David Friedman uses evolutionary psychology to solve some puzzles in economics.

Human beings have a functional module in their minds that deals with exchanges with other human beings. One feature of that module, hard-wired in by evolution, is that human beings regard the usual terms of exchange as right and any deviation from those terms that makes them worse off as a presumptively wicked act by the other party. This feature resulted in human beings that possessed it getting better terms in bilateral monopoly bargains in the environment in which we evolved, so having more resources and achieving greater reproductive success.

Actually, the essay is difficult to capture in an excerpt. Read the whole thing, as we say in the blogosphere.

My own views continue to influenced by the anthropology of Alan Fiske, which I came across in reading Steven Pinker’s The Blank Slate. Fiske talks about authority-ranking, community sharing, equality matching, and market pricing. In my view, the hunter-gatherer period used the first three, but not the fourth. In the hunter-gatherer period, you never traded with strangers, so you never needed market pricing. You just needed the other three. Actually, Pinker thinks that what makes market pricing post-hunter-gatherer is that it requires mathematical reasoning.

I believe that common mistakes people make involve trying to apply lessons learned from one of the other modes of interaction to market pricing. For example, I have written that Marxism is the belief that market pricing is really authority ranking, and it ought to be replaced by community sharing. Also, perhaps people are hard-wired to disbelieve in Ricardian comparative advantage. That is, they cannot understand the theory of trade with strangers, so they keep trying to interpret it in terms of one of the three modes of interacting, and those interpretations lead them to think that outsourcing to India is going to lower our incomes. Maybe their gut feeling is that trade with India is really communal sharing with India, in which case it *would* lower our incomes.

Based on my reading of Fiske, I prefer thinking of the hunter-gatherer society as not having any awareness of the market-pricing approach. So, from an evolutionary psychology perspective try to imagine a world in which there are no market transactions at all, in the sense that there are no transactions between strangers that are mediated only by price. In that scenario, the reason that people develop a hard-wired belief in a just price is that they see exchange in terms of equality matching. Equality matching requires a convention about what constitutes “equal,” which means that it is not something that varies with market conditions.

Overall, I agree with Friedman that evolutionary psychology can provide insights into the factors that lead people to behave “irrationally” in markets and in their beliefs about markets. I just take a slightly different slant on the issue.

For Discussion. What evidence is there that people are “hard-wired” to believe in a “just price?”