Monday, September 1, 2008

What does Shermer tell us about the mind of the market?

After reading Michael Shermer’s book, “The Mind of the Market”, I felt of a mind to write something critical. Then I read a couple of critical reviews of the book and decided that I should find a way to tell people that it was worth reading.

The subject matter of this book is the way our emotions and behaviours are influenced by the fact that our brains evolved to operate in hunter-gatherer economies rather than in modern market economies. The age in which we live - and take for granted as normal -accounts for a mere one-quarter of one percent of the history of humanity (3).

The main problem I have with this book is the author’s failure to build upon the work of those who have considered similar issues before, particularly Friedrich Hayek. Although Shermer has a similar libertarian perspective he barely mentions Hayek’s contribution.

It seems to me that Shermer could have usefully specified the aim of his book as being to bring the findings of neuroeconomics research to bear in re-considering what Hayek had to say about the human mind as “an adaptation to the natural and social surroundings in which man lives” and as “the product of the social environment in which it has grown up” (“Law, Legislation and Liberty, V. 1: 17). He could have related much of the neuroeconomic evidence he discusses to the problem identified by Hayek of dealing with primordial instincts in a modern society:
“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” (LLL, V. 3: 164).

Shermer suggests that widespread distrust of the market mechanism and the tendency for unequal wealth to be attributed to ill-gotten gains is a consequence of the fact that our hunter-gatherer ancestors lived in small communities where everyone knew everyone, most resources were shared, wealth accumulation was almost unheard of and excessive greed and avarice were punished (18). He suggests that it is likely that moral emotions evolved out of behaviours that were reinforced as being good either for the individual or for the group. Hence humans tend to favour kin over non-kin, friends over strangers, in-group members over out-group members (115 -117).

Shermer makes a strong case that a lot of the evil behaviour that occurs today can be traced to the instinct to favour in-groups at the expense of out-groups. He argues that evil, such as that found in Abu Ghraib and Enron, is the product of corrupting circumstances. Instead of attributing evil to a few bad apples we should look more carefully at the barrels (the organisational culture) in which they are found (205).

He also makes a strong case that our ancestors’ aversion to inequity helped to promote beneficial cooperative interactions because individuals who feel they are being cheated by one trading partner can look for another partner to trade with (176). Free trade breaks down the normal tribal barriers blocking trust. “Trade makes people more trusting and trustworthy, which makes them more inclined to trade, which increases trust ... creating a self-reinforcing cycle of trust, trade, freedom and prosperity” (186). “The psychology behind defusing intergroup aggression involves turning potentially dangerous strangers into prospectively helpful honorary friends (252).

Shermer also has some interesting things to say about happiness. He defines happiness as “a subjective state of well-being that depends on relative frames of reference, grounded in an evolved psychology that finds meaning in the simple social pleasures and purposes of life” (140). On page 158 he suggests that the evolutionary purpose of emotions is to get us to act in ways that lead to an increase in reproductive success. By page 161 he has reached the point where he states: “my point here is that being social is integral to all aspects of our lives, including our Subjective Well-Being”. Over the next few pages we climb to an even higher level until on page 166 we are told, “It all comes to this: the simplest way to be happy is to do good” (166).

That sentiment was attributed to an article Helen Keller wrote in the “Home Magazine” in 1933. For some reason I wished at that point that Shermer had mentioned that the link between virtue and happiness goes back at least as far as Aristotle.


Anonymous said...

Should we read the book? What of these claims that he was an evangelical? Is that apparent in the book, i.e. if he was, does it effect his theories?

Winton Bates said...

I recommend that you read the book if you are interested in the way emotions have been influenced by evolution.

Shermer, an evangelical? No, at least not in terms of the usual meaning of that word. He is a skeptic.

The book does not have a crusading style. The style is more or less journalistic. The author wanders around talking to some some interesting scientists and explores the implications of their recent recent findings.