Biol Theory DOI 10.1007/s13752-013-0108-0 THEMATIC ISSUE ARTICLE: STRATEGIC INTERACTION Genes, Culture, and Preferences Nikolaus Robalino • Arthur J. Robson Received: 7 June 2012 / Accepted: 9 October 2012 Ó Konrad Lorenz Institute for Evolution and Cognition Research 2013 Abstract This paper explores the notion that economic preferences were shaped by the joint action of genetic and cultural evolution. We review the evidence that preferences are partly innate, the output of genetic forces, and partly plastic, the output of cultural forces. A model of how genes and culture might jointly shape preferences is sketched. Keywords Cultural evolution Genetic evolution Preferences Introduction We advocate in this paper the view that economic preferences were shaped by the joint action of genetic and cultural evolution. We argue that references are partly innate, the output of genetic forces, and partly plastic, the output of cultural forces; but that the very plasticity of the culturally determined component of preferences was shaped genetically. Such a view of the origins of preferences—and of economic behavior, more generally—has profound implications. Consider savings behavior as a case in point. How much of an individual’s time preference, as reflected in a propensity to save, is determined by enculturation? How much of it is innate? To the extent that time preference is plastic and enculturated, a policy that encouraged savings and eliminated market barriers might be successful in N. Robalino A. J. Robson (&) Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC V5A 1S6, Canada e-mail: [email protected] N. Robalino e-mail: [email protected] fostering greater long-run equality. At the same time, the extent to which time preferences are innate and heritable would set limits on the success of such a policy. Relatedly, we might ask: To what extent are our risk attitudes learned? To what extent are they genetically inherited from our parents? To the extent that the greater risk aversion displayed by women, for example, is plastic and enculturated, it would be possible to reduce this, assuming this were considered desirable.1 Consider further the enculturated component of preferences. How exactly is this molded by culture? How much influence can be attributed to parents, and to close relatives? How much to peers? To prominent members of society? When are preferences most malleable? Is there a stage in an agent’s life history when they are effectively immutable? Answers to such questions clearly have serious implications for the execution of policy goals. More basically, the mutable nature of preferences necessitates a fundamental reevaluation of welfare—of the individual and therefore a fortiori of society. If preferences can change, how should the notion of Pareto efficiency be interpreted? With respect, that is, to which set of preferences? A convincing model of the joint action of genetics and culture, with the operation of culture itself subject to natural selection, holds out the hope of permitting the reincarnation of a basis for welfare judgements. We first review the empirical literature on genetics and culture in relation to economic behavior. Much of the early work in this area has focused on the Nature-Nurture question as it pertains to economic outcomes, such as income, wealth, educational attainment, and so on. Recently, however, attempts have been made to understand 1 See Croson and Gneezy (2009) for evidence on the greater risk aversion of women. 123 N. Robalino, A. J. Robson how genetics might determine economically relevant characteristics, such as attitudes to risk, time preference, and trust attitudes. One approach, within this literature, in particular, is to decompose the variation in characteristics into contributions from genetic and environmental variation. This work has generally been very successful in demonstrating that both genetics and culture matter, but it also illuminates critical gaps in our current understanding. In particular, a description of how genetics and environment might interact has remained elusive—by and large, research has proceeded under the highly questionable assumption that genetics and environment are independent. The time is ripe then, for a theoretical framework that would model this interaction and provide a basis for better informed empirical work. After reviewing the relevant literature in economics we proceed to outline the elements such a coevolutionary analysis of preferences might require. The Literature from Economics The Classical Nature-Nurture Approach Most of the relevant empirical literature within economics examines the roles of genetics and childhood environment in adult economic characteristics or outcomes. The point of departure there is the benchmark twin and adoptee approach developed by behavioral geneticists, building on the classical work of Fisher (1918) .2 The aim of this work is to estimate the relative contributions of genetics and environment