Mind of the Market | Michael Shermer | Talks at Google

Hello, everyone. Welcome to Today's Authors at Google Talk. Our guest today is Michael Shermer. He's the author of the Mind of the Market. He's also the author of nine previous books, including the bestselling why People Believe Weird Things and the Science of Good and Evil. As an adjunct professor of economics at Claremont Graduate University, he's also a columnist for Scientific American, the publisher of Skeptic Magazine, and the founder and director of the International Skeptics society. Because we're VC'ing into other locations, please remember to use the microphone when we're asking questions. And please join me in welcoming Michael Shermer to Google.

Good morning. How we doing? Excellent. Oh, wait, it's. Good afternoon. It's five minutes we're in there anyway, so thanks for having me. I understand I'm competing with a corporate ski trip or something like that, so thanks for coming here instead of going to that. Or maybe you weren't invited to that. Well, anyway, maybe I shouldn't have even brought that up. Yeah, sorry. Right. Anyway, so I am the publisher of Skeptic magazine. Looks like this. We investigate claims, the paranormal, pseudoscience, fringe groups and cults, and claims of all kinds, between science, good science, junk science, bad science, non science, pathological science, voodoo science, and plain old nonsense. And unless you've been on Mars, abducted by aliens, and are gone for the last 20 years, you know, there's a lot of it out there that is nonsense. And that's our job, is to. Well, some people say we're debunkers, but let's face it, there's a lot of bunk. So, you know, somebody's got to do it. That's what we do. But more interestingly, we investigate why people believe in claims like this. And what's the power? Belief, the psychology belief. And for example, our last issue on medical controversies, you know, secondhand smoke. Does it really get cause medical problems? Psychiatry was Tom Cruise right? Maybe actually for the wrong reasons, but maybe some room for skepticism there. Do vaccinations cause autism? No. But why do people think it does? Because we're pattern seeking. Connect the dot primates. We connect A to B. Association learning. And oftentimes in the natural environment, A really is connected to B. And that's how we survive. But we don't have a baloney detection module in our brain that helps us determine the difference between false positives and true positives. So how can we tell whether one is connected to the other one? And for that, we need science. Our brains are millions of years old. Science is only a couple hundred years old. So therein lies the problem. And that's why we need science. That's why we need skepticism. That's why skepticism and science are really one and the same. The default position in science is that in whatever it is you think you believe in, it's not true unless you prove it otherwise. And so in the case of the vaccination autism thing, the sort of take home message there is that the mercury content in the vaccination itself was removed in the year 2000 from all vaccinations and children born after that are still getting autism. So clearly that can't be the cause, whatever the cause is. Our latest issue is on. This just came on the stands this week on quirkology, that is the study of quirkiness. And a debate I did with Deepak Chopra on life after death. And my position is I'm for it. Of course, what I want to be true and what's actually true may not always be the same. And therein lies the rub. Right? And our issue before that was on 911 conspiracy theories, which is another one of these words really really weird things that people believe, but boy, they really do believe. This is. Well, first of all, was 911 a conspiracy? Yes, it was 19 al Qaeda members attacking that constitutes a genuine conspiracy. But that's not what the so called 911 truthers think they think it was. You know, the Bush administration orchestrated the bringing down of the World Trade center buildings through intentional demolition explosive devices and remotely controlled the planes flying into the buildings and launched a cruise missile to hit the Pentagon and so on and so on. It goes on and on like this, which would have to involve thousands of U.S. bureaucratic agents operating out there in the field without anybody noticing. And this the same people who think Bush is the most incompetent president we've ever had somehow managed to pull off the most intelligent, convoluted conspiracy in all of history. That alone tells us there's probably some baloney there that can't be true. Interestingly, I've been on a book tour. This is my fourth week started, my fourth week here. And at every single stop so far. We'll see about today. They have come out to my talks and I finally, after the fourth one in a row, I realized something was up. You know, in the Q and A, I call on somebody and they stand up and you know, speaking of economics, how about that Halliburton Bush 911 and off they go reading their little speech. And so we actually took to videotaping Some of these guys, you can get those on our webpage@skeptic.com or michaelshremmer.com and we've now downloaded them making their little speeches. And somebody finally sent me a link to one of the 911 Truth web pages that says, here's Shermer's tour schedule. Go there and make a speech. So this was orchestrated. Anyway, I thought that was kind of interesting. It was a conspiracy. So I thought today this is a reading. So I thought I'd do a little bit of reading and then telling some stories and then we'll do some questions and then do one of the famous Google lunch things, I guess. So this book, the Mind and the Market, is kind of a spinoff from my previous books. Why People Believe Weird Things is about science and pseudoscience. How we Believe is about science and God or science and religion. And then the science of good and evil is about science and morality or the evolution of the moral sentiments. And then so the Mind of the Market, I guess, is volume four of my trilogy, Pesa Douglas Adams. And so I start off with a problem I'm trying to solve here, basically from an evolutionist evolutionary perspective. So I'll just read the first two paragraphs and then we'll talk from there. Living along the Orinoco river that borders Brazil and Venezuela are the Yanamomo people, hunter gatherers whose average annual income has been estimated at the equivalent of about $100 per person per year. If you walked into a Yanomamo village and counted up all the stone tools and baskets, arrow points, arrow shafts, bows, cotton yarn, cotton and vine hammocks, clay pots, assorted other tools, various medicinal remedies, pets, food products, articles of clothing and the like, you'd end up with a figure of around 300. Before 10,000 years ago, this was the approximate material wealth of every village on the planet. If our species is about 100,000 years old, then 90% of our history has been spent in the state of relative economic simplicity. The 100,000 year date I give is just the lower boundary of the estimate of the last bottleneck migration out of Africa, from whence apparently all of us come. And so all the people living elsewhere are gone. And that's. Well, anyway, that's what the mitochondrial DNA data tell us. So it