This guest post from the Morgan Foundation’s Jess Berentson-Shaw and Geoff Simmons is the second in a series of three exploring the legacy of the myth of the rational human – Homo economicus.
As outlined in our first post , it’s time to ditch the myth of rational humans – homo economicus. The trouble is that many economists haven’t got the memo. Despite mounting evidence to the contrary, many economists (particularly libertarians) cling to the myth of homo economicus with a fervour that approaches religious fundamentalism.
This post will draw mostly on examples from public health. The inspiration comes from a New Zealand Initiative report on public health issues, which started out arguing that many public health policies were an infringement on “freedom”. The Morgan Foundation critiqued the report as being ideological in nature; you can read why we levelled this charge in detail elsewhere. The Herald’s John Roughan and economic commentator Michael Reddell both responded starting from the same basic assumption that we live in a ‘perfect world with true freedom of choice’ (at least in the case of parents).
We won’t rehash the debate over which public health policies would work here; rather the purpose of this article is to point out that the assumption of rationality, and consequent assumption that government or community-based intervention impinges on freedom and is therefore a bad thing, should no longer be accepted at face value. The fault for this may well lie with the economics profession: It simply has not adapted to the evidence.
Let’s look at the two major findings of behavioural economics – the importance of early experiences and the impact of the environment on our decisions.
Giving Everyone a Fair Start
Most people seem to accept the idea that all kids should get a fair start in life, but many think this ‘fair start’ looks like the provision of the same resources for all children. The trouble is that science suggests that because of early experiences (as early as in utero), some kids start off facing a huge handicap that means getting the ‘same’ help as everyone else is not fair, in any sense of the word.
Take the latest research on the long-term genetic and biological factors at work in obesity, which is led by the Prime Minister’s Science Advisor Sir Peter Gluckman. This suggests that the prenatal and early life environment a child is exposed to will alter their biology and hence influence their supposed ‘freedom to choose’– what they eat, how much they exercise, how much energy they burn – for life. By the time kids become adults, most of their obesity risk is pre-programmed and it can be very difficult to shift. No wonder 80% of diets fail.
The science is also telling us that low incomes and lack of resources in early life have a significant influence on brain growth, immune system development and other biological systems, which curtails an individual’s ‘perfect ability to choose’. And we are beginning to understand that these biological effects may be intergenerational. Good bonding with a caregiver is critical during the first few years of life, as it delivers all the important experiences a child needs for their brains to grow and critical neural pathways to connect. Babies that have less than optimal input from an adult, because that adult is stressed or lacks resources, have been shown to have differential brain development: key areas do not grow, as many neural connections simply aren’t made. As adults, these babies then find it more difficult to provide optimal experiences for their own baby because of this differential in their own brain development from ‘normal’.
Work by Alfred Adler, an early social psychologist, also helped inform research since showing how our early experiences shape our behaviour as adults. To explain in its most simplified form, as human beings we are born seeking social connections and positive experiences (this is how our brain grows). However, our early life experiences – the social connections we make, and how we get reinforced for example, will determine how we think about the world around us, and ultimately how we behave. Some people call it our ‘personal or private logic’. If as children we seek social connection with our parents and they are distracted, tired and too stressed to provide it, we may start to behave in what appears to be illogical ways to our parents, in order to get that attention – what we might call ‘being naughty’. If the response from our parents is to tell us off, smack, or put us in time out, and they fail to give the positive social interaction, which we are really seeking, then this starts to determine our personal logic about how the world works. We might come to believe as older children that the only way to make a social connection is through aggressive or angry behaviour. We might even start to believe social connections do not matter. Of course to others this makes no sense, it is illogical really, but our early experiences have created a logic that says otherwise.
The true importance of epigenetics and early experiences is still being understood, but it throws most economists’ basic assumptions out the window. The evidence tells us that our set of choices as an adult is largely determined by the world we grow up in. Sure, we still have freedom of choice, but within a much more limited range determined by our early life.
The believers of homo economicus acknowledge that children don’t have the ability to make informed choices, but put that conundrum squarely in the lap of parents. That would work if a) early experiences did not affect adult abilities (see above) and b) parents had perfect control over their children. Another surprise to homo economicus may be that children are not robots either. Setting up parents in conflict with the environment can bring serious tension and stress in the parent child relationship. Parents aren’t with their child 24/7, and when the environment is set up to encourage ‘pester power’: it works to constantly undermine parents. The Ministry of Health nutrition guidelines suggest a child should have one serving of treat food per week. Is there a single parent out there who can claim to achieve that?