to the variance in some measurable outcome, such as IQ, income, and so on. The behavioral genetics framework is now outlined. Fisher (1918) assumes that a person’s phenotype is jointly determined by a genotype and the environment.3 For our purposes, the environment determines the information this person is given. This information is transmitted through two mechanisms: (1) social learning (culture), and (2) individual experience.4 In the following we give a brief description of Fisher’s model. Phenotypes (a trait, such as IQ, degree of risk aversion, or an economic outcome such as years of education), genotypes and environments are described as values Y, G and E, respectively. A structural model, Y ¼ G þ E; is assumed. That is, genetic endowments and environments additively determine an individual’s phenotype. The variance of the observed phenotype can then be decomposed into the variance of genotypes and the variance of the environment, i.e., r2Y ¼ r2G þ r2E þ 2 r2GE : ð1Þ The covariance between the phenotypes of two individuals, on the other hand, is given by r2YY 0 ¼ r2GG0 þ r2EE0 þ r2EG0 þ r2E0 G : With this last expression, data in adoptive and identical twin siblings can be used in order to estimate the quantities in (1). For instance, for adoptive siblings r2YY 0 ¼ r2EE0 þ r2EG0 þ r2E0 G ; under the assumption that adoptive siblings’ genotypes are uncorrelated within the population of interest. Assuming further that adoptive siblings share the same environments and that these are uncorrelated to the children’s genotypes5 yields r2E ¼ r2YY 0 : That is, the share of phenotype variance that can be attributed to environmental variance can be estimated with the sample covariance in observed phenotypes among pairs of adoptive siblings. For identical twins, since they are genetically identical (invoking the same assumptions as previously), r2YY 0 ¼ r2G þ r2E ¼) r2G ¼ r2YY 0 r2YY 0 jadoptive : That is, the ‘‘heritability’’ of the observed phenotype is the covariance of phenotypes among identical twins less the covariance among adoptive siblings. The assumption that r2EG ¼ r2E0 G ¼ r2EG0 ¼ 0 admits a clean decomposition of the variance in phenotypes. Such an assumption, however, appears unreasonable. Furthermore, aside from making a distinction between shared and non-shared environment (i.e., family, neighborhood characteristics, and so on, versus experiences that siblings reared in the same household do not share), the above literature gives little insight into the precise nature of the ‘‘Nurture’’ mechanisms. 2 The bulk of the behavioral genetics literature attempts to decompose IQ variance into genetic and environmental influences. See, for instance, the reviews by Goldberger (1979), Devlin et al. (1997), and Plomin and Spinath (2004). 3 See Behrman and Taubman (1989) and also Sacerdote (2011). 4 Of course, the environment’s influence is not limited to information—i.e., the quality of food consumed, exposure to toxins, and so on, all may potentially affect phenotypes. 123 5 This latter requirement can be problematic. It is reasonable if environment is measured by parents’ income. It will not hold if parents invest differentially in their children according to perceived innate abilities, for example. The assumption that siblings’ environments are perfectly shared is also questionable. Genes, Culture, and Preferences The Classical Approach as Applied to Economics Empirical Work Exploiting Random Adoption We turn now to examining key papers taking a behavioral genetics approach to economics. Behrman and Taubman (1989) is a landmark paper that focused on educational outcomes. Their model extends the R.A. Fisher model by permitting the environments of relatives reared in different households to be correlated. Environment is represented by the father’s occupation and the subject’s number of siblings. They estimate Fisher’s model for a variety of kin groups related through a sample of male twins to find that genetics explains most of the variance in years of schooling attained. (Table 3 in the paper reports a ratio of genotypic variance to phenotypic variance of 0.88.) Cronqvist and Siegal (2011) use data on fraternal and identical twins to explain savings behavior. They decompose savings behavior of the twins into unobserved genetic, shared environmental, and idiosyncratic environmental components. Under the assumption that these are independent, their data suggests that approximately 1/3 of the variation in savings behavior can be explained by genetics and that most of the remaining variation is due to individual, as opposed to shared, environment. Interestingly, they find that the influence of genetics is stronger in high socioeconomic status environments. One way to interpret this result is that the affluence of these families permits greater variation in the cultural norms about saving that are transmitted. Barnea et al. (2010) find that approximately one third of the variation in investor’s risk behavior—e.g., stock