The evolutionary roots of folk economic beliefs?

'Folk economic beliefs' are the widespread beliefs about economic and policy issues, which are held by members of the public untrained in economics. This includes beliefs about trade, unemployment, the operation of markets, the effects of monetary policy, and so on. Many of these beliefs are incorrect, at least compared with the views and models of the majority of economists.

What leads people to adopt incorrect folk economic beliefs? That is the topic of this 2018 article by Pascal Boyer (Washington University in St. Louis) and Michael Bang Petersen (Aarhus University), published in the journal Behavioral and Brain Sciences (ungated version here). Boyer and Petersen focus on eight particular examples of folk economic beliefs, and then link those beliefs to evolutionary psychology. They argue that:

...many folk-views on the economy are strongly influenced by the operation of non-conscious inference systems that were shaped by natural selection during our unique evolutionary history, to provide intuitive solutions to such recurrent adaptive problems as maintaining fairness in exchange, cultivating reiterated social interaction, building efficient and stable coalitions, or adjudicating issues of ownership, all within small-scale groups of foragers.

The eight folk economic beliefs (FEBs) that Boyer and Petersen focus on are:

1. FEB 1: International trade is zero-sum, has negative effects;
2. FEB 2: Immigrants “steal” jobs;
3. FEB 3: Immigrants abuse the welfare system;
4. FEB 4: Necessary social welfare programs are abused by scroungers;
5. FEB 5: Markets have a negative social impact (“emporiophobia”);
6. FEB 6: The profit motive is detrimental to general welfare;
7. FEB 7: Labor is the source of value; and
8. FEB 8: Price-regulation has the intended effects.

The particular aspects of evolutionary psychology that Boyer and Petersen invoke are: (1) detecting free riders in collective action; (2) partner choice for exchange: (3) exchange and assurance by communal sharing; (4) coalitional affiliation; and (5) ownership psychology. As they explain:

In any exchange, it is crucial to monitor whether the implicit or explicit terms of the exchange are being followed. For example, if two individuals take turns helping each other forage, does one person provide less help than he receives? To solve this problem, human exchange psychology needs to contain specific mechanisms for detecting and responding to free-riders...

To engage in exchange, one needs to choose among available social partners. Given the possibility of choice, human exchange and cooperation from ancestral times have taken place in the context of competition for cooperation... as each agent could advertise a willingness to cooperate (and signal how advantageous cooperation would be), and could choose or reject partners depending on their past and potential future behavior...

Competition for cooperation has specific consequences on fairness intuitions in the context of collective action. Given that two (or more) partners contribute equal effort to a joint endeavor, and receive benefits from it, an offer to split the benefits equally is likely to emerge as the most frequent strategy – anyone faced with a meaner division of spoils will be motivated to seek a more advantageous offer from other partners. So, to the extent that people have partner options, the constraints of partner-choice explain the spontaneous intuition that benefits from collective action must be proportional to each agent’s contribution...

One important form of social relations is founded on communal sharing, where resources are pooled...

Humans are special in that they build and maintain highly stable associations bounded by reciprocal and mutual duties and expectations. Such groups – called alliances or coalitions – may be found at many different levels of organization...

The psychology underlying coalitional strategies include the following assumptions: (a) relevant payoffs to other members of the coalition are considered as gains for self (and obviously, negative payoffs as losses to self); (b) payoffs for rival coalitions are assumed to be zero-sum – the rival coalition’s success is our loss, and vice-versa; and (c) the other members’ commitment to the common goal is crucial to one’s own welfare...

These assumptions reflect two crucial selection pressures operating on human groups: First, that alliances are competitive and exclusive, because social support is a rival good. Second, that resources, status, and many other goods are zero-sum and, hence, the object for rivalry between alliances...

For exchange to happen over human evolutionary history, our ancestors needed an elaborate psychology of ownership. Who is entitled to enjoy possession of a good, and to exchange it?...

Adults and even very young children have definite intuitions about who owns what particular good, in a specific situation. For instance, they generally assume that ownership applies to rival resources (that is, such that one person’s enjoyment of the resource diminishes another person’s); that prior possession implies ownership; that extracting a resource from the environment makes one the owner; that transforming an existing resource confers ownership rights; and that ownership can be transferred, but only through codified interactions...