wasn't 4004 BC. But that's another lecture continuing. Living along the Hudson river that borders New York and New Jersey are the Manhattan people, consumer traders whose average annual income has been estimated at $40,000 per person per year. If you walked into the Manhattan Village and counted up all the different products available at retail stores and restaurants, factory outlets and superstores, you'd end up with a figure of around 10 billion. That's the SKUs, the stock keeping units that marketers use to track how many products are available for sale. And we ran out at 10 billion of the barcode system. They had to add an order of magnitude more to 100 billion to track the number of products. We have this difference of 400 times in income and 33 million times in products. Almost beggar's description. If ever there was a great leap forward, this was it. And it didn't happen gradually. It's been estimated that the $100 per person per year had risen only to about $150 per person by the year 1000 BC, the end of the Bronze Age in the time of King David, and did not exceed $200 per person per year until after 1750 and the onset of the Industrial revolution. In other words, it took 97,000 years to go from 100 to $150 a person per year. And then another 2,750 years declined to $200 per person per year, and finally 250 years to ascend to today's level of $6,600 per person per year for everybody on the planet. And as we just saw, an order of magnitude higher still for the wealthiest people and the richest nations. If we compress that hundred thousand year period into just one year, then the last 250 year period of relative prosperity would represent less than one day out of the year. Or if we condense the hundred millennium into one 24 hour day, our epoch of industrial production and market economies accounts for a mere 3.6 minutes. In other words, the age in which we live and take for granted is normal. And the way things have always been in fact constitutes a mere 1/4 of 1% of the history of humanity. I'm sorry, I can't ask what if the Wheel and Fire was copyrighted? What if the what in fire? Well, somebody would be richer than Bill Gates. So the problem I'm trying to solve here is how in the world did this happen? What's our explanation for this remarkable huge explosion? And so to answer it, I'm integrating multiple sciences into one attempt to answer the question that is complexity theory, behavioral economics, neuroeconomics and evolutionary economics. So that's what the book is about. It's a form of integrative science. And starting with complexity theory, that is the economy is a complex adaptive system that Emerged out of a simpler system. And so I have multiple comparisons of things we're already used to, or most of us anyway, of thinking about non top down sort of bottom up, self organized systems that look designed, but in fact they're not designed from the top down. Life itself appears to be an emergent self organized system. You just put chemicals into a prebiotic soup, throw some energy in there, ultraviolet radiation, some lightning, perhaps other forms of energy, perhaps from deep inside the earth. And molecules begin to self organize into more complex chains of molecules, eventually into protein chains, eventually into little self contained units. And we ultimately get self replicating molecules out of that and we have life. Complex life appears to be a self organized emergent property of simpler life. The complex cells you and I are made out of, eukaryotic cells have within them tiny little organelles we all had to memorize in high school biology. And, and those cells themselves are now believed, at least by Lynn Margulis theory. That I think is right, were themselves once simpler prokaryotic cells, independent living organisms in this early form of life. And this goes a long way to explaining why, for example, mitochondria have their own DNA. I mentioned mitochondrial DNA as a way of tracking your ancestry through your mother's line and is now a standard tool of geneticists. In fact, why would mitochondria have DNA? That's such a weird thing until you think about it in the context that actually it was an independent cell by itself. And so Len's theory, which I think is right, is that this is a self organized emergent property. Simpler cells coalescing into more complex cells. The immune system appears to be a self organized, bottom up emergent property of simpler systems. Consciousness probably is best going to be explained, although nobody knows for sure yet. 100 billion neurons firing in certain patterns and sequences somehow generates whatever it is we're doing here today, thinking language awareness, self awareness and so on. How does that happen? It doesn't happen from the top down. There's no little homunculus in there calling the shots. It's a bottom up, self organized system. Language, of course, we know as an evolved system. Nobody designed English 500 years ago to sound anything like it does today. Especially where I'm from in Southern California where they use the word like every three words. You couldn't possibly design that. Actually the word indeed seems to be coming up a lot. I have a 16 year old, so that explains my interest in this subject and the law and of course the economy. So these are all examples of bottom up, self organized Emergent systems that need no top down. So in a way, I'm trying to build some bridges here. I'm trying to show my conservative friends that the free market economic stuff that they already recognize doesn't need a lot of top down design. In fact, they can accept that evolution stuff they're skeptical about because it's the same kind of thing. It's a self organized bottom up system. I'm trying to convince my liberal friends who completely accept evolution, that that free market economic stuff they're skeptical of. In fact, it's the same kind of thing with evolution. So it's a little bit of political bridge building there that I'm trying to do. And not insignificantly that something like 40% of Americans still consider young Earth creationism to be the best explanation for the origins of life and humanity. That sometime around 6600 BC is when, or 6600 years ago is when the entire world was created in one fell swoop. About a thousand years after the Babylonians invented beer is apparently when the world was created. So this is a problem. So in terms of science education, we need to do something about that. So this is one way to do it. So one of the things I look at in the next chapter is comparing Adam Smith to Charles Darwin, since these are the two systems we're talking about. And in fact, two of the most potent metaphors in all of western thought, the invisible hand and natural selection, are both a little misleading. I mean, the concept of metaphor in science is an important one because so many things are difficult to grasp. So when physicists talk about the structure of the atom is like a solar system with the nucleus as the sun and the electrons going around it are like planets, well, in fact, it isn't anything at all like that, but it's at least as a first order approximation to help us kind of grasp as youngsters what an atom might be like. That's what things like natural selection and the invisible hand are supposed to do. And they do so in a sort of cumbersome way that leads