration of the Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 261–265 Copyright © 2004 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07012-7

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behavior of the parts. This includes the possibility that the interactions among the parts may lead to “emergent” phenomena, at least so long as we do not get sloppy and let the idea of emergence become equivalent to Claim 3. (3) We can and should study wholes directly. Wholes have a “life of their own” independent of the parts, and (in some formulations) the parts don’t even exist except in the context of wholes. Claim 1 is na¨ıve individualism; claim 3 is na¨ıve holism. Claim 2 is obviously right. I want to call claim 2 sophisticated methodological individualism, or simply methodological individualism. Others, notably Geoff Hodgson (1999, pp. 132–133), want to see claim 2 as a kind of methodological holism.2 The reason I think the label individualism fits better is that the real dividing line lies between claims 2 and 3. Both claims 1 and 3 are mistakes. But implementing claim 1 is not actually possible, so it is less likely to lead to error. All models in social science necessarily adduce some elements that don’t flow directly from the behavior of individuals: even a simple model of supply and demand requires the proposition that a market demand curve is the sum of individual demand curves, and the property of addition is a (very simple) system constraint not logically contained in individual demand functions or other properties of the agents. By contrast, implementing claim 3 is all too possible, as the history of social science testifies. It follows immediately that there is no conflict between group selection and methodological individualism understood (correctly) as claim 2. In both the original Wynne-Edwards version and the newer Wilson and Sober version, group selection is about how individual behavior interacts, not about some “group” characteristics independent of individuals. Precisely because Whitman makes his case so well, I want to deviate from the text a bit and to devote the remainder of my comment not to Whitman’s thesis but to the idea of group selection itself. My basic point is that Hayek’s account of group selection is in fact strikingly different from the notion now current. What I find striking about the modern discussion of group selection is how “neoclassical” it is. By this I mean that the discussion seems to be focused entirely on issues of incentives and equilibrium – rather than on issues of learning, experiment, and change. This is no doubt appropriate to some extent and in some contexts. Perhaps it is the case that the principal evolutionary issue facing hunter-gather societies was the need to solve common pool problems and to avoid free riding among group members. Thus questions of altruism (appropriately defined) versus narrow self interest (appropriately defined) naturally come to the fore. Those groups whose norms, institutions, rules, or behavior patterns solve the problem of team production well will tend to thrive (in an appropriately defined

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sense) while those who fail to solve the problem (as) well will tend to decline (in an appropriately defined sense). This is all well and good. But it is not principally what Hayek had in mind when he endorsed the (Wynne-Edwards) version of group selection.3 Rather than seeing groups as systems of team production that constrain wayward incentives, he sees groups more generally as systems of rules of conduct. Humans are not merely maximizers in the face of incentives; they are followers of rules more generally – rules that are often tacit and inarticulate. Some (but probably not most) rules may indeed have to do with solving free-rider problems. But, for Hayek, individuals follow rules in the sense of what Nelson and Winter call routines, not rules in the sense of game-theoretic strategies.4 Quite typically, people follow rules unconsciously, unaware of why the rules lead to the results they do. For one thing, the world is so complex that it is difficult for agents most of the time even to know what is in their interests. Moreover, individual rules cannot often be easily disentangled from the overall system of rules the group follows; an individual rule is effective only in the context of other rules. This is why group selection is important to Hayek: you have to choose the whole package, not individual rules in isolation. Since, as Hayek insists, cultural evolution is Lamarckian, groups do not expand only through relatively higher rates of procreation.5 More importantly, groups – that is, coherent systems of rules of conduct – grow through imitation. Sometimes imitation is attendant on immigration to a more successful group: it is a familiar story that immigrants, who are attracted to the economic benefits of better-functioning systems, often struggle as they are forced to alter a whole package of behavior patterns in order to prosper from their new surroundings (Choi, 1993; Hayek, 1988, pp. 129–130). But sometimes imitation involves a conscious attempt to copy patterns of behavior observed elsewhere. Eastern Europe since 1989 is an example.6 The upshot is that, for the most part, cultural evolution does not suffer fundamentally from the problem of a conflict between the interest of the individual and that of the group. Or rather, if it does, it is a conflict exactly opposite to that envisioned by biologists. For Hayek, the problem is too much group solidarity, not too little. Hayek agrees that the hunter-gather lifestyle was indeed one whose success depended on solving certain public goods or free-rider problems, and perhaps on some form of altruism. But economic growth entailed the evolution of quite different systems of rules of conduct. And to get from the solidarist huntergatherer rules to the rules of the modern open society, individuals had to break the rules – perhaps out of self-interest. From the hunter-gatherer stage “practically all advance had to be achieved by infringing or repressing some of the innate rules and replacing them by new ones which made the co-ordination of activities of larger groups possible. Most of the steps in the evolution of culture were made

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possible by some individuals breaking some traditional rules and practicing new forms of conduct – not because they understood them to be better, but because the groups which acted upon them prospered more than others and grew” (Hayek, 1978, p. 161). We might even extend this idea to suggest that breaking the rules – in the form of entrepreneurship – is still critical for economic growth (Choi, 1993). The group that prospers is not the one that finds a way to substitute altruism for narrow self interest but rather the group that allows rules to be broken in wealth-enhancing ways while constraining unproductive rent-seeking behavior.

NOTES 1. Or, more correctly, I used to say many of the same things back in the days when I spent a lot of time thinking about methodology. Fritz Machlup used to maintain that one should write about methodology only at the very beginning and the very end of one’s career. I’ve tried to follow that advice, albeit with a few lapses here and there. 2. It should be clear from my formulation of claim 2, moreover, that Hodgson (1999, pp. 132, 135) is wrong to classify me as a “reductionist” who believes that “emergent” properties don’t exist. 3. Hayek’s view seems to be that, although the concept may or may not be appropriate to biology, it is nonetheless important in the sphere of cultural evolution (Hayek, 1978, p. 202, Note 37; 1988, p. 25). 4. “A routine is a way of doing something, a course of action. As Sidney Winter and I have developed the concept (1982), the carrying out of a routine is ‘programmatic’ in nature, and like a program tends largely to be carried out automatically. Like a computer program, our routine concept admits choice within a limited range of alternatives, but channeled choice. Almost always, there will be a set of understandings or beliefs associated with a particular outline, which explicates or rationalizes why it is appropriate in a particular context, and often, which provides an explanation of why and just how it works. But the key operative concept is the routine itself. It is the routine used that determines what is accomplished, given the context in which it is employed” (Nelson, 2002, p. 269). 5. Although sometimes they do, like Britain during the industrial revolution, where population growth responded strongly to economic growth. The population of England went up by about two-thirds over the course of the 18th century and more than doubled in the first half of the 19th. 6. In The Fatal Conceit, published in 1988, Hayek already saw this kind of group selection operating. Communism, he wrote, “is a religion which has had its time, and which is now declining rapidly. In communist and socialist countries we are watching how natural selection of religious beliefs disposes of the maladapted” (Hayek, 1988, p. 137).

REFERENCES Choi, Y.-B. (1993). Paradigms and conventions: Uncertainty, decision making, and entrepreneurship. Ann Arbor: University of Michigan Press.

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Hayek, F. A. (1978). Law, legislation and liberty. Volume 3: The political order of a free people. Chicago: University of Chicago Press. Hayek, F. A. (1988). The fatal conceit: The errors of socialism. Chicago: University of Chicago Press. Hodgson, G. (1999). Evolution and institutions. Cheltenham: Edward Elgar. Langlois, R. N. (1983). Systems theory, knowledge, and the social sciences. In: F. Machlup & U. Mansfield (Eds), The Study of Information: Interdisciplinary Messages. New York: Wiley. Langlois, R. N. (1985). Knowledge and rationality in the Austrian school: An analytical survey. Eastern Economic Journal, 9(4), 309–330. Langlois, R. N. (1986). Rationality, institutions, and explanation. In: R. N. Langlois (Ed.), Economics as a Process: Essays in the New Institutional Economics. New York: Cambridge University Press. Nelson, R. R. (2002). Technology, institutions, and innovation systems. Research Policy, 31, 265–272. Nelson, R. R., & Winter, S. G. (1982). An evolutionary theory of economic change. Cambridge: Harvard University Press.

RECONCILING GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM Todd J. Zywicki ABSTRACT Methodological individualism underpins economic analysis. In his paper in this volume, however, Douglas Glen Whitman demonstrates that group selection can be reconciled with methodological individualism. This essay extends Whitman’s analysis in two ways. First, it summarizes and restates the necessary conditions for group selection to play a role in the evolution of human preferences and societies. Second, it discusses the role of group selection in Hayek’s thought, with a particular focus on the role of group selection in the evolution of legal rules and the rule of law. The viability of group selection is demonstrated to be an empirical question. Individuals exist as parts of groups – families, tribes, firms, clubs. Given this observable fact, it is plausible that under at least some evolutionary conditions, individual tastes and preferences might evolve so as to contain sympathy for other members of a larger group in which the individual exists. As Whitman observes in the core paper of this discussion, “MI (methodological individualism) dictates that individual choices lead to social outcomes; GS (group selection) is one force (among many) that determines what sort of individuals are present in the system.”

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As I have argued elsewhere (Zywicki, 2000), properly understood, the argument against group selection cannot be resolved as an a priori matter, as has been previously argued. As Whitman extends the argument here, for similar reasons, the argument that methodological individualism and group selection are incompatible as an a priori issue is similarly flawed. In both circumstances, the question of the relationship of group selection to individual selection and methodological individualism is an empirical question. As Whitman observes, the argument between group selection and methodological individualism in the social sciences mirrors in many ways the argument between group selection and individual selection in biological and cultural evolution. Rather than rehashing the arguments in Whitman’s insightful and provocative paper, this comment will discuss some additional aspects of the group selection versus individual selection debate. Whitman’s central conclusions strike me as correct, thus there will be little direct commentary on his argument but rather an attempt to supplement his analysis with some discussion of the conditions under which group selection can operate as an empirical matter, as well as some further elaboration on the possible compatibility and complementarities of group selection and methodological individualism. Consistent with the overall focus of this volume on Austrian economics and group selection, although perhaps outside the specific issues addressed in Whitman’s paper, I also will use this opportunity to discuss some unresolved questions related to the role of group selection in Hayek’s thought.