market participation and asset allocation—is explained by genetic factors. Here, as in the previous study, most of the remaining variation is due to non-shared environment. The empirical design is as in Cronqvist and Siegal (2011). This paper suggested also that family environment has a transitory effect on investor behavior—disappearing, in particular, as individuals accumulate experience. Cesarini et al. (2009) provide estimates of genetic and environmental determinants of experimentally elicited risk preferences. The subjects consist of fraternal and identical twin pairs. The variance in phenotypes is decomposed into genetic, shared, and non-shared environments. As above, these influences are assumed to be independent from one another. Cesarini et al. find strong evidence that preferences for risk taking are heritable, suggesting that genetic differences explain approximately 20 percent of the variation is risk-taking behavior. Common environment plays a modest role. Cesarini et al. (2010) uses the same design as Cesarini et al. (2009). The observed variables are individual investment decisions rather than experimentally elicited risk preferences as in the previous study. The data suggests that approximately 25 percent of variation in portfolio risk can be explained by genetic differences. A distinct empirical approach is to identify intergenerational transmission coefficients by regressing the outcomes of children on those of their parents. Adoption data is then used to disentangle the effects of family environment from the effects of genetic endowments. Adoption here generates a natural experiment that makes genetic variation independent of the environment, given that adoptees are randomly assigned to families. This literature finds a greater role for shared environment. The most likely explanation for this difference is that by availing itself of the natural experiment of random adoption, this second literature does not need to impose structure on the interplay between genetics and environment. Plug and Vijverberg (2003) use years of schooling in order to study the transmission of cognitive ability from parents to offspring. Parents’ IQ is used as an explanatory variable for the schooling success of adopted and nonadopted children. They conclude that at least 50 % of schooling-related ability is passed on genetically. Björklund et al. (2006) study the transmission of earnings and education. They use a data set on adoptees that contains information on the characteristics of both their biological and adoptive parents. Biological parents determine prebirth factors, such as genes and the prenatal environment, while the adoptive family determines the postbirth environment. The phenotypes of the adoptees are then regressed on the phenotypes of their biological and adoptive parents (fathers and mothers). Both the prebirth factors and the postbirth environment are found to be important for income and education outcomes. For instance, in the case of transmissions from fathers to children, the biological and adoptive fathers’ phenotypes appear roughly equally significant for schooling outcomes. However, biological mothers’ phenotypes are at least twice as important as adoptive mothers’ phenotypes.6 Sacerdote (2002, 2007) study educational and labor market outcomes using data from adoptees that are randomly assigned to families. Random assortment implies the genetic endowments of the child are orthogonal to the income and socioeconomic status of the adoptive families. His results suggest that the socioeconomic status of the adoptive family has a significant positive impact on whether the child attends college, or not, and on the selectivity of the college attended. A Direct Approach to the Genetics of Economic Characteristics A promising new strand in the literature directly examines the effects of genes on economic characteristics. Rather 6 See Table II on page 1013 of the paper for these results. 123 N. Robalino, A. J. Robson than looking from the top down, by examining the characteristics exhibited by relatives in varying environments, this strand looks from the bottom up for precise sets of genetic loci that underpin the characteristic in question. For example, Carpenter et al. (2011) show that dopamine receptor genes predict risk preferences.7 Benjamin et al. (2012) utilize a large sample, but conclude that an even larger sample may be needed to address the statistical difficulties. The data and statistical issues involved here are prodigious. With only very vague priors about how most of these genes operate, the exercise, of necessity, is also a specification search. Since the data must simultaneously identify the sets of loci that are involved, statistical tests of significance are adversely affected. Theoretical Perspectives on the Biological Basis of Preferences A theoretical literature on the biological basis of economics has developed in parallel with the empirical literature sketched above. Since