to misunderstanding. Natural selection. Of course, nobody's selecting anything. And Darwin opens his great book with this metaphor of the artificial selection. The pigeon breeders are selecting for certain characteristics that they want. And as you carry it down the line, you get those characteristics. And nature operates like that. To which a creationist or intelligent design theorist would say, yeah, that's exactly what we're saying too. There's a designer selecting for these. No, that's actually not what we're saying at all. It's A bottom up, there's no top down control. And when Smith talks about the invisible hand, he really means well. He originally used this metaphor to describe the moons of Jupiter going around it almost held there almost as if by an invisible hand. Then he applied that to the market economies. You don't really need top down design, not much anyway. And that if you just let people do their thing, just like in natural selection, it's just a bunch of organisms running around trying to make a living and get their genes in the next generation, that's all it is. And those that do that better are more likely to survive. So I used to, when my daughter was about eight, I used to use this metaphor of the example of polar bears is almost like they're a transitional living, transitional species between land mammals and marine mammals. You know, lots of body fat, big huge paws for swimming, they can stay in the water a long time thick and they have all these characteristics that are sort of midway between being a land mammal and a marine mammal. But that's not really right even saying it that way because that implies that polar bears are becoming marine mammals. They're not becoming anything except maybe extinct I guess if the global warming thing happens. But they're just well adapted to do just what they're doing and nothing more. They're not going anywhere. Even when you read like paleoanthropological literature where these guys will talk about like finding a fossil tooth that's, or piece of a jaw that's almost human like, or it's, you know, halfway between being an australopithecine and a hominid, as if the Australopithecines, Lucy for example, is trying to become, it's striving to become a hominid because that's a better thing. It's, you know, up the ladder of progress that isn't right at all. But we can't help but think of it that way. And I think when we think of the invisible hand we think, well, this must be a top down designer. And Smith's point was just the opposite. If people are just running around trying to make a living getting their genes in the next generation and as they do so since we're a social species, we do a lot of trade and exchange in an environment that's conducive to that. And out of that emerges just all by itself without any top down design, a complex system anyway, so. And then I debunk a couple of myths in the rest of that chapter about both evolution and economics. The case of evolution most People think of it as most people don't really understand it. Think of it as nature reddened tooth and claw in Tennyson's apt phrase. Survival of the fittest. In Herbert Spencer's description, it's competitive and cutthroat and eliminative. Extinction is the rule, survival is the exception. And so we kind of understand why people don't like it, those that don't really accept it. Like there's something kind of nasty and brutish about evolution. Like that's the animal part of us and who wants to be that. And if we teach our kids evolution, the next thing you know they'll be shooting each other in schools. And oh look, they are. No wonder, because we've taught them evolution, now they think they're animals. And that vision of evolution really comes from Spencer and Huxley, Darwin's bulldog, who portrayed it that way. And those guys won out over another faction shortly after Darwin's time of Mutual Aid. That is Peter Kropotkin's great book called Mutual Aid. He was a Russian anarchist who was something of an amateur naturalist who said, if you actually go to Russia and you look at all the social animals out in the hinterlands in the middle of nowhere, most of them are fairly cooperative, pro social and tightly knit in groups. And you don't see that kind of competitive, cutthroat, eliminative force that those English scientists seem to see in that capitalistic England. So this is sort of another subtext of the sociology of science. Depending on what your background is, it can influence how you see things. So Kropotkin's point of his book was that actually, yes, of course that stuff is true, but there's another side to human and animal nature. A side that's, well, rather good, in fact, pro social, cooperative. And. And so really it's come down to us to this day that so many people think of evolution that way. I have a chapter which you'll see in the book, appropriately enough, since I'm here comparing Enron with Google, since you had to pick some companies and the worst, and, well, I guess you probably agree the best, something like that. Well, Jeffrey Skilling, the CEO of Enron, Jeffrey Skilling, said that his favorite book in Harvard Business School was Richard Dawkins, the Selfish Gene, and he misread this book. I mean, Richard's point was Fittest can mean all sorts of things. It may mean that you're fitter if you're very pro social and cooperative, a good team member supporting the group, and that's the Best way to survive as a member of a social group. And so Skilling structured his corporation to run in this sort of Darwinian, what he saw as a social Darwinian eliminative process. So he had a. All employees had to be. He called this the rank and yank system of employee evaluation. You had to be evaluated every six months on a scale of one to five. Your department head had to assign you a number and 10 to 20% of employees had to be given a 5 and all fives are fired. And so this is not exactly conducive to sort of pro social cooperative team effort if you know that one out of five of you are going to be axed in the next six months. Because it's a curve, it's grading on a curve. Somebody has to go. He saw this as a good Darwinian way to run a company. And well, we saw what the results of that were. It's not that that's the direct cause, of course, the accounting problems and all that, but why did those happen? What an evolutionist wants to know is a deeper why, what's the psychology behind it and what's behind that. So the lack of transparency, the lack of trust, the lack of teamwork and a sense of cooperativeness within a group, within any social group, leads to a breakdown of the rules. So it is parenthetically not in this book, but I have a cover story coming out in Scientific American and it will come out the first week of April. Opening Baseball Day. Why athletes dope? Why they cheat. My sport is bike racing, so it's the most prominent in our sport. But as we've seen recently, it's quite prominent. Track and field and baseball and football. And why, why do they do this? Are they all just cheaters or athletes just inherently immoral? No, of course. They just all want to succeed and be successful. And the payoffs are huge. The drugs really work. But most importantly, the rules aren't enforced. And so if you either have no rules, or the rules are loosely defined, or the rules are clearly defined and nobody