THE CONDITIONS FOR GROUP SELECTION Group selection models posit that individuals will sometimes act “altruistically,” i.e. in ways that are good for others but detrimental to the individual. Groups that have members that are willing to act altruistically will have a comparative advantage in any competition with other groups. For instance, a basketball team that has players who are willing to pass the ball to open teammates or to expend energy playing defense will have a comparative advantage over teams that lack this willingness of players to sacrifice for the good of the team, even though these acts may reduce the number of points the player scores (and the recognition that results). More dramatic is the example of soldiers who are willing to sacrifice their lives in order to protect the lives of other members of their unit, such as by jumping on a live grenade. It is clear that in these situations, a group that has members who are willing to sacrifice themselves for the greater benefit of the group will have a comparative advantage against groups whose members lack this willingness to act altruistically or selflessly. Thus, from the perspective of the group as a whole, it is beneficial to encourage this sort of behavior.

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On the other hand, with respect to each individual member of the group, altruism is subject to a free rider problem. While jumping on a live grenade certainly benefits the group, it is anything but beneficial for the soldier who sacrifices himself. From the perspective of the group as a whole, the group benefits from someone jumping on the grenade; from the perspective of the individual soldiers within the group, by contrast, each prefers that someone else jump on the grenade. Group selection provides one possible explanation for this altruistic behavior between genetically-unrelated individuals. As Richard Dawkins states the problem, “Even in the group of altruists, there will almost certainly be a dissenting minority who refuse to make any sacrifice. If there is just one selfish rebel, prepared to exploit the altruism of the rest, then he, by definition, is more likely that they are to survive and have children” (Dawkins, 1989, pp. 7–8, emphasis added). Most biologists have traditionally adopted this logic that group selection is unworkable as an a priori matter, because over time the force of individual decision-making will necessarily undermine the social benefits of altruism and group selection. Economists have similarly rejected group selection because it too seems to violate the premises of methodological individualism, in that the set of incentives necessary for robust group selection appear to lack firm and coherent individual-level foundations. But it now appears that this rejection of group selection was too hasty (Sober & Wilson, 1998). The possibility of group selection cannot be disposed of as an a priori matter. It is an empirical question about the relative influence of the force of intragroup selection, i.e. competition among different individuals within a given group, versus intergroup selection, i.e. selection between different groups. The possibility of group selection arises from the interaction of these two offsetting forces: intergroup selection versus intragroup selection. Intergroup selection encourages altruism within a given group because it benefits the group as a whole in competition with other groups, even though altruistic individuals contribute more to the group than they personally receive in exchange. Intragroup selection, by contrast, favors selfishness and free riding – it is better to be on the receiving end of the public benefits contributed by altruistic individuals rather than being the “sucker” who contributes more than he personally receives in exchange. Given that these two influences offset one another, the question of group selection is an empirical question, not a priori. It may be that the historical circumstances that are necessary for group selection to exert an influence in human affairs are implausible or unlikely; nonetheless, recognizing that the question is empirical in nature reorients the discussion to an examination of the actual circumstances that have shaped the evolution of individuals and cultures. Whitman provides a technical discussion of the circumstances under which group selection is possible. In practice, however, the conditions for group selection

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may be restated as requiring three operative conditions to be satisfied (Zywicki, 2000, pp. 87–88). (1) First, the genetic trait or cultural rule must promise sufficient benefits to the group that the members of the group will benefit from adopting it. In other words, there must be some benefit to the group that results from the practice when compared with groups that do not adopt the rule or practice, i.e. a social surplus is generated. Thus, for instance, a group that adopts rules that honor private property, freedom of contract, and restraints on the use of force and fraud will tend to prosper relative to groups that adopt the opposite rules (Hayek, 1988, p. 23). These rules may be invented consciously or may simply arise by accident. (2) Second, there must be some mechanism for between-group competition to occur, i.e. for groups with more superior traits or practices to displace others. This competition and displacement may occur either through: (a) warfare and conquest by the more successful group; (b) migration from the less-successful group to the more successful; or (c) imitation of the more successful by the less-successful (Hayek, 1972, p. 169, n. 7; Hayek, 1988, n. 121). An isolated group that never comes into contact with other groups will be unable to engage in between-group competition, thus group selection will exert no selection effect on the group’s rules in terms of group selection. (3) Third, the group must be able to restrain free riders. The existence of an altruistic trait or practice inevitably gives rise to the possibility of free riding on those altruistic impulses. If unchecked, the ability of self-interested individuals to free ride on others’ altruism can dissipate the social surplus generated by the altruistic act. On the other hand, it is not necessary to completely eradicate free riding, which will be virtually impossible given the incentives to free ride. It may be possible to reduce free riding to the point where the overall benefits to the group are sufficiently large such that the benefits of retaining the trait or practice are large enough to offset the costs imposed by free riders. This specification of the third condition is perhaps the least-understood. Earlier thinkers supposed that it would be necessary to eradicate free riding for group selection models to be viable. This seems to be because it was thought that there was no stable social equilibrium between complete altruism and complete selfishness. But this ignores the fact that there is an intermediate equilibrium that restrains free-riding without completely eradicating it. It is not necessary to completely eliminate free riding, it is sufficient to control it to the extent that social surplus generated by the practice or trait is not completely dissipated by intragroup competition. Group selection predicts the possible emergence of altruism, not masochism – successful groups will develop rules that will both generate social

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surplus as well as limit its dissipation. Again, it does not matter whether the rule is initially developed consciously or by accident, so long as selection forces can act on it. Social norms against antisocial behavior, legal and political institutions such as police forces that prevent theft, and constitutional institutions that encourage positive-sum wealth creation activities rather than zero-sum redistributive activities (or negative-sum rent-seeking activities), can all be viewed as mechanisms to limit the ability of free riders to dissipate the social surplus (Zywicki, 2000, pp. 90–93). If these three conditions are met: – (1) a beneficial practice that benefits the group in intergroup selection competition; (2) a mechanism for between-group competition (war, migration, or imitation); and (3) a mechanism for preventing free riding by social parasites seeking to capture some of the newly-created social surplus for themselves – then the group selection model generates coherent testable hypothesis. Note, however, that it may be difficult to meet these conditions in practice, precisely because the forces identified by the methodological individualism model are so powerful. Moreover, identifying circumstance where group selection has actually operated will be difficult, given that the “losers” will have been extinguished or absorbed into the more successful group. Nonetheless, whether these conditions are met is an empirical question.

HAYEK, AUSTRIAN ECONOMICS, AND GROUP SELECTION The interest of Austrian economists in the relationship between methodological individualism and group selection can be traced to Hayek’s interest in the topic. The interest of Austrian economists in group selection is somewhat incongruous, in that a cornerstone of Austrian economics is its emphasis on methodological individualism. In large part, this strong commitment to methodological individualism explains the hostility of many working in the Austrian tradition to Hayek’s invocation of group selection in his writings (Vanberg, 1986). Many scholars have been puzzled by Hayek’s use of group selection, precisely because it seems incompatible with his emphasis on methodological individualism and also because the selectionist model is not well-specified in Hayek’s work (see for instance, Shearmur, 1996). This puzzle evaporates, however, if Hayek is modeling groups of individuals as a sort of “super-organism,” as modern group selection theorists do (Sober & Wilson, 1998). In fact, Hayek’s understanding of the relationship between group selection and methodological individualism may have changed over time, further adding to the confusion. In his early writings invoking group selection, such as in Volume 1 of Law, Legislation, and Liberty, Hayek resolves the tension by arguing that group

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selection of social rules is useful to any given individual because the rules produced by evolution at the group level enable a given individual to better coordinate his purposes with other members of the same group (see, for instance, Hayek, 1972, pp. 17–18). Although Hayek also makes some suggestions that the rules that have survived the winnowing of the group selection process are better than those that have not, he seems less concerned with the optimality of the content of the overall rules, than with the fact that a system of rules will in fact evolve in a given society. In this sense, Hayek’s use of group selection in Volume 1 of Law, Legislation, and Liberty seems to be a sort of coordination game, with only a weak inference of optimality. In this model, there is clearly no real tension between methodological individualism and group selection – given some set of rules that govern the behavior of other individuals within the same social group, a given individual best accomplishes his own purposes by following the same set of rules. Following the same rules as other members of the society will best enable him to coordinate his affairs with other members of the society. In this sense, the social rules themselves become part of the exogenous “environment” within which the individual acts, just as the climate and presence of predators in a given society similarly create the relevant environment for natural selection. In this sense, Hayek’s argument was primarily concerned with proving the hypothesis that a set of rules could actually emerge that were exogenous to individual choice and amendment, even though they were initially constructed by individuals and appear at first to be under individual control to change. Thus, any individual can prosper by following the rules given to him by tradition within a given society, even if he does not understand the origin or purpose of those rules. What was Hayek attempting to accomplish through this demonstration that rules could emerge through the group selection process, while retaining a focus on the benefit to the individual from following those rules? I suspect that Hayek’s purpose was to respond to the criticisms to his articulation of the rule of law in The Constitution of Liberty. There (and less precisely in The Road To Serfdom), Hayek argued that the rule of law required that any coercion applied by the state to individuals must be according to rules articulated beforehand and applied consistently to all parties (Zywicki, 2003). “Freedom” was defined as the absence of arbitrary coercion by political actors. Hayek argued that compliance with the rule of law was both a necessary and sufficient condition for freedom to prevail. If all government application of coercion was structured and controlled by rules articulated beforehand and applied equally, then the members of that society were by definition, free. Thus, even if individuals were coerced by the state (through taxation, imprisonment, even conscripted for military service), they were still “free” if these restrictions were set out clearly ahead of time and applied rigorously.

