Homo economicus, the pirates’ code, and the squeezed middle

…the code is more what you’d call “guidelines” than actual rules.

Captain Hector Barbarossa, in Pirates of the Caribbean

A brief foray into economics, prompted by a recent ‘big idea’ article in New Scientist magazine.

Homo economicus is the idealised human who behaves the way economists assume we all behave: uncompromisingly rational and self-interested, and a relentless maximiser of “utility” who only ever pays what they think something is worth and not a penny more.

Without Homo economicus, the whole edifice of classical and neoclassical economics— all its perfect markets, price mechanisms and invisible appendages— quickly gets bogged down in inconsistencies. The thing is, there’s precious little research to suggest Home economicus really exists (see the wikipedia entry for the Ultimatum game).

Some economists, like Milton Friedman —quoted in the NS article— propose that this behaviour emerges collectively through adaptation and there’s no need for individuals to be consistently self-interested and rational for the assumption to hold true. David Sloan Wilson, the author of the NS article, counters with the idea that non-adaptive processes may be perfectly valid explanations for economic behaviour, quoting a 1979 paper by Gould and Lewontin. At this point I started to lose the thread somewhat— lots of asserting and not much evidence either way. I think he is basically saying that economists have their favoured theories and conjure up adaptive explanations to justify them post hoc, without recourse to the scientific method. So nothing new, really.

But it did inspire some largely wikipedia-centred web browsing that took me to the pirate game. The pirate game is a mathematical exploration of an economic model that takes five extreme, buccaneering examples of Home economicus (to the extent that one of the ground rules dictates that a pirate  “would prefer to throw another overboard, if all other results would otherwise be equal”). The pirates— imaginatively named A, B, C, D and E— allocate 100 gold pieces amongst each other by majority agreement to proposals offered in strict descending order from the senior pirate A, through to the most junior pirate, E. Rejected proposals result in the proposer walking the plank.

Counter-intuitively, it turns out that the senior pirate A should allocate himself almost all the gold (98 coins) and one coin each to C and E, rather than making generous offers to his subordinates.

This, of course, only holds true according to the Homo economicus assumptions.

Just a funny coincidence, but the A-E pirate classification mirrors the society-spanning UK NRS social grades: ‘A’ being higher managerial and professional people, ‘E’ being the lowest paid workers or unemployed, with intermediate grades across B to D . So according to the assumptions of neoclassical economics, those with innate advantages (of seniority in pirate terms, perhaps cultural/professional in social grade terms) might be expected to amass the greatest wealth, with a token gesture to the very lowest pirate— in societal terms, maybe some sort of basic social security net for the very poorest people— and only a single gold coin to distribute amongst the massed ranks of those in the middle. Does this sound familiar?

I don’t for a minute believe that the tenets of Homo economicus always hold true— indeed, in general, I’m pretty sceptical about them. But in certain circumstances, in certain geopolitical, socio-economic or cultural environments, and for certain periods of time, perhaps they might. So is the current so-called middle class squeeze— much talked about in the UK at the moment, and I believe in the US too (and no doubt elsewhere)— one such circumstance?

Further reading:

New Scientist article (paywalled)

Gould and Lewontins’ paper. (The Spandrels of San Marco and the Panglossian Paradigm: A Critique of the Adaptationist Programme. Proc. R. Soc. Lond. B 1979 205, 581-598)

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