this literature does not so far consider the relationship of innate and enculturated preferences, we present only a brief sketch. We will also focus attention on two strands—papers that consider the basis of attitudes to risk and those that consider the basis of time preference.8 Robson (1996) considered the evolution of attitudes to risk. The model involved a single age class, but where there was both idiosyncratic (independent) and aggregate (shared) risk. If all the risk involved is idiosyncratic, then it is straightforward to obtain the expected utility theorem. When some of the risk is aggregate, on the other hand, the preferences favored by natural selection do not even satisfy ‘‘probabilistic sophistication,‘‘ since individuals do not care only about the outcomes they may experience and the probabilities with which these outcomes occur. The preferences selected embody a particular type of negative interdependence across individuals.9 Individuals strictly prefer idiosyncratic risk over precisely comparable aggregate risk. Rogers (1994) is a path-breaking paper that attempts to derive time preference from evolutionary biology. The crux of the argument is as follows. Consider a 25-year-old 7 For a perspective from molecular biology see Kuhnen and Chiao (2009). For a discussion within economics see Beauchamp et al. (2011). 8 Robson (2001) considers the still more basic question: What is the evolutionary reason for utility functions in the first place? Robson (2001) is an early survey and prospectus of this theoretical literature and related empirical work outside economics. Robson and Samuelson (2011) is a more recent survey focusing on the evolutionary basis of preferences. 9 See Curry (2001) for the interpretation of these preferences. 123 woman who saves resources for her daughter who is newborn now to be given to this daughter 25 years from now when she will also be 25. This construction means that an unknown function will cancel out from the first-order condition. The only factor that is left is 1/2 representing the attenuated interest the current mother has in her daughter given sexual reproduction. This generates a pure rate of time preference of around 2 %. There are various problems with this argument that were pointed out by Robson and Szentes (2008). A key one is that repeating this argument with a 20-year-old or a 30-year-old would imply different rates of time preference. That is, all but one of these possible transfers must involve corner solutions. Robson and Szentes (2012) reconsider this issue in a somewhat different but more tractable model than that used by Rogers. They find that sexual reproduction might even reduce impatience. Finally, Robson and Samuelson (2009) consider the evolution of time preference in the presence of aggregate uncertainty, bringing together the two strands. They find that the presence of aggregate uncertainty effectively raises the implied rate of pure time preference. This is desirable since a simple model with only idiosyncratic risk implies a pure rate of time preference that is the sum of the rate of mortality and the rate of population growth, and this sum seems to fall short of plausible estimates of the pure rate of time preference.10 An exciting challenge is to integrate more closely the empirical and the theoretical literature. It is towards this goal that we sketch a model of the biological basis for innate and enculturated preferences. Mechanisms for Cultural Transmission of Preferences Models of the cultural transmission of preferences have been advanced in economics. These consider a rich variety of enculturating mechanisms and channels. Although they do not rule out a role for genetics, it is often only considered implicitly. Two key papers in this literature are Bisin and Verdier (1998) and (2000). A feature of the model they develop concerns the maintenance of culture within a society with subgroups of varying sizes. Parents care about the preferences of their children, but inculcation of children is costly. A minority is more liable to the dilution of its culture, since minority children are likely to acquire the culture of the majority. Minority parents therefore have a stronger incentive to inculcate their children, which is a force tending to stabilize the size of the minority. 