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In Hayek’s account, however, the rule of law may be a necessary but not sufficient condition of a free society. Even though advance articulation and equal application of the law reduces the threat of arbitrary coercion, it does not eliminate it because the rules themselves are still created by men (Hamowy, 1961, 1978). Thus, even if it is possible to fully articulate the conditions for government coercion in advance, those conditions themselves may have improper distinctions built into them. Human actors (legislators and judges) must still choose the rules, therefore, the law itself can have human will built into it, thereby seemingly legitimating undue restrictions on freedom so long as they comport with the rule of law (Liggio, 1994; but see McDaniel, 2003). I believe that Hayek wrote Law, Legislation, and Liberty (from this point referred to as LLL) in response to this critique of his earlier articulation of the rule of law. Hayek’s goal in Volume 1 of LLL is to argue that it is fundamentally incorrect to believe that human decision-makers, whether legislators or judges, choose the rules that govern their society. The rules are “chosen” for them through the process of group selection. Thus, men simply articulate these pre-existing rules, they do not create them. This argument, if correct, provides Hayek’s key response to the Hamowy critique. If the rules themselves are not consciously chosen by political decision-makers, but rather the political decision-makers merely articulate the rules that are chosen through the group selection process, then it appears that Hayek has closed the loop on his argument regarding the rule of law. Tradition and group selection “choose” the rules, not transient political actors. To the extent that an individual is “coerced” into performing on a contract, or imprisoned for burglary, or prohibited from trespassing on another’s property, this coercion does not constitute an undue infringement on his freedom. For, by definition, “freedom” is defined as the absence of arbitrary coercion by another person. Here, it is not the legislator or judge who is coercing the wrongdoer, but the force of tradition and spontaneously-generated rules produced by the impersonal process of group selection. This explains Hayek’s repeated comparison between the legal system and the market system in LLL. Hayek suggests that it is a logical absurdity to say that a grain farmer is “coerced” when he has to sell his grain for a price lower than the price at which he would prefer to sell. Because prices are set by the impersonal process of the market, it cannot be said that any identifiable individual or individuals have “coerced” your in deciding the price at which you can sell your grain. If you can be said to be “coerced” at all, it is by the impersonal process of the market. In LLL, rules emerge in society in the same way that prices emerge in a market. Thus, just as it is nonsensical to say that the farmer is “coerced” by the market into selling his grain for an undesired price, it is equally nonsensical to say that your freedom is restricted when you are coerced by legal rules that have evolved

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spontaneously. To illustrate the point, it would be equally absurd to say that you are “coerced” into using the word “car” to communicate the idea of a car to someone else, rather than some other word you may prefer for the same idea, such as “gooblestopper.” Is your freedom restricted when you are required to use the term “car” to coordinate communication with others? No, Hayek suggests, because language is not invented by anyone and so no particular person is forbidding you from using “gooblestopper” instead of “car.” It is just that the word “car” has evolved to mean a certain thing, and if you use that term you can coordinate with others and accomplish your goals. If you do not use that term, you will be unsuccessful. Thus, when the rules that govern interactions – market prices, language, customs, legal rules – are generated by impersonal processes that are controlled by no one, then being forced to comply with those rules cannot be said to be an improper restraint on your freedom. With respect to the rule of law specifically, common law rules that develop spontaneously and are articulated by judges (not “created” by them) can thus be said to embody the rule of law. It is the rules that coerce, not individuals. And because the rules themselves emerge from the evolutionary group selection process and are not chosen by anyone, Hayek argues that it can be said that their application is consistent with the rule of law and freedom. At first glance, the emphasis on the common law process, the spontaneous development of law, and the centrality of common law judges in LLL seems to represent a repudiation of the argument in The Constitution of Liberty. There, the emphasis is on the idea of the Rechtsstaat and the discipline of the rule of law is aimed at legislatures rather than judges. As suggested by this argument, however, Hayek probably saw the argument of LLL as an elaboration of The Constitution of Liberty, not a repudiation, in that it explains how the rules exist independent of the will of individual law-makers. Thus, it is fully consistent to say that rules may be the result of human action (methodological individualism) but not human design (group selection). Put differently, Hayek’s thesis is that while individual reason and individual action are good for introducing variation in to a system of rules, individual reason and control is too limited to effectively shape the selection among rules or systems of rules. Individuals can choose and experiment with different individual rules within an ongoing spontaneous order, exerting choice over which rules are selected to prevail within the spontaneous order. The emergent properties of the system, however, result from the spontaneous interaction of all of these individually created rules, and thus are not designed by anyone. The spontaneously-generated system of rules, therefore, can be understood as having group selection properties independent of the particular attributes of the rules that comprise it. Because of the abstract and complex nature of the spontaneous order, individuals will generally be unable to

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know for certain which set of rules are optimal; it is only through competition among different systems of rules that we can discover which system is best. Like natural selection, selection among systems of rules is backward-looking, in that which set of rules is superior to alternatives can be determined only after the fact. On the other hand, Hayek is not wholly defeatist – experience, history, and anthropology can provide some insight as to the attributes of systems of rules that are most likely to prevail from this selection process. In this analysis, group selection operates to generate a set of rules that allow individuals to predict how others will likely act, and thereby to coordinate with them. To the extent that this is the function of group selection, there clearly is no conflict between group selection and methodological individualism (see also Richerson & Boyd, 2001 for a further discussion of related issues). As Hayek observes (Hayek, 1972, p. 44), “Society can thus exist only if by a process of selection rules have evolved which lead individuals to behave in a manner which makes social life possible.” He continues, “It should be remembered that for this purpose selection will operate as between societies of different types, that is, be guided by the properties of their respective orders, but that the properties supporting this order will be properties of the individuals, namely their propensity to obey certain rules of conduct on which the order of action of the group as a whole rests” (Emphasis added). This reading of group selection in LLL arising in response to the rule of law debate triggered by Constitution of Liberty is confirmed by its reduced importance in the next two volumes of LLL. A rough count finds that Hayek mentions the concept of group selection at least eight times in the text and several additional times in the footnotes in the first volume of LLL. Many of these discussions are quite extensive. There are far fewer references in the latter two volumes of the LLL trilogy and in Volume 3 of LLL (Hayek, 1979, p. 202, n. 37). Hayek observes that “the conception of group selection may now not appear as important as it had been thought after its introduction,” although he adds “there can be no doubt that it is of the greatest importance for cultural evolution.” Beginning with his 1983 lecture at the Hoover Institution, “The Origin and Effects of Our Morals: A Problem for Science” (Hayek, 1984), Hayek began to develop a larger focus on the role of group selection in human affairs. Recall that the emphasis on group selection in LLL may have been for the relatively limited purpose of placing his model of the rule of law on a firmer foundation, by showing that the rules existed independent of a particular individual’s will. Given this focus, there appears to have been no strong effort in LLL to try to claim optimality for these rules. In some sense, Hayek’s argument was limited to the observation that the common law provided a foundation for a free society grounded in the rule of law. To the extent that Hayek was making an argument about the

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optimality of the rules that emerge from the group selection process, those claims appear to have been fairly weak. By The Fatal Conceit, however, Hayek seems to be making stronger claims about the optimality of evolved rules and practices (Whitman, 1998). The Fatal Conceit frames the issue in a manner anticipated in the 1983 Hoover lecture and offers a different reconciliation of the tension between individual and group selection. As Whitman and I have both suggested, there seems to be little incongruity in treating a business firm as a “individual” for purposes of an evolutionary unit, even though a firm is actually a collection of individuals (Alchian, 1997 [1950]; Zywicki, 2000). Hayek offers a similar argument about the small-group hunter-gatherer societies in which humans lived for most of their evolution. Hayek sees most of the challenges facing these groups as being collective challenges against a harsh physical environment or warring tribe. To coordinate these small groups against ever-present threats, Hayek argues, it was natural that humans would evolve genetic traits that helped to build the solidarity of the small group internally and to oppose external threats. It is this instinctual desire for solidarity and intragroup commitment that remains with us today, motivating humans to aid one another to act altruistically toward one another. Like Whitman, Hayek suggests that there is no inherent tension between individual and group selection. Because we have evolved “instincts of solidarity and altruism” (Hayek, 1988, p. 12), Hayek implies that we ourselves gain happiness and utility from seeing other members of our group prosper. It is possible for small groups facing consistent threats to the group as a whole to develop a high degree of cooperation and agreement on group ends as well as the means to be used to accomplish those goals (Hayek, 1988, p. 19). In economic terms, human beings have interdependent utility functions, in the sense that they instinctively care about one another within their group. This seems to be the model discussed by Whitman. And, if Hayek’s hypothesis about the content of human nature is true, obviously there is no incongruity with the idea of group selection and methodological individualism being consistent with one another. On the other hand, while it thus appears that group selection is possible and consistent with methodological individualism, this simply leads to the next question of whether group selection is valid empirically as playing an important role in the evolution of human preferences and of human societies. Answering this question will require further explanation of why these instincts would have come into being in the first place and a deeper understanding the historical and anthropological contexts that could have created an evolutionary environment conducive to a role for group selection in human preference formation.

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ACKNOWLEDGMENT I would like to thank Eric McDaniel for helpful comments on an earlier draft of this essay and the Law & Economics Center at George Mason University School of Law for financial support.

REFERENCES Alchian, A. A. (1977[1950, June]). Uncertainty, evolution and economic theory. The Journal of Political Economy, 58(3), 15–36. Reprinted in Economic Forces at Work. Indianapolis, IN: Liberty Press. Dawkins, R. (1989). The selfish gene. New York: Oxford University Press. Hamowy, R. (1961). Hayek’s concept of freedom: A critique. New Individualist Review, 1, 28–31. Hamowy, R. (1978). Law and the liberal society: F. A. Hayek’s constitution of liberty. Journal of Libertarian Studies, 2, 287–297. Hayek, F. A. (1972). Law, legislation, and liberty: Vol. 1, rules and order. Chicago: University of Chicago Press. Hayek, F. A. (1979). Law, legislation, and liberty: Vol. 3, the political order of a free people. Chicago: University of Chicago Press. Hayek, F. A. (1984). The origins and effects of our morals: A problem for science. In: C. Nishiyama & K. R. Leube (Eds), The Essence of Hayek (pp. 318–330). Stanford, CA: Hoover Institution Press. Hayek, F. A. (1988). The fatal conceit: The errors of socialism. In: The Collected Works of F. A. Hayek & W. W. Bartley III (Eds). Chicago: University of Chicago Press. Liggio, L. (1994). Law and legislation in Hayek’s legal philosophy. Southwestern University Law Review, 23, 507–530. McDaniel, E. M. (2003). The philosophy of F. A. Hayek’s economics. Unpublished Manuscript, George Mason University School of Law. Richerson, P. J., & Boyd, R. (2001). The evolution of subjective commitment to groups: A tribal instincts hypothesis. In: R. M. Nesse (Ed.), Evolution and the Capacity for Commitment (pp. 186–220). New York: Sage. Shearmur, J. (1996). Hayek and after: Hayekian liberalism as a research programme. New York: Routledge. Sober, E., & Wilson, D. S. (1998). Unto others: The evolution and psychology of unselfish behavior. Cambridge, MA: Harvard University Press. Vanberg, V. (1986). Spontaneous market order and social rules: A critique of F. A. Hayek’s theory of cultural evolution. Economics and Philosophy, 2, 75–100. Whitman, D. G. (1998). Hayek contra pangloss on evolutionary systems. Constitutional Political Economy, 9, 45–66. Zywicki, T. J. (2000). Was Hayek right about group selection after all? Review Essay of Unto others: The evolution and psychology of unselfish behavior, by E. Sober & D. Sloan Wilson. Review of Austrian Economics, 13, 81–95. Zywicki, T. J. (2003). The rule of law, freedom, and prosperity. Supreme Court Economic Review, 10, 1–26. Chicago: University of Chicago Press.