The Importance of the environment
Even as adults our surrounding environment continues to have a huge impact on our decisions. In his book Mindless Eating, food psychologist Brian Wansink summarises the research into our eating habits; research ironically paid for by the food industry.
Wansink found that around 90% of the eating decisions we make each day are subconscious. Portion sizes are up 30% in the last 50 years and we eat more as a result, although most of us would deny that portion size makes any difference to how much we eat. Snacks have become the equivalent of our fourth meal, and we eat 71% more of foods that are readily accessible. All these facts point to the reality that our physical environment has a critical role to play in determining if we have real freedom of choice and can act rationally.
The food industry know that surrounding us with their products at every opportunity means they have a much higher chance of catching us at a weak moment. They know that dopamine (a neurochemical our bodies generate to make us feel good) rewards us for eating sugar, fat and salt and that humans are much more susceptible to dopamine’s effect when they are hungry, tired or feeling down. So all food businesses have to do is offer us sugar, fat and salt as often as possible, and odds are eventually people will say yes; particularly if our childhood experience has made us more susceptible to making those decisions. Eating healthily is not a matter of one-off personal choice, it is matter of repeatedly saying no many times each day with perfect ability and perfect knowledge. That level of rationality is easily thwarted by products that stimulate our dopamine-rewarding transmission pathways.
Why don’t the food industry surround us with salad? For starters it is more expensive to place fresh food at every possible purchase point – it goes off whereas chocolate bars don’t. Secondly, we know that salad generates another happy neurochemical called serotonin, but the effect isn’t nearly as immediate as dopamine so consumers don’t associate happiness with salad.
So do donuts really make us happier than salad as the libertarians would have us believe? It depends on how you define happiness on a chemical level and across time. Long term the answer is most certainly no.
Behavioural economics has gone some way to correcting this imbalance in the common assumptions of simplistic economic analyses. We now understand that these nudges, or default choices, determine many of our day-to-day decisions. Of course industry also knows this stuff, and has set up the food environment for instance, to take advantage of it, making it very difficult for policy to counteract. We know that simply placing a product in a certain place in the supermarket means it will get sold more. The question facing society is how to get more broccoli in that spot and fewer bikkies?
A lot of the research informing behavioural economics has actually come from big businesses wanting to influence our decisions through sponsorship, packaging, advertising, product placement etc. Isn’t it ironic then that despite knowing the power corporates already influence our behaviour, big business funds economists to perpetuate the myth that citizens are rational and any changes to the status quo are robbing them of their liberty?
In the face of all this evidence about upbringing and the environment creating a stacked system (an imperfect market in economic terms), there is little evidence to support the idea that people are able to make rational choices about food (or much else actually!). It follows that there is no evidence to support the assertion made by libertarians that tax and regulation would impinge on our ‘freedom’, and reduce our wellbeing as a result. It is, quite simply, nothing more than dogma.
It would be just as valid to argue that kids growing up in an environment where junk food is the easy choice rather than healthy food are having their freedom infringed. Why should society allow the junk food industry to target children (or adults for that matter) with clever psychological tactics? Why isn’t advertising limited to factual information as often libertarian economists incredulously claim is all it does? Why do we allow our kids to be surrounded by junk food when they cannot make rational choices, are developmentally primed to be attracted to the colours and images (why do you think those developmental toys kids have are so colourful?), and don’t understand their decisions as a child will decide their lifetime path as an adult?
In the face of the evidence about the importance of our childhood and the environment in shaping the choices we make, it seems entirely rational that local communities would want to have a say in shaping their food environment. And yet, because of our untested and unproven economic assumptions, this is viewed by some economists as ‘nanny state’. Sadly, some of the economists making these claims are ignorant of behavioural economics and its findings. When asked whether the food environment could influence our choices the response of the New Zealand Initiative researcher was “I just don’t see it”.
Perhaps the public is wiser than homo economicus and recognises what influences our behaviour. How else can you explain the latest Colmar Brunton poll, which showed 66% of people supported a sugar tax – does that mean that they are choosing to restrict their choices? That is enough to blow a libertarian’s mind. In fact research shows that smoker’s perceptions of well-being rises after cigarette tax increases. If we ignore the ideological arguments and simply look to the data then people appear to be saying they know they are not acting rationally and need support to do so.
Jess Berentson-Shaw is an evidence agitator at the Morgan Foundation. Jess has a PhD in Health Psychology, and has worked in the health and social sciences field with some (very nice) economists. She does lack the common sense of many economists, but then we are all irrational, just some less than others.
Geoff Simmons is an economist and General Manager at the Morgan Foundation. He is less academically qualified than Jess, with a piffling Honours degree in Economics from Auckland University. But anyone can call themselves an economist.