(credit: domeckopol)

Trade-offs, fast and slow

Our biology determines how we make decisions, but we have a secret weapon

Economics and biology are not the most obvious bedfellows. Standard economics has a reputation of assuming agents who have access to all relevant information and sufficient computational power to work out the optimum choice. But real, biological people from flesh and blood generally don’t behave according to this idealized model. Are they separated by a chasm that is hard to bridge, or are the two domains closer than it seems?

The contrast between an idealized representation and the messy reality is not that unusual. A real wheel is not a perfect circle, yet in many situations, engineers happily use a circle as an entirely reasonable approximation for a wheel. But the difference between what we humans actually do, and what standard economics expects us to do, is often so large that the homo economicus model is not much use in predicting our behaviour.

Economics and biology, peas in a pod

This is quite remarkable. One of the core concepts of economics is the trade-off, and that same concept is also quite central in living organisms, from single cell creatures to much more sophisticated ones, all the way to mammals. Even uncomplicated unicellular organisms are sometimes faced with multiple options: different things they could eat, or different directions in which they could travel. This way are more nutrients but further away, that way there are fewer, but they’re closer. Which way to swim?

It would perhaps be a bit too far-fetched to ascribe to amoebae the capacity to perform a cost-benefit analysis, but if you don’t mind a little reductionism that is, in a way, exactly what they do. Those organisms whose DNA helps them make such trade-offs well and pick the more beneficial option are the ones that survive and replicate.

Hello, I am a micro-economist (photo: PROYECTO AGUA CC BY)

And evolution carries on along similar lines. Natural selection is the mechanism by which organisms that are better than others at gaining access to and utilizing resources are more likely to thrive and persist. We can see…