Evolutionary Foundations of Economic Behavior

University Of Wisconsin-Madison, Madison WI

Investigators

Abstract

Evolutionary ideas have long been invoked by economists to defend the central concepts of optimization and equilibrium. The research described in this proposal is motivated by the belief that evolutionary ideas have much more to tell us about economic behavior. The proposed work will proceed in two parts. The first is theoretical, and will combine insights from evolutionary psychology and biology with economic techniques to construct evo-lutionary models of economic behavior. This research will view Nature as a principal who must equip her agents (people) with rules and procedures for making decisions, while contending with differences in information and constraints on agents' reasoning resources. The research begins with a model in which people economize on their cognitive resources by using analogies to orga-nize their thinking. Extensions of the model will address the division of decision-making between Nature and her agent (raising issues of self control), the agent's choice of which information to exploit and which to ignore, and the circumstances under which Nature will endow her agents with a concern for relative well-being. These theoretical results will serve as the basis for experimental and applied work. Ex-periments will investigate the role of analogies and backward induction in explaining behavior in bargaining games. Applied models will address issues of communication and information transfer in the presence of related but conflicting interests, issues of reputation building, and the welfare implications of relative evaluations of well-being. The proposed research builds on existing work in evolutionary game theory. The work will seek foundations for aspects of individual behavior that are not easily accommodated by standard choice theory, and will use these foundations to address important aspects of economic interactions