tests and they don't really enforce them and it's clear nobody enforces them, then once the top guy does it, then the next his closest competitors have to do it, then the next tier down has to do it. And then the lowest ranked team members just to keep their jobs have to do it. And all the way down to the amateur ranks in high school. And that's what happens when a system goes corrupt in a behavioral sort of analysis, game theory analysis. So sports is a nice model for business, for Societies for nations. And so that's part of that behavioral economic stuff that I'm employing here. So that's how I think many people see evolution in this negative way. And many people see corporate capitalism, market capitalism, especially academics who have largely not really had a real job. So they don't really know what the business world is like. Frankly, it's just another one of my pet peeves. You go to college and then four years of undergraduate and four to six years of graduate school, you get a PhD, you get a job at a university and you're there until you're done. And so it's a womb to tomb sort of protective system. I think academics have a rather distorted view of market capitalism simply because they haven't really operated within it to see how it works. In fact, if most companies were run like Enron, market capitalism would have imploded centuries ago. It can't possibly be. Markets have to be moral for the most part. Yes, of course there's abuses, but the abuses have to be kept in check through the enforcement of the rules, just like in sports. Okay, so now I'm interested in looking at how this happens on a deeper level. So here I talk in the book about behavioral economics and neuroeconomics and what that says. In order for an evolutionist to explain how this could happen. We start off with why anybody would be nice to anybody else. Well, of course we know from kin selection theory that anybody who's related to one another actually benefits their own genes by being helpful to them, by being altruistic or sacrificing themselves. Sacrificing myself for my kid is really a selfish thing to do because those are my half, my genes anyway, so no problem. We worked all that out with kin selection theory in the 60s and 70s. But what about people in my group that are not related to me? So my kin and my kind. And that would be people that I know pretty well in these small hunter gatherer bands where everybody knows one another over many decades and their reciprocal altruism is our predominant paradigm. That is I'll scratch your back if you'll scratch mine. This works nicely if we have multiple interactions and we can tell through experience who's trustworthy and who's not. And this is the role of gossip, for example. Gossip is just a form of information exchange. It's data collection on what other people are like. Because what is gossip about? Well, people have studied gossip, believe it or not, and recorded what it's like to do a content analysis of what people talk about, what they talk about is, well, other people and who's sleeping with who and who's trustworthy and who has power and who has status and who doesn't and who's likable and who's not and who's naughty and who's nice. And all that is a form of data collection. So I know in future interactions, okay, I can trust you, but, well, maybe I can't trust you. And we have a sort of a sliding moral scale. We keep track. And as long as these groups are small, roughly plus or minus 150, plus or minus a dozen or two on either side, our brains are big enough to store enough data about all those people such that if I open your address book, and I would find for most of you, about 100 to 150 people that you know fairly well. And if I asked you about one of them randomly, you could tell me something about that person that appears to be about the size of our brains to keep track of that sort of a social intelligence. And so that's fine, but what about people from other groups that are not related to us and we don't know? And so here, this is where it gets a little tricky. In order for that to happen, you have to have a mutual trust. The natural thing to do is, as Jared diamond told me, when you're in Papua New guinea and you're a member of, you're hanging around a hunter gatherer tribe, if you run into somebody from another tribe that you've never seen before, you do one of two things. You run or you shoot or you kill them. Because it isn't natural to trust people from other groups because it could be dangerous. So the default option is be skeptical. Yes. Like in science, be skeptical of what they might do, assume the worst, and then build trust after that. Well, one of the best things you can do to do this is a type of trade or reciprocal exchange of any kind. And so one of the thesis of my book is that trade, free trade, is one of the best social tools for lubricating exchanges across groups of strangers who don't know one another and who would otherwise be distrustful of one another. And so we'll build up to that and show the implications at the end here. So a couple of experiments in behavioral economics and neuroeconomics that sort of bring together multiple lines of evidence in support of this thesis. And that is one of them is called the Ultimatum Game. So the Ultimatum Game is sort of a classic. So let's say you two are my students in my class, because this is where Academics get their data from white rats and 18 year old to 20 year old students. All of science is based on this. Another subject for one of my skeptic columns. Anyway, but let's say the point is you two are poor starving students and you could use the money. And I give you 100 bucks and you have to make an offer to her of some split, whatever you want to do. 50, 50, 60, 40, 70, 30, 20, 90, 10, whatever you want to do. If she accepts the offer, you both get to keep the money. If she rejects the offer, I take the money back. That's it. Neither of you get any money. Experiment's over. So again, poor starving students, they could use the money. Now, what should he offer her? Well, according to classic economic theory, homo economicus, that economic man is rational, free to make rational choices, and selfish or self maximizing or utility maximizing, he wants the most he can get for himself. He should offer something like a 90, 10 split. Keep as much as you can, you can use the 90 bucks and she should accept it because she has no money right now. She walks into my lab with nothing, she can walk out right now with 10 bucks. Inevitably she will turn down the 10 bucks. Almost all 90, 10 and 80, 20 offers are rejected. Why? When you ask them why, they say because it's not fair. Or because that bastard's going to get 90 bucks and I'm only getting 10. It doesn't seem right. Well, who says it's not fair? Who says it's not right? There's no rules about ultimatum game in society. Well, it's because it's in our brains. Our brains have a deep evolved sense of right and wrong, of just and unjust offers. An economist would say she's willing to pay $10 to me to punish him for an unfair offer. And so we are actually willing to go out of our way to show our displeasure at an unfair exchange. Why would that be? You're going to say you would offer 50, 50 or what? No, absolutely I would offer 99. 99 to 1. Okay, here we go. The question is, when they did these.