10 See also Robson and Samuelson (2007). Genes, Culture, and Preferences another allows incremental adaptations toward the appropriate phenotype through a process of experimentation. Through such a process of trial and error, by steadily improving on previous knowledge, environmentally optimal phenotypes can emerge without individuals understanding the causal mechanisms behind these optimal responses. See Boyd et al. (2011). Evolution of Culture We define culture as social transmitted information that has a lasting effect on an individual’s behavioral phenotype (Cavalli-Szforza and Feldman 1981; Boyd and Richerson 1985). This excludes from consideration information resulting merely in transient behavioral responses—e.g., a shout of ‘‘fire’’ in a crowded room. An individual can acquire cultural information from her parents, elder members of her clan (vertical transmission), or her peers (horizontal transmission). The essential feature of culture is social learning that results in the non-genetic transfer of skill, thought, and feeling from person to person (Boyd and Richerson 1985, pg. 35). There are several channels through which these transfers might occur—by simple imitation, by the transmission of beliefs (the probabilities people assign to various outcomes), or by altering preferences directly. What are the Evolutionarily Relevant Features of Culture? We take our capacity for culture as determined by biological evolution. In this sense our approach is ultimately biological. However, an important question here is why culture? More precisely, why would Nature design an organism with proclivities that can be molded through enculturation? Another way of posing the question is to ask: In what types of environments do flexible preferences yield an evolutionary advantage over a rigid alternative? This is perhaps the first question we should address in developing our coevolutionary approach. The following observations serve as a guide. C1 Cultural evolution can operate on a faster scale than genetic evolution. An individual’s cultural parents can be different from her genetic parents. A person can be a cultural parent to their genetic offspring but to many others as well. Thus culturally transmitted information can more rapidly spread throughout a population than genetic information. Additionally, an individuals’ phenotype can change throughout her life history. In this manner cultural selection might operate on an individual’s phenotype various times while the person’s genotype is fixed. C2 Guided variation. Individuals can select which behaviors to imitate (or parents select which behaviors to reinforce) through a process of rational calculation. As a result, acquired phenotypes might better be adapted to the environment (Durham 1992). C3 Cumulative culture. Cultural transmission allows societies to solve problems that no individual, or group of individuals, can solve at a point in time. The transmission of information from one individual to Culture allows Nature to overcome information problems. C4 C5 There are limits on the accuracy of information that Mother Nature can transmit genetically. Nature might not be able to program aversions or proclivities to some stimuli. In particular it not might be able to condition a utility function to be responsive to certain changes, or to very small changes in input. Society has information that the individual does not. The individual has information that Nature does not. But members of previous generations, or betterinformed peers, might have other information not available to the agent. Towards a Model of Innate and Enculturated Preferences Consider preferences over a variable x which we take to be wealth, for specificity. The fitness consequences of a given value of x depend on the state s. From an a priori point of view, this state is random, with a pdf for the prior distribution given as f(s). The fitness consequences of a particular state s and wealth level x are given by the fitness function / (s, x). Innate preferences are then given by the expected fitness deriving from wealth x and the a priori state distribution. That R is, UðxÞ ¼ /ðs; xÞf ðsÞds. The function U will be the appropriate von Neumann Morgenstern utility function to assess gambles over x. That is, if a gamble over x is given by the pdf p(x), then the expected fitness from choosing p is R R R clearly pðxÞ /ðs; xÞf ðsÞdsdx ¼ UðxÞpðxÞdx. However, society knows more about the distribution (see C5–6 in the previous section). Perhaps an informative signal v is observed by some small set of individuals. It can then advantageously be transmitted by enculturation to everyone else. Assume that the pdf for the posterior distribution is given by g(s|v). That is, the enculturated prefR erences are then given as VðxÞ ¼ /ðs; xÞgðsjvÞds. This again is again the appropriate von Neumann Morgenstern utility function to assess gambles over x. That is, if a gamble over x is given by the pdf p(x), R thenR the expected fitness from choosing p is clearly pðxÞ /ðs; xÞgðsjvÞ R dsdx ¼ vðxÞpðxÞdx. 