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Comments on: Recordkeeping Alters Economic History by Promoting Reciprocity by Basu et al. (2008) Shyam Sunder Conference on Experimental Social Sciences.

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Presentation on theme: "Comments on: Recordkeeping Alters Economic History by Promoting Reciprocity by Basu et al. (2008) Shyam Sunder Conference on Experimental Social Sciences."— Presentation transcript:

1 Comments on: Recordkeeping Alters Economic History by Promoting Reciprocity by Basu et al. (2008) Shyam Sunder Conference on Experimental Social Sciences Washington University, St. Louis, October 17-18, 2008

2 2 Human Sociality Vernon Smith: Rationality in Economics: Constructivist and Ecological Perspectives, puts human sociality at the heart of the ecological processes that defined what we are and how we got to be what we are.

3 3 Exchange The tendency to truck, barter and exchange, involving reciprocation, is the source of a good deal of economic efficiency. It is not unreasonable to argue that the “fitness” advantage arising from gains from exchange might have helped select reciprocation as an inherent trait that got hard wired into our brains through biological evolutionary selection.

4 4 Specialization A parallel process of social selection based on the same source of fitness may have encouraged specialization.

5 5 Institutions as Social “Hard-Wiring” Perhaps the brain researchers have already determined the extent to which reciprocation is hard-wired into us. Institutions can be thought of as the social equivalents of biological hard-wiring; Perhaps not quite as hard, but similar in a sense. Biological hard-wiring constrains conscious choice in ways which are pervasive and unobstrusive. In the social domain, institutions also define and frame our expectations, choice sets and consequences of choices we make.

6 6 Brain Science and Institutions in Economics The questions raised by Smith about human evolution bring us to the confluence of two major streams of thought: The recent advances in brain sciences, and The new found enthusiasm for study of institutions in economics as reflected in the work of Douglass North and experimental economics.

7 7 Evolution of Humans and Society A study of brain sciences and socio-economic institutions can help us understand better the nature of man and society, and how they have come about. In this conference we have seen both these streams addressed from different perspectives.

8 8 Reciprocation and Memory John Dickhaut et al. take us closer to the origins of our brain and our institutions. They show that reciprocation calls for memory, and memory facilitates reciprocation. This simple, and perhaps to some people ex post obvious, finding has important implications.

9 9 Deconstructing Exchange What does it take to engage in an exchange? – Objects of exchange, – Property rights to the objects, – Mechanism to enforce the property rights before and after the exchange, – Information, memory and processing capacity in the brain

10 10 Brain Capacity for Exchange To Assess the desirability of the objects To Assess the desirability of the exchange Execute the exchange. These demands of exchange multiply rapidly with – Number of objects – Attributes of objects, – Number of parties involved in the exchange, and – Passage of time that might elapse between actions necessary to complete the exchange.

11 11 Focus on Memory Dickhautet al. paper hints at the biological and social co-evolution that may have accompanied the development of brain, reciprocity and exchange, They wisely focus on one very specific and important element—the memory, and for very good reason.

12 12 Response to Demand for Memory Exceeding Available Capacity As a layman, I assume that memory is an essential function of brain. What happens when the gains of exchange push humans toward engaging in more, and more complex exchanges But they may not have had the neural equipment to handle the complexity and thus be prevented from reaping those benefits.

13 13 Out-of-Body Memory Complexity of exchange could have been bounded by memory until the fitness advantage conferred by exchanges helped expand memory over time. Given the generational cycle of a couple of decades, human evolution is slow, and this process would have taken a long time. Apparently, humans had enough brain capacity to supplement the internal memory by external devices. – Georgescu-Roegen’s theory about technology aids as extension of human biology If this is how it happened, to me at least, that is the real miracle This extension of memory is worthy of investigation in itself for several reasons.

14 14 Extension is Not Trivial Supplementing internal memory by external devices requires additional memory (perhaps of a different kind than the constrained memory) It also calls for creating/utilizing other brain resources Making, reading, and interpreting charcoal marks on a cave wall would have called for a large array of brain resources that may or may not have existed.

15 15 Example of Brain Resources/Processes Conceptualizing/schema for external memory Mapping internal memory to visual and hand actions Memorizing the link between the internal memory and external representation Reading the external markings for interpretation and recovery of original internal memory Of course, the paper is not concerned with how our brains managed to achieve all of the above (and probably much more)

16 16 Results The deals only with the link between complexity of exchange, demand for additional memory and efficiency of resulting exchanges In my assessment, the conclusions of the paper are well-justified, and this work points to some very interesting directions for future work.

17 17 Results Recordkeeping alters the character of reciprocal exchange Enables better recall of past outcomes Promotes accurate reputation formation Promotes better coordination of economic activity Reduces risk, and encourages investment (exchange)

18 18 Questions I would very much like to see another experiment on measuring the complexity of exchange response to the availability of additional memory – It is possible that we may discover other constraints on brain resources While it may not be reasonable to expect inclusion of such an experiment in the current paper, I think such an experiment would be easy to design and conduct, and will add significantly to the importance of these results by endogenizing complexity

19 19 Questions The experiment in the paper focuses on the private decision making functions of external memory devices Indeed, many external memory devices have this private character. However, some external memory devices have a public character, and may serve not only the private decision making functions for the parties involved, but also the common knowledge functions associated with the dispute resolution and contract execution aspects of the exchange Some of the memory devices discovered in archeological record may have had such public functions (clay tokens, baked envelopes) Since dispute resolution and contract execution is also important for economic efficiency an attempt to disentangle the private and public functions of external memory might be worthwhile at some point

20 20 Other Questions I am also curious about: Is there evidence of reciprocity in species other than humans. How transaction specific is any such reciprocity? What is the role of time dimension in reciprocity? How much time can pass between the two reciprocal acts without the right/obligation involved getting diluted significantly?

21 Enjoyed the paper. Thank You!

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