Neurotypicals are irrational beasts

Arnold Kling highlights this section from a Scientific American article, The Science of Economic Bubbles and Busts:

But behavioral economics experiments routinely show that despite similar outcomes, people (and other primates) hate a loss more than they desire a gain, an evolutionary hand-me-down that encourages organisms to preserve food supplies or to weigh a situation carefully before risking encounters with predators.

One group that does not value perceived losses differently than gains are individuals with autism, a disorder characterized by problems with social interaction. When tested, autistics often demonstrate strict logic when balancing gains and losses, but this seeming rationality may itself denote abnormal behavior. "Adhering to logical, rational principles of ideal economic choice may be biologically unnatural," says Colin F. Camerer, a professor of behavioral economics at Caltech. Better insight into human psychology gleaned by neuroscientists holds the promise of changing forever our fundamental assumptions about the way entire economies function--and our understanding of the motivations of the individual participants therein, who buy homes or stocks and who have trouble judging whether a dollar is worth as much today as it was yesterday.

The gain vs. loss dictum indicates a strong risk aversion in humanity. Why might this be? I suspect it has to do with the fact that for most of our history we've been an animal like any other, on the Malthusian boundary, always facing individual or group extinction. The possibility of becoming as rich as Warren Buffet, or as prolific as Genghis Khan, by taking risks or trodding the path less taken, simply did not exist. The downside was extinction, the upside might be temporary success, only to see your lineage be swept away by history due to a propensity to gamble.

Consider the case of sex. Clonal reproduction is more efficient in the short term. Every individual can generate many copies of themselves. In dioecious sexual organisms the existence of males cuts down on the short term reproductive output of both sexes in terms of gene copies passed into organisms each generation. While clonal reproducing females generate exact copies, sexual females dilute their genetic contribution by 1/2. But over the long term clonal lines presumably become extinct often enough that the non-clonal varieties are dominant at any given moment. Cloning has a short term upside, but its long term downside is extinction (over the long term all species go extinct, so the key is that you're just shifting the value of the expected interval which a species might exist upward).

Risk aversion is really a way to dampen volatility of behavior. You do what's worked in the past and stick to custom & tradition. In The Pursuit of Glory: The Five Revolutions that Made Modern Europe: 1648-1815 Tim Blanning notes that it was very difficult to get European peasants to adopt new crops and modern agricultural science; productivity be damned. One exception to this was the rapid adoption of the potato in Ireland, which witnessed an enormous population boom in the 18th and early 19th centuries. And of course Ireland was hit by a potato blight which rendered it vulnerable to famine because of its excessive dependence on this one crop, which in the short term was the optimal way to convert land to calories in Ireland's climate (note that this example is not proof of the principle, just an illustration, as I'm well aware of the various institutional reasons which exacerbated the Irish famine).

The past is not the present. In the Malthusian world there simply weren't rates of economic growth which we see today in the wake of the Industrial Revolution and its descendants. Thomas Malthus may seem foolish, writing as he was on the precipice of a new age, but his ideas were informed by all of human history. The hyperrational autistic individual whose analytic cognitive functions are sharp is faced with bewildering human animals with irrational "hard & fast" intuitive reflexes embedded in a world which baffles intuition. But like evolutionary psychologists I suspect that these cognitive intuitions have deep roots in pre-modern ecological fitness, the world of the hunter-gatherer & peasant, and many are to an extent "baked into the cake" of our cognitive architecture.

Naturally the pig-headed stubbornness of Russian peasants when faced with 19th century scientific agronomists seems short-sighted today, but Russia's 20th century experiments to some extent vindicate the suspicion of simple folk. But these attachments to older ways which emerge from risk aversion aren't simply nuisances, they might be essential in understanding human utility functions, which might have a thick network of prior values. In The Myth of the Rational Voter Bryan Caplan argues that the typical human has weak conceptions of the non-zero sum dynamics at the heart of modern economics, especially in the case of free trade. This is true, but I think what this misses is that the utility function of most humans is more strongly weighted toward risk aversion and willing to accept a trade off between rate of growth and volatility of growth which minimizes the latter. At the end of the day it doesn't really matter if it isn't "rational"* for people to weight loss twice as strongly in their utility functions as gains, it's just how many people are in their bones.

* Most talk of rationality presupposes a relative clean, elegant and spare mental architecture. This model is manifestly false.