Natural Rationality | decision-making in the economy of nature


Blog Action Day: The Economies of Nature

[This post is my participation to the Blog Action Day, a day where “bloggers around the web will unite to put a single important issue on everyone’s mind - the environment. Every blogger will post about the environment in their own way and relating to their own topic”. This is Natural Rationality’s perspective on environmental issues]

In previous posts, I discussed the Darwinian concept of and “Economy of Nature”. One of the purpose of this discussion is to promote a conception of economic as a general science of natural and political (human) economies. Agents in both domains are different—money and stock market are human institutions—but they share a common principle, namely the maximization of value: whether it’s fitness, utility or reward, agents in an economy strive to optimize. Behavior ecology and decision neuroscience show, for instance, that decision-making is a natural, and common, feature of the living world. The difference between agents in natural and political economics should not be a problem: after all, zoology and botany study different forms of life but are studied by biology.

This conception has not only theoretical consequences. From a political point of view, if human economy is one of the economies of nature, the fact that it is the more sophisticated does not allow us to cause damage to animal economies, such as:
- half of the Earth's surface transformed by human action
- the concentration of carbon dioxide in the atmosphere increased by 30% since the beginning of the industrial revolution
- we produce more nitrogen than all natural sources may produce
- half of the fresh water surface is used by humanity
- almost one out of four specie of birds is threatened with extinction (Vitousek et al., 1997).

Such damages are usually construed as what economists call "externalities", i.e. costs that affect a third party, (who is external to a contract or a transaction). The third party’s utility is increased or decreased without this change be reflected in market prices. Yet in a perspective where economies and ecologies are similar, rather than a mere externality, our harmful effect on other forms of life should be understood like an economic damage: we reduce significantly the ability of metazoans agents to carry out their economic activity. Our actions must then be judged both ethically and economically, and we cannot consider animal life only as a third party external to our markets. All economies of the nature are connected, and we behave as if ours was in a prisoner's dilemma, where it is more advantageous for each agent not to cooperate, even though we would collectively benefit from cooperation. Experiments have shown that individuals agents tend to cooperate in prisoner's dilemmas , but the logic of the organizations does not reflect that of individuals. Organizations, but not individuals, behave like Homo Economicus (Cox & Hayne, 2006). In this prisoner's dilemma, our private and public organizations tend to prefer the defection (the Nash equlibrium), at the expense of environmental concerns—what Hardin (1968) famously described as the Tragedy of the Commons.
What can be done? There will be no magic solution. Firms are firms, and will be concerned by environment only if they can profit from it. We won’t change the form of markets, but maybe we can change their content. We can’t expect everybody to pay a higher price for green products, when “regular” products are less expensive. It is rational to pay less, specially when you’re not rich. But if we can market green products at a competitive price, people will buy them. If there is a financial reward in developing green products, firm will develop them. If green firms represent a capital gain, shareholders will be there. But this will require global political intervention: don’t expect the invisible hand to get greener.

Related posts

  • Cox, J., & Hayne, S. (2006). Barking up the Right Tree: Are Small Groups Rational Agents? Experimental Economics, 9(3), 209-222.
  • Hardin, G. (1968). The Tragedy of the Commons. Science, 162(3859), 1243-1248.
  • Vitousek, P. M., Mooney, H. A., Lubchenco, J., & Melillo, J. M. (1997). Human Domination of Earth's Ecosystems (5325), 494-499.