LEVELS OF SELECTION AND METHODOLOGICAL INDIVIDUALISM Adam Gifford Jr. ABSTRACT Whitman argues that group selection is consistent with methodological individualism. He begins by defining a weak form of methodological individualism in which agents are not necessarily self-interested or rational and shows that this form is consistent with Sober and Wilson’s model of group selection. However, Sober and Wilson’s group selection is also consistent with a methodological individualism in which the individuals are rational and self-interested, and consistent with individual selection as well. A version of group selection similar to what Hayek may have had in mind when he talked about groups out-competing other groups is presented, however, this is not a version of group selection that is compatible with methodological individualism.

LEVELS OF SELECTION AND METHODOLOGICAL INDIVIDUALISM Whitman (2004) attempts to untangle the somewhat twisted relationship between group selection and methodological individualism. In part, this issue arises because of what some have argued is an inconsistency in the work of F. A. Hayek. In the great majority of Hayek’s writings his methodology is firmly individualist, but in his explanations of cultural evolution he at times invokes a group selection Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 279–295 Copyright © 2004 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07014-0

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process. In briefly reviewing the literature, Whitman reveals a consensus among both biologists and economists that methodological individualism and group selection are mutually incompatible. For example, Hayek’s seeming inconsistency led Vanberg (1986) to argue that group selection and methodological individualism are incompatible and that group selection should be rejected as a basis for cultural evolution. Hodgson (1991) agreed with Vanberg’s incompatibility argument, but disagreed with his negative view of the role of group selection in cultural evolution. Whitman asserts that group selection and methodological individualism form a mutually compatible basis for explaining cultural evolutionary processes and he presents a strong argument in support of that position. Whitman makes clear that methodological individualism does not preclude higher level organization within which individuals interact and which influences that interaction, it just requires that higher level “emergent properties of social systems . . . be explained by the actions and interactions of the individuals who take part in those systems” (Whitman, 2004, p. 228). He also argues that “. . . methodological individualism does not specify whether agent preferences will be selfish, altruistic, or something else entirely” (Whitman, 2004, p. 230). Furthermore, “. . . methodological individualism does not specify exactly how individuals make choices. They might be perfectly rational actors, boundedly rational actors, rule followers, or even automatons” (Whitman, 2004, p. 230). However, if methodological individualism is going to be usefully applied in the development of models that allow testable hypotheses, individuals in a world of scarce resources must be assumed to display some basic consistencies in their behavior. The usual assumptions in economics are that individuals are payoff-oriented and able to discover economical ways of acquiring various payoffs; that is, they are self-interested and rational – if only boundedly so. Altruism is consistent with this model if individuals value the payoffs of others. Of course, putting others’ payoffs into the utility function of the individual merely assumes altruistic behavior – it does not explain it. Since group selection’s claim to fame is that it can explain the existence of altruistic behavior, it would be a weak accomplishment indeed if it explained a behavior by assuming its existence. If we want to understand the relationship between methodological individualism, group selection, and altruistic behavior, we should start with selfish individuals who also express some systematic capability of achieving their goals when confronted by the various constraints that are the product of scarcity and with changes in those constraints. In the following, Whitman’s methodological individualism, which is shorn of any explicit assumptions about preferences or rationality, will be referred to as weak methodological individualism, and adding selfish agents who are also at least boundedly rational will be referred to as strong methodological individualism. These however, should be thought of as being mere definitions and not taken as a methodological

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argument for one set of assumptions over the other. It will be argued that the new group selection is not only consistent with strong methodological individualism but with individual selection as well. Moreover, there exists another version of group selection, one that is similar to what Hayek may have had in mind when he talked about groups out-competing other groups. This version is one in which groupings of organisms “. . . behave as an individual unit (as an organism) [themselves] . . .” (Sober & Wilson, 1998, p. 145), however it is one that is inconsistent with both strong and weak methodological individualism.

THE OLD AND THE NEW GROUP SELECTION When explaining the emergence of altruism in nature, evolutionary biologists from Darwin until the 1960s took it for granted that it was necessary to assume that the group is the proper unit of analysis and that the selection process takes place at the level of the group. Group selection was often used by biologists to explain cooperative, seemingly “unselfish” behaviors, and individual selection was then invoked to explain the vastly larger number of “selfish” traits of species. But in 1966 George C. Williams argued that a population of individuals that carried a gene that resulted in an unselfish reduction in their fitness by directly limiting their reproduction – or by engaging in any other costly behavior – for the good of the group, would be invaded and successfully out-competed by individuals with genes that led to selfish behavior, because the selfish individuals have a higher “fitness” than the altruists (where an individual with a higher “fitness” transmits more copies of its genes to the next generation than does its competitors). Selfish individuals have higher fitness than unselfish ones, and thus leave more offspring. Williams argued that altruism could not survive because selfish free-riders would come to dominate any population of altruists. The old group selection position, because it ignored the free-rider problem, fell before the logic of Williams’ argument, and initially individual selection carried the day. In the 1970s a new group selection that recognized and confronted the free-rider problem was developed, first by David Sloan Wilson and later by Wilson and Elliott Sober (see, Sober & Wilson, 1998; Wilson, 1975, 1997; Wilson & Sober, 1994). Proposed in 1975, Wilson’s trait group model still forms the basis of the argument for the new group selection position. Whitman does a good job of explaining both the difference between the old and the new group selection and the main features of Wilson’s trait group model. The trait group model, which is a major contribution to evolutionary biology, lays out the conditions under which altruistic behavior might evolve. Though Wilson’s model shows how the evolution of altruism is possible, the

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group selection debate has continued with biologist John Maynard Smith and others arguing that the new group selection is really just an example of individual selection. In his review of Sober and Wilson’s (from this point forward referred to as “S&W”) 1998 book, Maynard Smith stated: “I think the argument is largely semantic, and could not be settled by observation” (Maynard Smith, 1998, p. 639). In a discussion of this debate, the philosopher Samir Okasha agrees that the argument cannot be settled by observation, “[b]ut the inference from ‘no observations can decide the issue’ to ‘the issue is semantic’ seems to me a bit too fast . . . As all philosophers know, any two objects are similar in some respects but dissimilar in others. In devising concepts with which to describe the world, we must therefore select some similarity relations as salient, and ignore others” (Okasha, 2001, p. 34). I think the trait group model is best described as an individual selection model, whereas Okasha and Whitman come down on the other side of the issue. I believe that S&W (probably unintentionally) framed their argument in a way that misdirects attention from the similarity relations that place the trait group model in the individual selection camp. Ironically, Okasha in part agrees, but he still argues that the trait group model is a model of group selection. Part of Whitman’s purpose is to use methodological individualism and the new group selection to understand the process of cultural evolution. To aid in understanding the difficulties with such an exercise, consider the following quote from Hayek, taken from a passage discussing the different rules of conduct that groups may practice: “These rules of conduct have thus not developed as the recognized conditions for the achievement of a known purpose, but have evolved because the groups who practiced them were more successful and displaced others” (Hayek, 1973, p. 18). In other words, more successful groups have, in some sense, better norms, rules, and other components of culture that allow them to out-compete other groups. This view might be called a folk group selection form of cultural evolution for two reasons: (1) it is probably the type of answer that the average intelligent individual (with little exposure to the literature on evolution) would give when asked about cultural evolutionary processes; and (2) it does not provide, apart from positing the group as the unit of selection, much detail about the actual evolutionary process involved. There is a sense in which it may not be wrong, but it is incomplete – for example, by not specifying what comes next. Furthermore, S&W’s and Whitman’s description of what takes place next in the trait group model is not likely to spring to mind when one is asked about the details of such a process: next, the parents all die (in some cases) and the offspring disperse back into the general population, then they reform into new groups, and the whole process starts over again. Leaving aside the part about dying, the continual dispersing and reforming is not, in general, what seems to

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have taken place in the process of cultural evolution. Additionally, as we will see, even S&W give a somewhat confusing answer to the question of what comes next. The following sections will address the issue of what exactly is going on in the trait group model.

THE TRAIT GROUP MODEL: INDIVIDUAL OR GROUP SELECTION? There are several features of the trait group model that, considered together, suggest that the best description of what is going on is individual selection: (1) Although the trait group model explains the evolution of altruism, other characteristics or traits must in fact evolve along with altruism for the process to work; (2) S&W consistently use language such as the following to describe the problem with the evolution of altruism: “[b]ehaviors that seem to benefit others at the expense of self . . .” (S&W, 1998, p. 31), or an altruistic individual “. . . reduces its own fitness and augments the fitness of others” (S&W, 1998, p. 199). Statements of this sort provide a clue to the difficulties with the evolution of altruism and to the problem with S&W’s view of the group selection process: they focus on the individuals at a given moment in time and ignore the dynamic nature of the process over time. We might just as well say that credit markets operate to the detriment of lenders since by lending they reduce their own wealth and enhance that of the borrower. Here we ignore that fact that the borrower must pay back the loan with interest in the future.1 Although biological evolutionary processes are blind, they play out over time and can produce, for example, what economists would call a mutually beneficial non-simultaneous exchange – even though the agents involved are not aware of the long-term implications of their behavior; and (3) The trait group model claims to be a model in which groups are selected, that is, one that allows for levels of selection above that of the individual to operate, in a process that is similar to, but at a higher level, than individual selection. However, the common currency payoff of this higher level process in the new group selection is not that successful groups leave more offspring groups to the next generation than less successful groups, but rather that individuals in successful groups leave more offspring individuals to the next generation. These points will be discussed in order. The dispersal and regrouping is a necessary feature of the new group selection: otherwise, selfish individuals who have a higher fitness in each group will eventually dominate in the group. Whitman makes this point clear (Whitman, 2004), as do S&W, and it is important because it is a necessary trait of the individuals involved, a behavior of the individual agents, not the group.

