Tag Archives: Self interest

The Ideology of Self-interest Caused the Financial Crash. We Need a New Economic Paradigm

By Mark van Vugt and Michael E. Price – We are still feeling the effects of the global financial crisis, which started in the US in 2008, and that has now spread to every corner of the world.

The financial crisis should teach us some important lessons about the way economies work and the way we design our organizations. In essence, we have simply made the wrong assumptions about human nature. The leading model in economic theory is that of Homo economicus, a person who makes decisions based on their rational self-interest. Led by an invisible hand, that of the market, the pursuit of self-interest automatically produces the best outcomes for everyone. Looking at the financial crisis today this idea is no longer tenable. When individual greed dominates, everyone suffers. We could have known this all along had we looked more closely at human evolution.

Economic scientists often portray competition between firms as a Darwinian struggle where firms compete and only the fittest ones survive. The British financial historian Niall Ferguson wrote “Left to itself, natural selection should work fast to eliminate the weakest institutions in the market, which typically are gobbled up by the successful.”

This may be true but it is not the outcome of individual greed and competition.

Competition between firms presupposes that individuals cooperate well with each other, and the most cooperative organizations survive, and the least cooperative organizations go extinct. This is group selection, selection operating at the level of groups, where the best groups survive.

This is a far more accurate model of how economies and business operate, and it offers a totally new way of thinking about the design of organizations and ways to avert global financial crises.

A team of evolutionary minded psychologists, biologists and economists led by biologist David Sloan Wilson have come together over the past few years to come up with a more accurate model for how businesses and economies operate. It is based on Homo sapiens rather than Homo economicus. Their efforts are put together in an Evolution Institute report on socially responsible businesses “Doing Well By Doing Good.” more>

Traditional Economics Failed. Here’s a New Blueprint.

BOOK REVIEW

What’s the Matter With Kansas? Author: Thomas Frank.
Complex Adaptive Systems, Authors: Scott Page and John Miller.
Linked: The New Science of Networks, Author: Albert-Laszlo Barabasi.
The Origin of Wealth, Author: Eric Beinhocker.
The Social Animal, Author: David Brooks.
Natural Security: A Darwinian Approach to a Dangerous World, Author: Rafe Sagarin.
Born to Be Good, Author: Dacher Keltner.
Nonzero: The Logic of Human Destiny, Author: Robert Wright.
A Theory of Moral Sentiments, Author: Adam Smith.
The Gardens of Democracy, Authors: Eric Liu and Nick Hanauer.

By Eric Liu, Nick Hanauer – Politics in democracy can be understood many ways, but on one level it is the expression of where people believe their self-interest lies— that is to say, “what is good for me?”

While the degree to which human beings pursue that which they think is good for them has not and will probably never change, what they believe is good for them can change and from time to time has, radically.

We assert a simple proposition: that fundamental shifts in popular understanding of how the world works necessarily produce fundamental shifts in our conception of self-interest, which in turn necessarily produce fundamental shifts in how we think to order our societies. more> http://goo.gl/tS34OI