Experiments, did they do it with real money?

Oh yes, absolutely. No, they do real money. These are done with cash on the table, so it feels real. So, okay, in evolutionary economics, the idea is that in a social primate species there has to be social mechanisms, evolved emotional responses and interactions between members of the social group in order to have a fair and reasonable equitable form of redistribution of goods, food sharing, for example, the conflict resolution and so on. Now, so there's primate Examples, there's experiments done similar to the ultimatum game. So picture two chimpanzees sitting in two cages here on a table, and they can see each other, but they can't physically interact immediately. And below them is this board sort of hanging down with two ropes. On the board is a bucket of ice with freshly cut fruit, which they like because they're poor and starving students in the lab and they haven't eaten in a while. So they're motivated to pull the rope. If they both pull the rope up evenly, the board comes up. If only one of them pulls it, the board tips and the food falls off and neither of them gets the payoff. So if they both pull it equally, one of them gets some of the fruit. And then the question becomes, because they make it available, will this one share with that one? If they share the food? When the experiment is iterated again and again, there's a lot of cooperation. They both pull the rope and so on. If the one just eats it and doesn't share at all, that pretty much ends the experiment, simply because the other one refuses to participate. Sometimes they get upset, they throw things, they show a sense of unfairness. That was an unjust offer. Now, of course, they have no language, they can't say anything, but behaviorally, they express it in an emotion. And those are chimps, fairly big brain, last common ancestor, 67 million years ago. But you can also see it with capuchin monkeys, tiny little brains, last common ancestor, 12 to 14 million years ago. So sometime before 12 or 14 million years, we evolved an emotional sense of right and wrong, justice, fair and unfair exchanges. So if we think of an economy not as markets and money, but as any social environment in which organisms interact, that's an economy. So this is evolutionary economics. When chimp A grooms chimp B, there's hygienic benefits, right? You get the ticks and fleas off, and there's a little bit of bonding and attachment going on there in which they seem to like each other more when they're touched, like any social mammal. But there's a third level that goes on. When chimp A grooms chimp B, if alpha male attacks one of them, if attacks B, then a B is more likely to come to his aid. It's a form of political alliance. It is literally, I'll scratch your back if you'll scratch my back. And there's enough of a time delay in this, particularly if you have a big enough cortex to think in the future. That guy helped me before. I'll Help him now when he's in need. Right. So this is a form of how social animals, particularly social primates, manage to get along. Primate politics and a lot of this research done, give credit to Franz Duvall and his grad student now Professor Sarah Brosnan, who have done all these. Essentially what behavioral economists do with people. They've done with chimpanzees and capuchin monkeys to see what the lineage is. You can even see some of the classic economic laws, so called laws, the only one really, supply and demand. And so you train these little capuchin monkeys to. They like the fruit, and you trade them to trade pebbles for the fruit. And so let's say a banana slice is worth one pebble, and a peeled grape is worth two pebbles, and a slice of apple is worth three pebbles or something like that. So you get a baseline of what they're willing to pay for whatever it is the fruit that they like for each individual one. Then in the second part of the experiment, you double the price of one of the fruits. So now if you want that apple slice, instead of three pebbles, it's six. And what you see is the demand for that fruit goes down in a nice supply and demand curve, exactly like it does for people. So sometime before 12 to 14 million years ago, the evolved emotion of responding to supply and demand economics evolved. So that I find quite remarkable. Now, you can also run these types of experiments inside of a brain scanner to see where in the brain these sorts of things happen. So I'll give you a second kind of thought experiment that's done. This is the famous trolley car experiment. I'm sure many of you know about this. So here's a scenario. You're walking down a railroad track and there's a. And there's a train hurtling down the track. And you're standing there at the split in the track, and there's a switch. The train is about to go down the right side of the track here, and there's five workers on the track. The train's going to mow them down and kill them, unless you throw the switch. And then the train goes down the left part of the track and kills the one worker who's working on that track. Do you throw the switch? Well, anyway, you can go test this yourself. This is Mark Hauser's research at Harvard. You can Google Mark Hauser and go and do the test yourself. Almost everybody says, well, yes, of course, the moral calculation is obvious. Kill one to save five. Yes, I'd do it. Second scenario, trains hurtling down the track, five workers are on the single track. The train's about to kill them. You're on a bridge over the track. Standing next to you is a big guy, and if you throw him off the track, he lands. If you throw him off the bridge, he lands on the track. The train hits him, kills him, but stops and saves the five workers. Should you throw the guy off the bridge? Yesterday when I did this in a different group, somebody said, well, who is it standing there next to you? It depends. Actually, Mark does have all kinds of variations on this, but that's sort of the standard one. And almost everybody says they would not. They would not throw the person off the bridge. Why not? It's the same moral calculation. Kill one to save five. And the answer is because it feels wrong intuitively, instinctively, that actually physically throwing somebody is different than throwing a switch. And of course that makes sense. It's easier to kill somebody with a gun than a knife. Easier with