Primordial Brain Modules?

Dr. Michael Munger of Duke University delivered a very interesting lecture at the Heider College of Business on Friday, February 5. He explored problems associated with price gouging laws, which proscribe the practice of raising prices during a state of emergency. Those trained in economics are likely to understand that such laws are likely to harm those affected by emergency conditions. Prices provide important signals to the marketplace, allowing consumers to allocate scarce resources based on where they are valued most. Moreover, those higher prices are likely to trigger increased supplies, thereby providing the impetus for consumer demands to be met and lower prices in the near future. Obfuscating the price signal through legal constraints does not change the underlying condition of scarcity or solve the allocation problem.

(Ernie Goss, Eric Thompson, and I include a discussion of these laws in our 2006 report for the Nebraska Attorney General on Motor Fuel Pricing in Nebraska. You can find a copy of that study here:

We may not like paying higher prices, but a market-based approach is likely to provide a better allocation method than queuing or rioting. And it clearly beats the approach the U.S. Government took after hurricane Katrina. According to Dr. Munger, federal troops kept out supplies that could have provided relief because someone might try to sell them to the folks who needed them after the hurricane.

In retrospect, I doubt that anyone thinks it is a good idea to keep supplies away from a disaster area. Those living in the disaster area are worse off when they are deprived of the choice for paying for something they need. It would be great if everyone was altruistic and helpful, even outside their own neighborhood. In fact, we see much of this in our society. But if some of our fellow humans fall short of this ideal and seek instead to help themselves while helping others, is that really worse than doing nothing? (And by the way, we don’t penalize those who shrug and do nothing.)

Many people nevertheless believe that raising prices in these circumstances is worse than doing nothing. Apparently, a majority of legislators and governors have that belief in over 30 states. What explains these laws? Is it merely a lack of economic education? Perhaps, but Dr. Munger offered an interesting alternative theory to explain why this may be so.

Drawing from evolutionary theory, Dr. Munger suggests that the marketplace has evolved much faster than our brains, which are still rooted in the adaptive behaviors of past generations. When we lived in tribes and small villages, we learned to trust those around us and to engage in cooperative behavior with them. Our wellbeing depended on it. But in a larger social network, which is more impersonal, those behaviors are unlikely to produce the same qualities of wellbeing.

For example, Dr. Munger suggests that strong norm enforcement on an individual basis makes no sense. If someone cuts in line ahead of you, violating a social norm common in many cultures, confrontation could present personal risk. The intrusion is likely to cost very little, thus presenting a dicey trade-off. If you will be unlikely to meet the other person again, is it worthwhile to teach them a lesson? Collectively, we would benefit from this norm enforcement, as we like the order it produces. But if enforcement entails personal risk, is it worth “getting involved”? Perhaps not, but many of us would like to say something. (Remember George Costanza telling off the noisy patrons in the theater?!?)

Dr. Munger suggests that our sensibilities about expecting cooperation are deeply embedded, and thus many of us react viscerally to the prospect of price gouging. Apparently, our brain modules devoted to these cooperative commitments may dominate over the rational mode, which would assess the quality of the behavior based on the outcome. And I think those modules make a good bit of sense when they involve those close to us, such as family and neighbors, from whom we expect to continue long-term relationships. But if a fellow wants to take the risk of bringing in supplies and selling them for an amount that is higher than the usual market price, shouldn’t we welcome that behavior? After all, it gives us more choices than having nothing!

If Dr. Munger is right, this kind of problem may be far more extensive than the matter of price gouging laws. For example, could concerns about income inequality also reflect the influence of these primordial brain modules? It probably makes sense to presuppose that everyone will receive the same rations in a cooperative, hunter-gatherer economy in which all work for the good of the tribe. But in a specialized world where people make different commitments to labor and productivity, different investments in education and training, and we have access to dynamic, global markets that can monetize skills and innovation, that expectation of equal outcomes is unrealistic. It may also be damaging to the wellbeing of the society, particularly if measures to address inequality reduce total output.

I have not yet had an opportunity to study Dr. Munger’s work in any detail, but I thank him for visiting our campus and for advancing these ideas. Overcoming deeply embedded brain functions may be a more formidable task than merely educating people – though I think we should not shrink from trying to educate. And I think that other cultural institutions, including religious ones, help us to think of others rather than just thinking of ourselves. We can do with more of that, particularly in our own neighborhoods where relationships matter the most.

Matt Ridley, whose latest book, “The Evolution of Everything”, presents some similar concepts in the course of exploring the role of spontaneous order in, well, just about everything! I do not agree with all of Ridley’s musings (perhaps another blog?), but it is quite clear that spontaneous ordering often provides advantages over central planning. As a start, I hope that we could agree that the central planning approach of keeping out supplies from a hurricane-stricken zone is worse than price gouging, and that those who try to help others they do not know are praiseworthy, indeed.