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Moreover, even though Whitman argues that the regrouping process can be “through chance” (Whitman, 2004), if the groups are small enough, this is unlikely to be the case. “If the groupings are formed at random, then altruism is eventually eliminated . . .” (Okasha, 2001, p. 30). Even with small groups, as the dispersal and regrouping plays out through time, the result will be the same as for the large group case and the selfish trait will dominate. Given assumptions consistent with those of the trait group model Bergstrom (2002, 2003) establishes this result. Whitman supports his conjecture by arguing that “[r]andom mating will result in some fraction of two-altruist pairs” (Whitman, 2004, p. 235). The problem with this is that the mating pair isn’t the relevant group: the relevant group is the sibling group that results from the mating, or the parent-sibling group, neither of which is random. If both of the parents are altruistic, then the resultant sibling group of altruists is not a product of randomness. In fact, in the trait group model the grouping process is referred to as assortative: “. . . there is a statistical tendency for altruists to find themselves grouped with other altruists . . .” (Okasha, 2001, p. 30). In the trait group model the fitness of the individual depends on the characteristics of the group it is in, and the fact that altruists are more likely to assort with other altruists allows altruism to evolve as an emergent property, but this can be explained entirely by the traits or behavior of the individuals and their interactions. The traits that lead to this result are altruism itself, dispersal and regrouping, and assortative behavior.2 Once in a given group, an individual altruist may or may not discriminate between altruists and non altruists in its behavior, but because of the discrimination that occurred in the regrouping processes itself, its own altruistic behavior is likely to be reciprocated by other altruists in the group. When these traits are considered together, it is not the case that over time the altruist “. . . reduces its own fitness and augments the fitness of others” (S&W, 1998, p. 199). Statistically, altruists, by assortative grouping with other altruists, followed by cooperating with members of that group, end up with a higher fitness level then non-altruists in the total population because of the increased likelihood that they will be on the receiving end of benefits provided by other altruists. Whitman suggests that a critic might object to group selection because “. . . individual incentives are being ignored” (Whitman, 2004, p. 235). But in the new group selection incentives aren’t ignored; altruism is clearly in the self-interest of the individual. Given the multi-trait aspect of the trait group model, the individual is not ignoring incentives; rather, it is in the interest of the individual to cooperate, to provide a benefit to another even though it does not necessarily receive an immediate benefit in return. It is in the interest of the individual to be altruistic because it is then likely to end up in a group with a high proportion

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of other altruists from whom it receives benefits, whereas non-altruists are much less likely to end up in a group with a high proportion of altruists. Despite the language used, these statements should not be taken anthropomorphically or taken to imply teleology – the processes are blind and non-intentional. The trait group model suggests that, starting with a population of selfish non-cooperators, a mutation resulting in “altruistic” cooperators could evolve to the point where the “altruistic” trait dominates the population. That is, the trait group model coupled with strong methodological individualism can lead to the evolution of altruism, but it is an individual selection model with group level emergent properties.

Assortative Processes How do the subsequent generations of altruists come together with other altruistic individuals? There are several ways in which assortative behavior can bring together groups with proportions of altruists large enough to enable altruism to evolve. With sexual reproduction, for example, random mating of pairs of adults that gives rise to “isolated sibling groups” can result in the evolution of altruism if altruism is a dominant trait and the benefit conferred by altruistic behavior is sufficiently large relative to the cost (see S&W, 1998, p. 63). A second alternative is that the grouping of altruists results from altruists being able to identify other altruists. This identification process can be the result of a tit-for-tat strategy in which an altruistic player makes an initial investment in identifying other altruists by first grouping randomly, behaving cooperatively on the first encounter, and then subsequently cooperating only with other altruists identified by their past behavior. Or the altruistic trait may result in its carriers possessing a secondary, identifying trait – Dawkins (1989, p. 89) calls this the green beard effect.3 These two paragraphs have respectively described William Hamilton’s (1964) model of kin selection, or inclusive fitness, and Robert Trivers’ (1971) model of reciprocal altruism, coupled with the tit-for-tat strategy for repeated games that came out of Robert Axelrod’s (1984) computer tournaments. Interestingly, though S&W (1998) argue that kin selection and reciprocal altruism are examples of group selection, Hamilton and Trivers both argued that their models showed how individual selection can lead to the evolution of altruism. In the kin selection model, an individual may make sacrifices that benefit another if the following inequality holds: Br > C, where B is the benefit to the other individual, r is the average degree of relatedness between the two individuals, and C is the cost to the individual performing the altruistic act. As an example:

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for sexually produced siblings, where r = 0.5, an individual will perform an altruistic act that yields a benefit to a sibling or siblings that exceeds twice the cost it bears in performing that act. This, of course, is purely selfish behavior from a gene perspective. Reciprocal altruism coupled with tit-for-tat strategies involves a group of individuals in long-term relationships where sacrifices made to benefit another individual today will be more than made up for by reciprocal sacrifices in the future. A key requirement for this strategy to work is that the players have sufficient brain power to remember the past performance of the other players. Consequently, tit-for-tat can be considered a reputation model, where individuals cooperate with those who have cooperated with them in the past – once again, showing a self-interested behavior leading to apparently altruistic acts because, for the individual, the benefits exceed the costs. Both of these models have assortative grouping. In the sib group case, siblings are paired with siblings so that an altruistic act will enhance the benefactor’s fitness since its sibling carries copies of its genes. Reciprocal altruism supported by tit-for-tat results in individuals who refuse to cooperate with non-altruists after once being burned. Economists recognize that individuals cooperate within groups such as the firm or the state – and that individual actions within a group are profoundly influenced by the nature and structure of that group – without giving up strong methodological individualism. That these models were developed to show that individual selection can result in the evolution of altruism is part of the reason behind Maynard Smith’s assertion that the new group selection debate is over “semantic” issues, not facts about the world. “Sober and Wilson have simply chosen to use the expression ‘group selection’ in a non-standard and highly misleading way, he [i.e. Maynard Smith] claims; so their departure from orthodoxy is purely terminological” (Okasha, 2001, p. 34). [T]here is no overriding reason to re-describe either kin selection or evolutionary game theory [reciprocal altruism] within the framework of intra-demic selection,4 as Sober and Wilson admit; but this does not alter the fact that such re-description is possible. However, the claim that intra-demic selection is itself a type of group selection is controversial, and it is here that the majority of evolutionary biologists would quarrel with Sober and Wilson’s reasoning (Okasha, 2001, p. 34).

Recall that, in the trait group model, individuals are members of a group for only a fraction of their lifespan. According to S&W, the individuals that come together in reciprocal altruism, even if for a brief moment, form a group. Once we go beyond the individual organism interests are never perfectly aligned and fate never perfectly shared. S&W recognize this problem and to try

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to get around it they introduce the concept of secondary altruistic behaviors. But these so-called secondary behaviors, such as the punishment of free-riders along with the assortative regrouping process, are mechanisms designed to align the interests of the individuals involved; additionally, these secondary behaviors are traits of the individuals. In economic terms these behaviors are actions taken to enforce and facilitate agreements, actions taken to reduce shirking, opportunism, the principal-agent problem, adverse selection, and other problems associated with non-simultaneous exchange. By calling these features secondary, S&W seem to imply that they are simply add-ons, when in fact they are necessary for the evolution of altruism, and thus should be considered primary features. Interestingly, models with these “secondary” altruistic behaviors can be remarkably similar to those used by economists. Reeve and Keller (1997), for example, essentially reinvent the Coase theorem and throw in some features from the “Nature of the Firm.” They start with a kin selection model and add reproductive bribing that they show, not surprisingly, can increase cooperation in the face of externality-generating selfish behavior when transactions costs are suitably low.5 Other new group selection models, for example, see Wilson and Dugatkin’s (1997), like Trivers’ original reciprocal altruism model, can be construed as reputation models of assortative behavior.6 Under the right circumstances evolution can facilitate cooperative behavior among individuals in groups, cooperative behavior that increases the relative fitness of the group members. Is this group selection or individual selection? When cooperation succeeds and that cooperation increases the fitness of individual group members, S&W assert that selection is taking place at the level of the group. But they recognize that self-interest tends to undermine cooperation, requiring mechanisms to suppress free-riders. Finally, “[m]ultilevel selection approaches as exemplified by trait-group selection models are not fundamentally different from ‘classical’ individual selection approaches as represented by generalized inclusive fitness models. It is possible in every instance to translate from one approach to the other without disturbing the mathematics describing the net results of selection” (Reeve & Keller, 1997, pp. S42–S43). Economists use models similar to the ones discussed to explain how cooperation among self-interested individuals is possible. It seems likely that Sober and Wilson would describe the lender-borrower relationship as an example of group selection, where lenders assort by checking the credit rating of borrowers and demanding collateral. Economists produce models of individuals interacting in groups with much of this interaction involving non-simultaneous exchange, and they do so without giving up the assumption of strong methodological individualism or arguing that group selection is taking place.

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Levels of Selection Sober & Wilson view selection as operating on different levels and argue that group selection is possible when the selective forces at higher levels are strong. They propose a simple three-step program. Step 1: Determine What Would Evolve if Group Selection Were the Only Evolutionary Force. In this case, traits will evolve that maximize the fitness of groups relative to other groups . . . Step 2: Determine What Would Evolve if Individual Selection Were the Only Evolutionary Force. In this case, traits will evolve that maximize the fitness of individuals, relative to other individuals in the same group . . . Step 3: Examine the Basic Ingredients of Natural Selection at Each Level. The process of natural selection requires three basic ingredients: (a) phenotypic variation among units; (b) heritability; and (c) differences in survival and reproduction that correlate with the phenotypic differences. To determine the balance between levels of selection, we need to examine these ingredients at each level (S&W, 1998, pp. 103–105).

But what is really going on is that emergent properties at the level of the group are important in the trait group model, and these properties can be explained by the behavior of the individuals involved and their interactions. This brings us to another part of the new group selection debate: the question of what is meant by levels of selection. The debate between S&W and Maynard Smith took place in two stages, as reviewed by Okasha (2001). Natural selection at a given level requires that entities at that level vary with respect to a given trait, that the trait be heritable – passed from parent to offspring – and that the trait influence the entity’s fitness. If the trait increases an individual’s fitness relative to other individuals, individual selection requires that the individual organism possessing the trait leave more offspring individuals then other individuals, and in group selection where the entity is a group, Maynard Smith (1987) argues that a group possessing the trait must leave more offspring groups then other groups. “For group selection to occur, Maynard Smith reasoned, we need groups of organisms that exhibit heritable variation in fitness” (Okasha, 2001, p. 35). This is consistent with the view expressed by S&W in the extended quote above, but as we have seen, it is not what actually occurs in the trait group model. In the trait group model, the fitness of the individual does depend upon group level emergent properties, but the common currency of the process is individual offspring. S&W’s group selection model “introduce[s] a curious asymmetry: individual selection requires individual-level heritability, but group selection does not require group-level heritability . . .” (Okasha, 2001, p. 36). In their book, S&W (1998) argue that the trait group model is consistent with group level heritability, but even Okasha, who supports the position the trait group model is group selection, asserts that “. . . I do not think Sober and Wilson’s overall position is defensible” (Okasha, 2001, p. 40).7