a knife than with your bare hands. And so the direct versus non direct contact. Interestingly, the research on this by neuroeconomists, where you put somebody inside a brain scanner and then you present them with that scenario and you see which parts of the brain are lighting up. This research is rather interesting. I went to the UCLA lab to do this and climbed inside that tube just to see what all the science was about. And so basically, an MRI is a gigantic magnet. And it does not measure neural activity or brain activity at all. It measures blood flow change in your brain. And so in your blood is hemoglobin. Hemoglobin is the iron atoms. Iron atoms have a lot of electrons, and so the electrons are spinning and the spinning, according to quantum mechanics and all this stuff, the axis can shift like this back and forth as the electron flips. And so you turn the magnet on and it goes like this, and the little electrons in the atom flip over, and then the magnet goes like that, and they flip over the other way. And so it's that flipping of the electrons inside these atoms that's actually tracked by this helmet that you have on your head. And so the technology of these kinds of neuro studies are pretty remarkable. And but of course, it takes a few seconds for the blood flow to get there. You think about this rather than that, and some other part of your brain is more active. And the more energy needed by the cells draws more blood to them to get more oxygen there. And that takes a couple seconds. So the pictures you see in Scientific American, for example, brain scans, and all colored up with A little red spot that says there's your brain on money, or you're thinking about a McDonald's or there's the Coca Cola logo spot. That's, that's a little, to say the least, misleading. That isn't a picture of any person's brain. These are statistical averages of the whole data set. You've scanned, let's say 20 people. Everybody's heads are slightly different. That has to be corrected for statistically. You get inside there and you wiggle around a little bit. And so that has to be adjusted and you see the scans. When you actually see the scans, there's nothing to look at, it's just black and white. There's your brain. So there's yet another statistical program you have to run comparing this condition to that condition. It's the changing comparison that shows how the blood moves. And then you add artificial color to it to make those differences pop out. And that's what you end up seeing. So what the public sees at the end of the line is quite different from what actually happens. Not to mention it's a really uncomfortable, artificial environment. It's very claustrophobic. You're crammed way down in this tube and you got this helmet on and you got these goggles on. And on the goggles are little TV monitors that represent the computer screens out there where somebody's running the experiment. You got these earphones on because it's louder than hell and they can talk to you and give you scenarios. And you have to push the little, you have a little keypad, you're pushing buttons. Yes or no? Or I like the Coke logo or the Pepsi logo or whatever it is you're testing. By the way, Coca Cola seems to always win out for some odd reason. Coca Cola logo generates more neural responses and dopamine rich centers of the brain that sort of reward feel good parts of the brain that light up when you have chocolate or you think about erotica or sex or whatever. Anything that's sort of rewarding and feels good. For whatever weird reason, the Coca Cola logo has just nailed it more than anybody else. I don't know if it's that red or the cursive type or 100 years of bombardiness with it. Anyway, that's the sort of neuromarketing. So these guys are being hired by Fortune 500 companies like Telus. Of the four logo designs, which one lights up the brain? So the idea is we want to get inside the black box and see what's going on there. So to whatever extent you can Trust all that. And by the way, one out of five subjects can't stay inside the tube because it's so dang claustrophobic, myself being one of them, I couldn't stay in there. My guy, Russ Pauldrick, gives me this little button to push. I said, what's this for? And he said, well, in case you panic or anything, I said, panic, come on, I can do it. So I climbed back there and five minutes later, get me out of here. Not anybody can do this. And so there's a little bit of selection process. Nevertheless, they hope that they're getting something out of that. Anyway, back to the trolley car thing. When subjects are thinking about the first scenario, kill one to save five, all's they got to do is throw the switch. The most active part of the brain is the prefrontal and frontal cortex, loosely speaking, the sort of high road, rational, calculative part of our brains. When in the second scenario you're asked to think about throwing some guy off and you see him get smashed and you know you did this and so on. The deeper part of the evolutionarily ancient, deeper limbic system, amygdala, parts of the brain related to disgust and fear and sort of negative emotions, that's more active than the prefrontal and frontal cortex. So that difference tells us that there is a deep emotional difference between throwing a switch and throwing somebody. And so the idea, there is another line of evidence, along with the primate research, that these are evolved emotions. So why would we evolve emotions like that? What an evolutionist wants to know is what's the reason for that? So our brains evolved, it costs money, costs energy to run an emotional system. It must be there for a reason. So if we think of the human body as an equilibrium system, often out of balance, so you need more water, so you feel thirsty. That's a kind of a crude emotion. And that motivates you to get up and move around the environment and see if you can find some. If you're hungry, the emotion of, well, if you're low on calories, out of balance, the emotion of hunger motivates you to move around. So rats that are hungry, calorie starved, are even more active than if they have plenty of food. So becoming more active, you're using more energy, but that's how you find more calories and you bring it back to balance. So thirst and hunger are kind of crude emotions, but part of survival emotions are proxies for motivating the organism