123 N. Robalino, A. J. Robson Note that deep preferences never change with enculturation here—these are always described by the fitness function /. Rather what changes is the information that is available about the statistical link between wealth x and fitness which is induced by the random state s. However, the effect would be indistinguishable from a shift in observable preferences. The conventional stance on decision making under uncertainty is that preferences should be defined over final outcomes. These outcomes are usually thought of as being deterministic, but what really matters is that any stochasticity is invariant. Wealth is often taken to be a plausible example of a suitable such outcome. We are not adhering to this stance here. Indeed, it seems plausible that the link between wealth and evolutionarily success is stochastic and subject to updating by new information. It is also worth noting that this approach permits unambiguous welfare judgments, despite the presence of different utility functions. That is, it is clear that ‘‘right’’ utility function incorporates any additional information. That is, the ‘‘right’’ utility function is V(x) rather than U(x), given the signal v. An Example This example is motivated by the desire to obtain simple closed-form solutions, rather than a desire for generality. Suppose that s* N(l,r2), where the variance r2 is given, but the mean l is random, with l* N(l0,r20) as the prior distribution. The signal v is taken to be a draw from the combined distribution just described.11 The theory of ‘‘conjugate priors’’ (see de Groot 1970, for example) implies that the posterior distribution of l is given as 0 l Nðl00 ; r20 Þ, where l00 ¼ l0 r20 1 r20 þ rv2 þ 1 r2 and 0 r20 ¼ 1 r20 1 þ r12 ð2Þ The prior pdf f as defined for the general case is the pdf for the prior combined distribution. It follows readily that f is the pdf for N(l0,r20 ? r2). The posterior pdf g is the pdf for the posterior combined distribution. Similarly, it 0 follows that g is the pdf of Nðl00 ; r20 þ r2 Þ, where l00 and 0 r20 are given by (2). Suppose now that the fitness function is quadratic given by /(x,s) = - (s - x)2.12 It is straightforward to evaluate 11 It is straightforward to allow the signal to be multiple draws from this combined distribution. 12 This is unrealistic since it allows marginal fitness to be negative when x [ s, as must be the case for any fixed x if s is small enough. Since s is normally distributed, this possibility always exists. However, if the mean of s is large and positive, this possibility will be very unlikely, and is ignored for the present expository purpose. 123 the expectation of such a quadratic utility under a normal distribution. It follows that Z UðxÞ ¼ /ðx; sÞf ðsÞds ¼ ðl0 xÞ2 r2 r20 and VðxÞ ¼ Z 0 /ðx; sÞgðsjvÞds ¼ ðl00 xÞ2 r2 r20 using (2). Thus the effect of the signal is simply to shift the constant that appears in the quadratic term of the prior utility function.13 Indeed l00 given by (2) is linearly increasing in v, and l00 [ l0 if and only if v [ l0.14 Thus innate and enculturated preferences belong to a particular family of quadratic preferences. The effect of enculturation is limited to a particular shift in the parameter in the quadratic term. However, this shift is observationally meaningful, since risk aversion varies with this parameter. We have, in particular, that the coefficients of absolute and relative risk-aversion are, respectively, rA ðxÞ ¼ l0 1x [ 0 0 and rR ðxÞ ¼ l0 xx [ 0, if l00 x [ 0. Thus both rA (x) and 0 rR (x) are decreasing in the signal v for every fixed x as long as x\l00 always. It would be an econometric issue to recover the parameters l0 and l00 . Given these, however, we have that l00 ¼ l0 þ vl0 r2 1 r2 þ r12 : 0 That is, the enculturated parameter, l00 , equals the innate parameter, l0, plus an increment that is linear in the signal v. Conclusions This paper begins by presenting a survey of empirical work that bears on the causal link between genetics and economic behavior and the underlying economic characteristics. We looked first at the classical approach due originally to Fisher (1918) that aims to disentangle the contributions of ‘‘Nature‘‘ and ‘‘Nurture.’’ In particular, we looked at 13 Although the additive constant term is also affected by the signal, this irrelevant to choice, of course. 14 The expected utility for these utility functions can be expressed in terms of the mean and the variance of the distribution. Consider a gamble over x given by the pdf p(x). Suppose the mean of this gamble is p and the variance is v(p). It follows readily that Z pðxÞUðxÞdx ¼ ðl0 pÞ2 vðpÞ r2 r20 and Z 0 pðxÞVðxÞdx ¼ ðl00 pÞ2 vðpÞ r2 r20 : Genes, Culture, and Preferences several papers that use data on fraternal and identical twins. These data permit the variance in attitudes to risk or the rate of time preference to be decomposed into a component due to genetics and another due to the environment. Both components are sizeable and significant statistically. We next considered several papers that demonstrated the contribution of culture by considering the natural experiment of adoptees who were essentially assigned at random to their new families. At the other extreme, we also examined a literature that tries to demonstrate an effect of genes directly by looking for sets of genetic loci that affect economic characteristics of interest. There is a theoretical literature on the biological basis of preferences that has so far grown without much interaction with the empirical work. 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