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So why does Okasha claim that the trait group model of intra-demic selection is group selection, “. . . given that the operative notion of group fitness in the intrademic selection model is average propensity to leave individual offspring, rather than the propensity to leave offspring groups” (Okasha, 2001, p. 43)? It is because of the often overlooked fact that the old group selection that “. . . involve[ed] extinction and colonization still measure[ed] a group’s fitness by the number of individual offspring its members leave . . .” (Okasha, 2001, p. 43), just as is true of the new group selection and not by the number of offspring groups it leaves. In other words, the common currency of success in both the old and the new group selection is the propensity to leave more offspring individual organisms, not more offspring groups.8 The importance of group-level effects and the use of the same measure of fitness in both the new and the old group selection leads Okasha to assert that intra-demic selection is group selection, because of the “similarity relations” they share. However, it is important to remember what “similarity relations” they don’t share. Mainly, the new group selection posits mechanisms to control free-riders, mechanisms that are absent in the old group selection. And since these mechanisms are expressed as traits of individuals, even though group level effects are important in the new group selection it is best described as individual selection in which emergent higher level properties play an important role. For the same reasons, the new group selection is consistent with strong methodological individualism. What about a version of group selection that S&W envision but don’t produce, one in which individuals stay in groups that are long-lived, groups beget groups, fitness is measured by the number of offspring groups and groups each “. . . behave as an individual unit (as an organism) . . .” (S&W, 1998, p. 145)? Since, this version of group selection would still have to deal with the free-rider problem, its actual existence is an empirical question and not a semantic one.9 At this level of description we have folk group selection, and I believe it is something like what Hayek, Vanberg, and Hodges have in mind when they discuss group selection. Furthermore, since in this folk group selection the unit of analysis is the group, I believe (as is also maintained by Vanberg & Hodges) that it is not consistent with either strong or weak methodological individualism. The various models of intra-demic selection allow for the effects of higher level emergent properties, but these can all be explained by the interactions of the agents involved and the traits of those agents. Additionally, the payoffs of the group level effects accrue to the individuals involved, not to groups, as heritability is an individual level feature. “When they [S&W] talk about the ‘differential fitness of groups’ as a prerequisite for group selection, they do not mean groups which differ in the number of offspring groups they are expected to leave, but rather groups which differ in the average number of individual offspring their members

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are expected to leave” (Okasha, 2001, p. 41). The trait group model of intra-demic selection is revealed to be similar to various economic models of cooperation in which the payoffs to the individuals depend in part on the higher level structures in which the cooperation takes place. Payoffs in the firm, the market economy, the common law, all depend on higher level properties – but we still take the individual as the unit of analysis and assume the strong version of methodological individualism.

CULTURAL EVOLUTION As is pointed out by Whitman, methodological individualism technically is applicable only in the case of cultural evolution. Is it possible that S&W’s discussion of cultural evolution is consistent with a group heritability version of group selection, a discussion more in line with our folk notions of what group selection must be like, even if the trait group model is not? The sections in their book on cultural evolution, like the others, contain some misleading and confusing discussion. In their review of social norms in 25 randomly selected cultures, S&W state that “[d]espite the powerful social norms that exist in most cultures our survey makes it clear that individuals do attempt to violate norms for their own advantage . . .” (S&W, 1998, p. 168). Violation of norms, and free-riding in general, is subject to retaliation by others, either by the refusal to cooperate with the free-rider in the future or by punishment, as is standard in individual selection models. In citing studies by Christopher Boehm, who has “. . . surveyed hundreds of egalitarian band-level and tribal societies” (Boehm, 1999, p. 6), studies that have since been consolidated in Boehm (1999), S&W stress the egalitarian ethic of these small band-level societies. But this egalitarianism is political, not economic, involving equal opportunities not equal outcomes, and it was maintained at a high enforcement cost. Adult band members used elaborate mental accounts and active monitoring of other band members to maintain their egalitarian social structure.10 Social control involves far more than an outraged group’s suddenly deciding to employ dramatic sanctions. In any small group anywhere, people keep track of one another’s behavior and try to read underlying motives. Types of deviance that all human groups watch for, gossip about, and react to, include murder within the group, heavily self-interested verbal deception, theft, and stinginess or failure to cooperate when this is appropriate. On the positive side, foragers talk about generosity, cooperativeness, honesty, and other prosocial behaviors that involve good will. In effect the band keeps a dossier on every individual, noting positive and negative points (Boehm, 1999, p. 73).

The bands, did however employ dramatic sanctions, sanctions ranging from coolness of behavior toward those who violate social norms to ridicule, shunning,

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ostracism, and execution. To the extent that the bands had formal or informal leaders, those leaders were individuals who had a great deal of knowledge and wisdom, were good at dealing with people, and were persuasive speakers, but not boastful, arrogant or overbearing (see Boehm, 1999, p. 69). Robert Kelly (1995), who has examined over a hundred hunter-gatherer societies, states: The term egalitarian does not mean that all members have the same amount of goods, food, prestige, or authority. Egalitarian societies are not those in which everyone is equal, or in which everyone has equal amounts of material goods, but those in which everyone has equal access to food, to the technology needed to acquire resources, and to the paths leading to prestige. The critical element of egalitarianism, then is individual autonomy (Kelly, 1995, p. 296).

Sober and Wilson’s discussion of meat sharing is also misleading. Referring to the meat sharing and secondary behaviors that induce that sharing, they say that, “[b]y causing another individual to perform an altruistic primary behavior such as hunting and sharing, the secondary behavior increases the fitness of the entire group” (S&W, 1998, p. 143). They argue, further, that the facts of this behavior “. . . don’t fit comfortably within the framework of individual selection theory” (S&W, 1998, p. 143). In fact, nothing unique is occurring in these hunter-gatherer societies, as Kelly notes in his observation that “[s]tudents new to anthropology . . . are often disappointed to learn that these acts of sharing come no more naturally to hunter-gatherers than to members of industrial societies . . . Sharing . . . strains relations between people” (Kelly, 1995, pp. 164–165). Although other food resources are occasionally shared in various circumstances (e.g. when food is very scarce or some band members are down on their luck), the meat of large game is always shared (Kelly, 1995, p. 165). There are significant variations in the daily returns to hunting in the hunter-gatherer environment, and where food storage is not an alternative, meat-sharing represents an efficient way of reducing the variance in access to meat facing any one family. In the absence of adequate storage technology, a successful hunter faced rapidly diminishing short-run marginal value with the large quantities of meat yielded by large game. Meat-sharing was a form of insurance that allowed hunters who were successful on a given hunt to trade lower valued excess meat for claims to high valued meat in the future when their hunting was not successful. Unlike what S&W seem to suggest – that secondary behaviors forced some group members to hunt and then share with the rest – all adult males hunted and meat sharing was simply extended reciprocity, enforced by various sanctions, which lowered the variance of access to high valued resources to all members of the band. What is actually occurring in these hunter-gatherer bands is extended reciprocity coupled with the natural desire for individual autonomy. That this could be achieved in stateless societies was, in part, a function of the relatively small size of the bands. Hunter-gatherer

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bands contained around 25 members, a number that facilitated voluntary solutions to various externality problems because transactions costs were low.11 In other words, nothing is occurring in these bands that is inconsistent with individual selection and strong methodological individualism. S&W, in their discussion of the payoffs in the process of cultural group selection, refer to examples of the “replacement of ‘weak lineages by strong lineages’ either by warfare or sheer economic superiority . . .” (S&W, 1998, p. 173). They also present an extended discussion of the displacement of the Dinka tribe by the neighboring Nuer, both of which were African pastoral societies. Warfare was the primary means of this replacement of the Dinka by the Nuer, and the Nuer were successful because they had superior warriors who were “known for their discipline, bravery, and ability to withstand heavy casualties in battle” (S&W, 1998, p. 189). In discussing these examples, S&W, present no new formal model and no evidence, aside from the mention of warfare, where one group merely replaces another group, about whether these examples are generally consistent with a group selection where group level fitness is the common currency. A major problem here is that we have no good theory of cultural evolution that we can use to interpret statements like S&W’s “replacement of ‘weak lineages by strong lineages’ either by warfare or sheer economic superiority . . .” (S&W, 1998, p. 173) or the displacement of the Dinka by the Nuer. A problem with cultural evolution is that the various components of culture are very different from each other and are often selected and transmitted in very different ways. Innovations such as agriculture can be transmitted from group to group without the replacement of the individuals involved. The same can be said for economic goods, cultural norms, religion, systems of government, technology and science. The mechanisms of cultural evolution are many and varied, with warfare and other forms of apparent replacement representing only part of the story, and even in these cases most of the individuals involved are not actually replaced. Given that culture seems to consist of many disparate things and processes, there does not seem to be a single simple fundamental unit of culture that serves as both a replicator and a unit of selection. Furthermore, some components of culture seem to evolve without conscious awareness, following Hayek (1960), whereas others may be consciously chosen. With these points in mind, we might better describe the process as cultural evolutions – consisting of more than one fundamental evolutionary process.

CONCLUSION The trait group model represents an important contribution to our understanding of the evolution of altruism because of its careful consideration of both the role of

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higher level organization as the environment that influences the evolutionary fate of individual members of the group and the necessity of controlling free-riding. However, should we think of group selection and group level emergent properties as the same process? Sober and Wilson and Whitman argue that we should. But in S&W’s model the outcomes can all be explained by traits of individuals and, moreover, fitness is measured in terms of the offspring of individuals. This version of group selection is actually consistent with individual selection and a methodological individualism in which individuals are rational and self-interested. In their general discussions of higher level selection and cultural evolution, S&W suggest that group selection involves group level heritable traits that vary among groups and effect group fitness, with group level reproduction in which groups reproduce by sending out offspring groups. This is a version of group selection in which groupings of organisms are long-lived, “. . . behave as an individual unit (as an organism) . . ..” (S&W, 1998, p. 145) themselves, have group level traits not explained by the traits of the individual organisms, and where fitness is measured by the number of offspring groups that each group produces. This version of group selection is more consistent with what Hayek had in mind when he talked about groups out-competing other groups, but it is not a version of group selection that is compatible with methodological individualism. Importantly, this isn’t what goes on in intra-demic selection models, where traits are properties of individual organisms and fitness is measured by the number of offspring individuals those organisms produce. By choosing the S&W version as his model of group selection, Whitman chose a version that was consistent not just with his weak notion of methodological individualism, but also with a methodological individualism that includes rational and self-interested individuals.