Then, taking each FEB in turn, Boyer and Petersen first link FEB 1 to coalitional affiliation. On that point, I found this most interesting:

...we should expect the view that trade is bad to be particularly attractive when the trading crosses perceived coalitional boundaries. It is predicted to invariably occur in the context of, precisely, debates about trade between countries. American consumers may find it intuitive that the United States might suffer from Chinese prosperity, but, on this theory, they would find it less compelling that development in Vermont damages the economy of Texas.

That explains why my usual counter-point to non-economists' negative views of international trade, which is to note that perhaps Hamilton should close its' borders to trade from the rest of New Zealand, often fails to hit the mark.

Boyer and Petersen then link FEB 2 and FEB 3 (which seem on the surface to be contradictory, as immigrants can't both steal jobs and abuse the social security system), to coalitional affiliation and detection of cheaters, reasoning that:

Immigrants are by definition newcomers to the community. Psychological research has shown that newcomers to groups activate this connection between coalitional cognition and cheater-detection, in particular, in situations where group membership is construed as conferring particular benefits. In such situations, newcomers are typically regarded with great suspicion...

The tight relationship between the concepts of nation and coalition... may explain the attractiveness of the statement that immigrants must be free-riders, scrounging on the past efforts of the host community. But, at the same time, the involved psychological systems leave open whether it is on job creation or on the welfare system that immigrants free-ride. 

FEB 4 is related to free-rider detection and notions of communal sharing, while FEB 5 and FEB 6 are linked to partner choice and the impersonal nature of markets:

In small-scale interactions, the balancing of costs and benefits occurs over reiterated exchanges, and, in order to predict these long-term outcomes, information about the partner’s reputation and past exchanges are key. Impersonal transactions, in contrast, are often anonymous, and therefore make it more difficult to track the reputation of one’s partners. To a psychology designed for partner-choice, this is likely to trigger an alarm signal, indicating that such a situation should be avoided. Second, strictly impersonal exchange goes against motivations to generate bonds of cooperation with particular individuals, as a form of social insurance. This may reinforce the intuition that impersonal transactions involve, if not danger, at least a missed opportunity. Finally, systems for partner-choice are set up to avoid engaging in exchange relationships with individuals who are much more powerful, in order to avoid exploitation... In modern markets, however, many exchanges take place with corporations or business that seem exceptionally powerful from the perspective of the individual.

FEB 7 on the labour theory of value is linked to ownership psychology, where Boyer and Petersen note that:

Ancestrally, most valued and owned goods were previously unclaimed natural resources that time and effort turned into something useable (whether food, tools, or shelter). In such situations, labor is indeed the exclusive generator of both “value” and ownership.

Finally, FEB 8 is not linked to any of the previous aspects, but instead:

To explain this FEB, we need to take into account the fact that unintended consequences of this kind are second-order effects that occur in large-scale social systems. They reflect aggregate market responses to changes in costs and benefits (e.g., if the price of the good is regulated downwards, the market responds by decreasing quantities supplied). But our psychology of social exchange is designed for small-scale social systems, for personal exchanges between oneself and one or more identified others. The intuitive inference systems that evolved to deal with such situations do not, because of the small-scale nature of the situations, include any conceptual slots for aggregate dynamics such as origins of supply. In this way, FEBs about regulation do not emerge from a single set of intuitive inference systems. Rather, they emerge from the failure of particular pieces of information to be processed by any intuitive inference system.

Boyer and Petersen's arguments are interesting, but not all their explanations are equally convincing, especially the last one. There is an excellent debate (called 'open peer review') over the subsequent pages of the journal version of the article (not the ungated one, sadly), which is well worth reading. However, the whole exercise smacks of exactly the problems that Jason Collins noted about behavioural economics in this article (which I discussed here) - the explanations are very ad hoc, and there is no real unifying framework that demonstrates which aspects of evolutionary psychology should apply to which folk economic beliefs. Without something more systematic, we are simply left with some interesting explanations that may or may not hold in a wider context.