to do something. So when you're, what do we need to do to survive the species, make a living and pass our genes on to the next generation. So we know that when somebody is attracted to somebody else, they look for certain characteristics. And thanks to the evolutionary psychologists, we know exactly what the formula is that people look for when they look for somebody else. Women find attractive in men. Broad shoulder, muscular shoulders, that sort of narrow waist, that kind of pyramid, upside down, pyramid shape, with a symmetrical, reasonably symmetrical body, symmetrical face. If you put a mirror up there, the two sides would be pretty close. Clear complexion. These are all genetic signs of proxies for genetic health. That is, and that's a better candidate for my genes than somebody else. And men find in women that hourglass shape, Again, symmetrical features, a symmetrical face, clear complexion, and a waist to hip ratio, as it turns out, a 69. Waist to hip ratio, 69. They got this down to a science. Now nobody walks into a nightclub and says, okay, let's see, it's a 72, close enough. Nobody's doing any calculating. Evolution's done the calculating for us and we've evolved emotions that simply say, wow, there we go. And it's that behavior that drives you to get up and move and do something about it. So you get your genes in the next generation anyway. And then a slightly trickier thing to explain is why some people, especially young men in their 20s, do really risky things that would seemingly take them out of the gene pool. Right. They might win the Darwin award. And why would that happen? Well, because again, we're a social primate species, that social environment is really important, probably even more important than the physical environment. And so having higher status is more likely to get you more opportunities, get your genes, the next generation. And how do you get status? Well, if you could do risky things like play risky sports, it's a way of signaling to other people, look, I am so genetically gifted that I can afford to take this risk and still survive. Or alternatively, if you have a lot of resources, a lot of rich people give their money away. Why would they do that? Shouldn't they hoard it and keep it and give it to their closest genetic relatives in a sort of a selfish gene model? No, actually you can get a lot of status by giving a lot away because it's a signal to everybody else, look how much stuff I have. I have so much stuff, I can afford to give it all, almost all the way and still have a lot. That's a signal that I'm a high status, I have a lot of resources, I'm a good mate. And so finally, then one last Line of inquiry. And this is the research on hormones. And my friend Paul Zak at Claremont Graduate University does research on oxytocin and dopamine, but especially oxytocin. So you run these same experiments. The ultimatum game, the trolley car, the prisoner's dilemma, all these sort of scenarios that in which people have to make choices about how nice or not nice they want to be, how cooperative or not cooperative they want to be. And so what Paul has found is that this hormone called oxytocin seems to be key to establishing trust between strangers. Remember, that was our task of my book, is to figure out how that happened. So Paul's actually taken to drawing the blood of subjects while they play these kinds of ultimatum games and make offers to one another. So this is really fairly invasive. You really got to pay these subjects. I mean, we're taking some of your blood here. And the half life of oxytocin is fairly short minute. So you gotta, you know, right in the middle of the experiment, okay, boom, pull out a little bit of blood and then run it over to the lab and test it. And oxytocin, as we already know, is the hormone secreted by nursing mothers. It's a bonding attachment thing to infants and so on. Turns out it's very active in any couples that are in love. Anybody that gets touched or massaged. A little spike in oxytocin during sex. There's a lot of oxytocin going on. And between complete strangers and an economic exchange game, Paula's found a nice spike in oxytocin. That when they're cooperative and making generous offers, none of that 99 to 1 thing, but a nice 50. She's feeling good, you're feeling good about this. Everybody's making a lot of money. Lots of oxytocin. And then a lot of defection means lower oxytocin. And then to see which way the causal vector goes, Paul actually tries a second scenario where you give a nose spray to subjects that has oxytocin in it. The nose spray with oxytocin is a technology used to induce labor in pregnant women. So you just give it to subjects and the ultimatum gave, and their offers go way up, they're much more generous. Another one of these scenarios where you're actually given cash and you're allowed to give it away to a real charity right there. Subjects with a little oxytocin in their brain goes right through the blood brain barrier. Boom. Nice little hit right in the brain. Brain feeling really good. I'll give all my money to Oxfam or whatever, and they actually give more money. Except he says 2 to 3% of his subjects seem completely immune to any oxytocin. He calls them the bastards. The bastards seem to have no social skills at all and they don't respond to this. And correspondingly, it appears to be about the same percentage of psychopaths and sociopaths and so society. So Paul's theory, I think he might have something to it, although it's a little bit speculative that I think that he thinks that maybe having the bastards is a good thing. It causes us to be a little more skeptical, to refine and fine tune our moral sensitivities about who we're going to trust. You really got to be careful. There are the freeloaders, yes, but then there's actually even really dangerous people. So we really have to be careful. And that's how we have this really fine tuned sense of moral right and wrong. And this is where it comes from again, comes from a bottom up evolutionary process. Contrary to one of the last arguments anybody, any theist ever makes to me when I debate the theists about God and so on is, you know, the sort of Kant's last two, the starry heavens above and the moral law within. Starry heavens above, the anthropic principle and the moral law within. How did we get our moral sense? Well, we now have a good