NOTES 1. See Gifford (2000). 2. Assortative behavior, which functions to exclude non-altruists from the group, can be augmented or replaced with behavior that imposes costs on non-altruists and that tends to induce a switch in their behavior. However, some additional trait is necessary for altruism to evolve. 3. A green beard effect has been found in polygyn (multiple queen) colonies of fire ants. The green beard takes the form of a genetic effect resulting in a queen carrying a recognizable odor that allows the workers to separate kin from non-kin. See Keller and Ross (1998). 4. The trait group and other similar models are sometimes called models of intra-demic selection because they involve the selection of the characteristics of individuals in subpopulations or demes.

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5. Reeve and Keller do not use the economic terminology: externalities and transactions costs. 6. See Gifford (2000). 7. In part this is because the parent groups break up and the next generation of individuals reform into new (offspring) groups. Assume, as do S&W (1998, p. 111), that group parenthood is defined as a group contributing at least some members to an offspring group. Since the assorting process is not perfect, it is possible that every previous generation group contributes some individuals to each next generation group, so that each parent group is a parent of each offspring group, making the fitness of each parent group equal and rendering the notion of group level fitness meaningless. See Okasha (2001, pp. 41–42). 8. For an early source of this insight, see Arnold and Fristrup (1984). 9. This version of group selection may explain why “. . . genes are found on chromosomes, chromosomes in cells, cells in tissues, tissues in organs, [and] organs in organisms . . .” (Okasha, 2003, p. 350). 10. On the other hand, it is very likely that nonhuman cooperation among non-kin is associated with direct reciprocity supported by simple one-on-one mental accounts stored in implicit memory systems that are not accessible to conscious introspection and that generate motivational drives. 11. See Gifford (2002) for an extended discussion of this issue.

REFERENCES Arnold, A. J., & Fristrup, K. (1984). The theory of evolution by natural selection: A hierarchical expansion. In: R. N. Brandon & R. M. Burian (Eds), Genes, Organisms, Populations: Controversies over the Units of Selection (pp. 292–319). Cambridge, MA: MIT Press. Axelrod, R. (1984). The evolution of cooperation. New York: Basic Books. Bergstrom, T. C. (2002). Evolution of social behavior: Individual and group selection. Journal of Economic Perspective, 16, 67–88. Bergstrom, T. C. (2003). Group selection and randomness, reply. Journal of Economic Perspective, 17, 211–212. Boehm, C. (1999). Hierarchy in the forest: The evolution of egalitarian behavior. Cambridge, MA: Harvard University Press. Dawkins, R. (1989). The selfish gene (new edition). Oxford: Oxford University Press. Gifford, A., Jr. (2000). The bioeconomics of cooperation. Journal of Bioeconomics, 2, 153–168. Gifford, A., Jr. (2002). The evolution of the social contract. Constitutional Political Economy, 13, 361–379. Hamilton, W. D. (1964). The genetical evolution of social behavior. I. II. Journal of Theoretical Biology, 7, 1–16, 17–52. Hayek, F. A. (1973). Law, legislation and liberty: Vol. I, Rules and Order. Chicago: University of Chicago Press. Hodgson, G. M. (1991). Hayek’s theory of cultural evolution: An evaluation in light of Vanberg’s critique. Economics and Philosophy, 7, 67–82. Keller, L., & Ross, K. G. (1998). Selfish genes: A green beard in the red fire ant. Nature, 394, 573–575. Kelly, R. L. (1995). The foraging spectrum. Washington, DC: Smithsonian Institution Press.

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Maynard Smith, J. (1987). How to model evolution. In: J. Dupre (Ed.), The Latest on the Best: Essays on Evolution and Optimality (pp. 119–131). Cambridge, MA: MIT Press. Maynard Smith, J. (1998). The origin of altruism. Nature, 393, 639–640. Okasha, S. (2001). Why won’t the group selection controversy go away? British Journal for the Philosophy of Science, 51, 25–50. Okasha, S. (2003). Recent work on the levels of selection problem. Human Nature Review, 3, 349–356. Reeve, H. K., & Keller, L. (1997). Reproductive bribing and policing as evolutionary mechanisms for suppression of within-group selfishness. The American Naturalist, 150, S42–S58. Sober, E., & Wilson, D. S. (1998). Unto others: The evolution and psychology of unselfish behavior. Cambridge, MA: Harvard University Press. Trivers, R. L. (1971). The evolution of reciprocal altruism. Quarterly Review of Biology, 46, 35–57. Vanberg, V. (1986). Spontaneous market order and social rules: A critical examination of F. A. Hayek’s theory of cultural evolution. Economics and Philosophy, 2, 75–100. Whitman, D. G. (2004). Group selection and methodological individualism: Compatible and complementary. Advances in Austrian Economics, 7, 221–249. Williams, G. C. (1966). Adaptation and natural selection: A critique of some current evolutionary thought. Princeton: Princeton University Press. Wilson, D. S. (1975). A general theory of group selection. Proceedings of the National Academy of Sciences, 72, 143–146. Wilson, D. S. (1997). Introduction: Multilevel selection theory comes of age. The American Naturalist, 150, S1–S4. Wilson, D. S., & Dugatkin, L. A. (1997). Group selection and assortative interactions. The American Naturalist, 149, 337–351. Wilson, D. S., & Sober, E. (1994). Reintroducing group selection to the human behavioral sciences. Behavioral and Brain Sciences, 17, 585–608.

GROUP SELECTION AND METHODOLOGICAL INDIVIDUALISM: REPLY TO COMMENTS Douglas Glen Whitman I thank all of the discussants for their comments, which have helped me to sharpen my understanding of the issues. With a few caveats, all the discussants appear to agree with my central thesis: that methodological individualism (MI) and some form of group selection (GS) are compatible. Here, I will focus on those aspects of their comments I found most provocative – in either the positive or negative sense of that term.

1. RESPONSE TO LANGLOIS Langlois agrees with my position – or perhaps I should say, given the order of our publications, that I agree with his. I accept his taxonomy of methodological positions and agree that position two is correct. Langlois also makes an important observation about Hayek’s theory of cultural evolution: that excessive, not insufficient, group solidarity often poses the greatest threat to the emergence of beneficial institutions like property rights and markets. In order for an open society to emerge, Hayek argues, cultural evolution must overcome certain instincts built up by humans’ prior evolution (both biological and cultural). Interestingly, those instincts may have resulted, in part, from Evolutionary Psychology and Economic Theory Advances in Austrian Economics, Volume 7, 297–304 © 2004 Published by Elsevier Ltd. ISSN: 1529-2134/doi:10.1016/S1529-2134(04)07015-2

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GS. It is probably an overstatement, however, to say that the actual conflict is “exactly opposite to that envisioned by biologists” (Langlois, 2004, p. 263). The institutions of the open society also require some level of individual sacrifice for group benefit. The institution of private property, for instance, requires that individuals sometimes forgo an opportunity to help themselves to the fruit of others’ labor, even though doing so would benefit the taker. The imposition of sanctions on violators might also require some amount of sacrifice – e.g. forgoing trade with someone who has been ostracized. Thus, Hayek’s theory does not really rely on the weakening of GS relative to individual selection, but rather the replacement of old group-beneficial norms with new group-beneficial norms by means of GS.

2. RESPONSE TO ZYWICKI Zywicki also appears to agree with me in most respects. However, two of his statements give me pause:
“As Whitman observes, the argument between group selection and methodological individualism in the social sciences mirrors in many ways the argument between group selection and individual selection in biological and cultural evolution” (Zywicki, 2004, p. 268).
“Note, however, that it may be difficult to meet these conditions [for GS to work] in practice, precisely because the forces identified by the methodological individualism model are so powerful” (Ibid. p. 271). Both of these statements point to a tension between MI and GS – not a logical tension, but an empirical one. If I read him correctly, Zywicki’s view is that MI applies in some circumstances and GS applies in others, much as (for example) a competitive model applies in some markets and a monopoly model in others. And to extend the analogy, there exist circumstances where both MI forces and GS forces are at work, just as there exist markets where both competitive and monopolistic forces are at work. Thus, he resolves the alleged logical contradiction between MI and GS by transforming it into an empirical one. That is not, however, the way I attempt to resolve the contradiction. I do not treat MI and GS as competing models; indeed, MI is not a model at all, but a methodological condition that models must satisfy. I argue that GS does satisfy that condition, once MI and GS are understood properly. My argument relies, in part, on distinguishing between MI and individual-level selection (IS); note that Zywicki’s first quotation above appears to equate the two. To see why they are different, suppose we wish to model a human society that includes some individuals

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with altruistic preferences. MI requires that our predicted social outcomes result from the choices of its members, including the altruists. That alone is enough to satisfy MI. We might also choose as modelers to recognize the existence of an IS mechanism that disadvantages the altruistic members of the society, possibly reducing their representation in future generations. That might be a sensible thing to include in our model (depending on the environment the society faces), but it would not be required by MI. In short, MI is not equivalent to the notion that less “fit” individuals will be weeded out of the population. I may have misconstrued Zywicki’s position, but I hope the clarification above will still prove helpful. I also want to thank Zywicki for drawing my attention to a statement from Hayek (1972, p. 44) that I had not noticed before, and that indicates Hayek’s understanding of the issues involved was even better than I had thought. It addresses the relationship between MI and GS more directly than any other statement by Hayek (that I know of), and it is perfectly consistent with my own position.