answer. It's an evolved emotion for social primate species to get along. Okay, so then I'll wrap up here with one final reading and then we'll take some questions. So. The psychology behind diffusing intergroup aggression involves turning potentially dangerous total strangers into prospectively helpful honorary friends. This process is enabled through the creation of social institutions that encourage, enable and enforce positive social interactions and that lead to trust. One of the most powerful of these forms of interactions is trade, the effects of which I wish to elevate to a principle based on an Observation by the 19th century French economist Frederic Bastiat. Where goods do not cross frontiers, armies will. If Bastiat's principle holds this, then its corollary dictates that where goods do not cross frontiers, where goods do cross frontiers, armories will not. So this is a principle, not a law. So it's sort of a first order approximation. There are exceptions, of course, but trade doesn't eliminate war, but it attenuates its likelihood. Thinking in terms of probabilities instead of absolutes, trade between groups increases the probabilities that peaceful and stable relations will continue and decreases the probability that instabilities and conflicts will erupt. So let's return to where we began with the Yanomamo people and how they evolved into the Manhattan consumer traders. When missionaries first began work with the Yanomamo, they discovered that if they provided the native peoples with the tools for procurement and production of food and other resources, the amount of Yanomamo inter village fighting was greatly reduced. The great Yanomamo ethnographer Napoleon Chagnon, who originally gave the Yanomamo their fierce people moniker, his book was called Yanomamo the Fierce People, and he since took that off because people thought, you mean they're just always fierce? Well, no, actually, most of the time they're not doing much of anything. They're just like the rest of us, right? But they fight once in a while, mostly inner village. But he also discovered that they're also fairly sophisticated traders because following the political dictum, the enemy of my enemy is my friend, inter village trade and reciprocal food exchanges between these groups is a powerful social glue in the creation of political alliances. Village A can't go to village B and declare they're worried about being conquered by village C because that would signal their own weakness. So instead, village A throws a potlatch, the equivalent of a potlatch or a big feast for village B. Now village B owes them something. It's a form of reciprocal altruism, such that when village C comes around, we have a stronger political alliance. As a byproduct of this, the Yanomamo village, inner villagers there no longer fight. They don't fight as much, and they get more products and more division of labor. So the Yanomamo are not innate altruists. They're not nascent capitalists. They're just practicing Machiavellian political alliance making. But as a byproduct of that, we get all these other benefits, more products and so on. Without these frequent contacts with neighbors, Chagnon explains, alliances would be much slower in formation and would be even more unstable once formed. A prerequisite to stable alliance is repetitive visiting and feasting. And the trading mechanism serves to bring about these visits. In other words, where goods cross Yanomamo frontiers, Yanomamo armies do not. So as a corollary to this, I have what I call the, well, the Starbucks corollary to Bastiat's principles. If you don't like Starbucks, then pick some other chain, international chain. Where Starbucks cross frontiers, armies will not. That is, the free trade of products between peoples and the open access to services across geographic borders obviates the necessity of political borders and thereby decreases the probabilities that armies will cross them. To the Starbucks Corollary well, you guys will like this. To the Starbucks Corollary I add the Google theory of Peace, where information and knowledge cross frontiers, armies will not. That is the free trade of information between peoples and open access to knowledge across geographic borders obviates the necessity of political borders and thereby decreases the probabilities that armies will cross them. A stirring example can be seen in Europe since the Treaty of Rome and the formation of the European Union, which integrated disparate and historically divided European nations under one economic umbrella, the Euro. Where once invasions and wars were commonplace throughout a thousand years of history, they are now unthinkable. Try it. Imagine Germany invading France and waging war upon her. Or imagine France motoring its armies through the Chunnel, marching them into London to declare England France French. What once made for dramatic literature now sounds like Pulp fiction. Final paragraph. The Wickification of the economy. Wikonomics, as its becoming known, adds to the Google theory of peace. The entire world economy is practiced by and participated in by billions of people and Wikipedia is the right analog for this emerging economic phenomenon. It's the collaboratively created encyclopedia that runs on wiki software that allows real time and constant editing of documents by anyone, anywhere, anytime. It is an open source, peer produced, mass collaborated, bottom up, self organized, emergent property of millions of people choosing to build the modern equivalent of the Alexandrian Libra whose purpose it was to make the sum of the world's knowledge available to everyone in one location. Granted, the ancient Alexandrian Greeks had far less knowledge to store than we do today by many orders of magnitude, but we have computers in the World Wide Web. In the long run, no dictator, demagogue, priest, president or any other pretender to power will be able to control the Googlefication, Wikification, eBayification, MacQuestification, YouTubification, MySpacefication of Information, Knowledge, geography, personal relationships, markets and the economy. Chinese bureaucrats can attempt to put all the firewalls and controls they want on a billion potential Chinese web surfers, but they will never be able to prevent knowledge, products and people from finding their way to those who seek them. Freedom finds a way. Thank you.