3. RESPONSE TO GIFFORD Gifford agrees with my position that the new GS (that is, the trait-group model) is consistent with MI. His critique is that the new GS is not really GS. For those who agree with Gifford’s position, the moral of my original article could be restated thus: “The trait-group model of selection, which has sometimes been misleadingly characterized as group selection, is consistent with methodological individualism.” However, I think there is justification for considering the trait-group model a form of GS. The issue here is not merely semantic, because, as Okasha says, “In devising concepts with which to describe the world, we must therefore select some similarity relations as salient, and ignore others” (Okasha, 2001, cited in Gifford, 2004, p. 282). To put it another way, some definitions gloss over relevant or useful distinctions, whereas other definitions highlight them. In the case of GS versus IS, there does exist a way to conceptualize the difference between them so as to rule out GS from the get-go. Here is how: define IS as any process by which some traits increase in frequency relative to other traits in a population over time, where frequency is measured as the fraction of individual organisms with the trait. That, in essence, is what Gifford does when he refers to individual offspring as the “common currency” of success and regards this as evidence of an IS process. But defining IS in this way elides an important distinction between two different reasons a trait might prosper relative to other traits. Is it more fit

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because it enhances the ability of an individual organism to produce offspring relative to other individuals in the same group, or because it enhances the ability of the members of a group to produce offspring relative to members of other groups? For the evolutionary theorist to ignore this distinction would be as misleading as for an economist to ignore the difference between private goods and public goods. Gifford cites two articles by Bergstrom (2002, 2003), which show that if intra-group interactions have the form of a prisoner’s dilemma, some kind of assortative grouping is necessary for an altruistic (cooperative) trait to prevail over a selfish (defecting) trait. In this context, “assortative” means that any given cooperator has a greater chance of being grouped with cooperators than does a defector, which could not be the case if the grouping process were purely random. Thus, I was incorrect to say that, for small enough group size, chance alone would produce sufficient variation among groups to allow the survival of altruism.1 One might conclude that assortative grouping is a necessary condition for GS. That conclusion is unwarranted, as two cases argue otherwise. First, there are situations in which intra-group interaction is not a prisoners’ dilemma, but wherein IS alone would nonetheless eliminate the group-beneficial trait. Suppose some trait creates a reproductive benefit for each group member of B, and a cost to the individual organism of C, with B > C. There is no prisoners’ dilemma, since having the trait increases the organism’s absolute fitness. But the trait would vanish from the group over time, because it creates a greater relative fitness for the other group members who do not incur the cost (Bergstrom, 2002, p. 76). Yet if groups were embedded in a process in which groups periodically dispersed into the general population from which new groups were formed, then cooperation could emerge as the dominant trait after all. Second, there are situations in which multiple, Pareto-ranked equilibria exist. In such a situation, GS can play a role in determining which equilibrium prevails. Since a repeated prisoners’ dilemma has multiple equilibria (the Folk Theorem at work), the applicability of this result is not limited to simple coordination games. Bergstrom (2002, p. 81) makes essentially the same point.

4. RESPONSE TO SOBER AND WILSON Sober and Wilson agree with my position that GS is compatible with MI – which I consider an important achievement – but they resist MI on other grounds. Although my paper was not intended as a comprehensive defense of MI, their objections to it are well worth considering.

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4.1. Direct Observation of Social Wholes Sober and Wilson take issue with my claim that “we cannot, in fact, observe [social] wholes directly; we infer their existence [only] through the apprehension of particular events and phenomena” (Sober & Wilson, 2004, p. 255). They adduce some examples of social wholes and generalizations about them that allegedly can be observed, but their examples strengthen my point. Their first example is suicide rates and their correlation with factors such as the time of year (or, they might have added, gender, nationality, occupation, and so on). Note, however, that a suicide rate is simply a mathematical computation of the number of individuals in a small group (those who commit suicide) divided by the number of individuals in a large group. There is thus no suicide rate independent of “particular events and phenomena” – the specific acts of suicide. More importantly, suicide is not an unambiguous category. Does it include individuals who kill themselves gradually with cigarettes or unhealthful diets? Does it include individuals who die as a result of deliberately chosen high-risk activities such as skydiving? Ultimately, suicide is defined by reference to the intentions or at least knowledge of the individuals involved – a problem that afflicted Durkheim’s sociological analysis of suicide from the start. Durkheim’s initial effort at such a definition indeed followed common usage, according to which a “suicide” is any death which is the immediate or eventual result of a positive (e.g. shooting oneself) or negative (e.g. refusing to eat) act accomplished by the victim himself. But here Durkheim immediately ran into difficulties, for this definition failed to distinguish between two very different sorts of death: the victim of hallucination who leaps from an upper story window while thinking it on a level with the ground; and the sane individual who does the same thing knowing that it will lead to his death. The obvious solution – i.e. to restrict the definition of suicide to actions intended to have this result – was unacceptable to Durkheim for at least two reasons. First, . . . Durkheim consistently tried to define social facts by easily ascertainable characteristics, and the intentions of agents were ill-fitted to this purpose. Second, the definition of suicide by the end sought by the agent would exclude actions – e.g. the mother sacrificing herself for her child – in which death is clearly not “sought” but is nonetheless an inevitable consequence of the act in question, and is thus a “suicide” by any other name (Jones, 1986, pp. 82–83).

Eventually, Durkheim settled on the definition, “Suicide is applied to all cases of death resulting directly or indirectly from a positive or negative act of the victim himself, which he knows will produce this result” (Jones, 1986, p. 83, emphasis in original). Yet even this definition requires reference to the mental state of knowledge. In addition, it leaves unspecified the certainty required (is a 75% chance of death high enough?). It also excludes attempted suicides of all kinds, even those that failed only because the knowledge of the attempter was faulty

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(“I thought it was poison!”). One way or another, the definition – and therefore identification and measurement – of suicide is inevitably theory-laden. Even once we have agreed upon a definition of suicide, we can still only make generalizations about its relationship with other variables whose definitions are also theory-laden (“nation,” “society,” “religion,” “divorce,” etc.). The generalizations might even hold true over time, giving us some degree of confidence in them. Sober and Wilson therefore ask, “Why couldn’t data on suicide rates in one or more societies convince us that there is a general pattern here, even if we have no very plausible explanation of why the pattern obtains?” We can, now that we have defined our terms. But an observed pattern is not the same as a theory. The object of social science is to explain the pattern. If we wanted a satisfying theory of suicide, we would presumably ask about the factors that influence individuals decisions to end their own lives. The creation of that theory might even lead us to modify our definitions, to collect data differently, or to collect different data. Durkheim’s work on suicide is an excellent example of the sort of theorizing that MI urges us to avoid. Durkheim strove to avoid explanations that relied upon individual psychology, and as a result he posited the existence of society-level “suicidogenic currents” whose source and laws of motion were unclear at best. It is not mere metaphor to say of each human society that it has a greater or lesser aptitude for suicide; the expression is based on the nature of things. Each social group really has a collective inclination for the act, quite its own, and the source of all individual inclination, rather than their result. It is made up of the currents of egoism, altruism or anomy running through the society under consideration with the tendencies to languorous melancholy, active renunciation or exasperated weariness derivative from these currents. These tendencies of the whole social body, by affecting individuals, cause them to commit suicide (Durkheim, 1951 [1897], pp. 299–300, emphasis added).

Durkheim’s most persuasive explanations, ironically, were those making oblique reference to the mental states of individuals; for example, that some people commit suicide because they cannot find any goal in the world worth committing themselves to (what Durkheim called “egoistic” suicide) (Durkheim, 1951 [1897], p. 152ff).

4.2. The Explanatory Power of Macro Properties Sober and Wilson argue that “macro properties” are sometimes superior to “micro properties” in their explanatory power. There is a sense in which this is true. If workers renegotiating their wage contracts regard the Consumer Price Index (CPI) as a good measure of the cost of living, then it will assuredly affect the negotiations. There is nothing un-MI about this. The notion that CPI measures the cost of living

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is a constitutive idea held by individuals, and the labor economist can recognize it without committing himself to the meaningfulness of the CPI. But if he wished to explain the level of the CPI and show that it does indeed correspond to the cost of living, the macro property called CPI is no longer part of the explanation, it is the thing to be explained. The economist would have to ask how the CPI is constructed and how it is affected by micro phenomena in the economy, such as changing relative consumer demands for products. He would also have to define “cost of living,” a term both theory-laden and far from self-evident. Macro properties of social systems are not self-evident, but require social scientific explanation themselves. If we employ them without scrutinizing their micro foundations, we run a serious risk of unconsciously incorporating popular but wrong theories as part of our explanations.

4.3. Generality and Specificity Finally, Wilson and Sober conflate the distinction between MI and non-MI with the distinction between specificity and generality. “Although generality is often a virtue of explanations, it is not the only one; detail is often valued as well. The point is that these virtues are in conflict . . .” (Sober & Wilson, 2004, p. ???). It is true that generality is sometimes preferable to specificity, and sometimes the reverse. It is untrue, however, that MI is associated only with the latter. MI theories need not dwell on minute details; indeed, the most powerful MI theories can generate interesting conclusions from a relatively spare set of assumptions about individual psychology. For example, microeconomic theory predicts downward-sloping demand curves under very broad and abstract assumptions about consumer preferences; specific information about each and every consumer is not required. MI constrains the locus of our assumptions, not their generality or specificity.

5. GENERAL COMMENTS Considering all of the comments, if I were to rewrite my original article, I would place less weight on the secondary public good argument, and more weight on the game theoretic argument at the end of Section 4. (I presented the two arguments together, but now I would choose to distinguish them). As Zywicki and Gifford both emphasize, solutions to prisoners’ dilemmas, such as public good problems and tragedies of the commons, often rely on mechanisms to limit free riding, such as reputation, policing, and ostracism of violators. To the extent that such mechanisms are available, a repeated prisoners’ dilemma is actually a coordination

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game with multiple Pareto-ranked Nash equilibria. Given that many Nash equilibria are possible, what reason (if any) do we have to believe superior equilibria will in fact occur? One possible answer is GS. If some societies happen, possibly by accident, to develop better norms (i.e. find a superior equilibrium), they will grow larger and faster. As a result, more future individuals will find themselves in societies with such norms. To the extent that societies with better norms are more likely to attract immigrants, an IS process reinforces the GS process. The immigrants will fall in line with the norms of their adopted societies for the same reason that Americans visiting England drive on the left: given the existence of an equilibrium, they have an individual incentive to follow it. Other societies with inferior norms will grow less quickly or even shrink, in part through the loss of emigrants. The process I’ve just outlined does, in my opinion, constitute a GS story, because the group-level properties of the superior norms explain the evolutionary performance of the societies that have them. It is also an MI story, because individuals act according to their preferences subject to the constraints they face – including the equilibrium behavior of other individuals. It is even, in Gifford’s language, a strong-MI story – that is, a story that satisfies MI (as I have defined it) and the additional requirements of self-interest and (bounded) rationality. While other forms of GS in cultural evolution might also work, the kind just described is the one I find most plausible.

NOTE 1. I resisted this conclusion at first, as Bergstrom’s (2002, pp. 71–72) proof appears to neglect Simpson’s paradox. However, Bergstrom (2003) gives a more explicit proof that demonstrates the point.

REFERENCES Bergstrom, T. C. (2002). Evolution of social behavior: Individual and group selection. Journal of Economic Perspectives, 16, 67–88. Bergstrom, T. C. (2003). Group selection and randomness, reply. Journal of Economic Perspectives, 17, 211–212. Durkheim, E. (1951 [1897]). Suicide: A study in sociology. J. A. Spaulding & S. Simpson (Trans.). Glencoe, IL: Free Press. Hayek, F. A. (1972). Law, legislation, and liberty: Vol. 1, Rules and order. Chicago: University of Chicago Press. Jones, R. A. (1986). Emile Durkheim: An introduction to four major works. Beverly Hills: Sage. Okasha, S. (2001). Why won’t the group selection controversy go away? British Journal for the Philosophy of Science, 51, 25–50.