The Human Being

Two Different Means to an End

Human beings have desires and goals. To achieve a goal, one must find a path to it. One must decide which means can be used to attain the objective. This is not always easy. The more complex the environment, the more difficult it becomes. We learned in Section 2.5 that an action in complex systems always has more than one effect.

The sociologist and economist Franz Oppenheimer divided these means into two opposing groups [Opp27]:

• the economic means
• the political means

The economic means is one’s own labor or voluntary exchange, as the economy is founded on these two activities.

The political means is the use of force or coercion to obtain a good. Oppenheimer called it the political means because goods were primarily appropriated through wars and other military operations (he wrote this in 1927). Taxes and levies also fall under the political means.¹

This distinction is minimal and also a bit provocative, but it allows for the structuring of the book’s topics. In this book, only economic means are considered at first. Only later, in the final Chapter 11, which deals among other things with state regulation, will the political means be discussed. The political means can be applied both “top-down” and “bottom-up.”

Bounded Rationality

Until the 1970s, many scientists assumed that people generally behave rationally and that their thinking is mostly consistent and logical. Deviations from this were explained by strong emotions such as fear, love, or hate [Kah12]. In the 1970s, this changed after so-called behavioral economists began to investigate economic decisions from a psychological background. Researchers discovered that the human capacity for thought is quite different from what was previously assumed. There is a part of the brain responsible for “fast thinking”, for spontaneity and ideas. However, if nothing comes to mind, “slow thinking” kicks in. One broods, reflects, and tries to exert effort. For this reason, Daniel Kahneman titled his book “Thinking, Fast and Slow” [Kah12]. Kahneman calls the fast part System 1 and the slow part System 2. System 1 handles everyday tasks, such as:

• Understanding simple sentences in everyday language
• Spatial vision
• Driving a car in calm traffic situations
• Trained behavior and memorized knowledge
• Innate behavior inherited from animals, such as running away from fire

System 1 operates automatically and quickly. Using it does not exhaust the person. It is constantly in operation. A person cannot control it either. For example, one cannot switch off language comprehension. If you don’t want to hear what someone is saying, you have to cover your ears. System 1 can be trained. You can learn new languages and, after some practice, understand them immediately without much thought. Energy consumption then drops, and you can listen longer without fatigue. Since System 1 always runs automatically, it is difficult to notice wrong decisions. Sometimes it decides so quickly that the person is not even aware that a question was answered at all.

System 2 performs slow and systematic thinking. It requires concentration and can be disturbed by external factors. This type of thinking consumes energy; it is exhausting over time. System 2 is responsible for human self-control. If you can pull yourself together when angry, that was done with System 2. With the help of System 2, you can focus or “program” System 1 on specific things, such as searching for a particular person in photos or specific objects in hidden-picture puzzles. When someone says “Pay attention” or “Listen closely,” they want the other person to concentrate fully using System 2.

Both systems are fundamentally active. System 1 always works; System 2 is normally in a sleep state and is only activated when needed. You might then wake up with a start: “Whoops, what was that noise?”. Unfortunately, you cannot switch off the errors of System 1. You can only alert your System 2 to check everything carefully, such as when solving a math problem with many numbers. However, you can gradually retrain your System 1. In summary, one can say: System 1 performs heuristic work, while System 2 performs systematic work [Pea15].

Important: Human beings possess only “bounded rationality.”

People behave rationally from their perspective but are limited by their brains. The degree of rationality also depends on how much time a person has to solve a task. If it has to happen very quickly, the person uses System 1, and there is a risk that they do something “intuitive” but incorrect. We will return to this later in Chapter 8 to answer the question of whether Artificial Intelligence and robots will be able to replace humans.

Game Theory and Human Behavior

In the children’s game “Rock, Paper, Scissors,” two children play against each other. Each child can symbolize a pair of scissors, a rock, or paper with their hand. The winner of the round is determined by the following rules: scissors cut paper, paper covers rock, rock crushes scissors. Such games can be represented as a table or, expressed mathematically, as a matrix:

The rows represent the options of the first player, and the columns represent the options of the second player. Two numbers are written in each cell: the first is the gain for the first player, the second is the gain for the second player. If Player A chooses “Rock” and Player B “Scissors,” this leads to the top grey field in the right column with the content “1 -1”. This means Player A wins 1 and Player B loses 1. Gain is formalized here by a 1 and loss by a -1.

This game is a simple example of the games dealt with by Game Theory. Common to all these games is that two players have the same actions available and cannot coordinate with each other. In game theory, for example, the question was asked whether there is a strategy in the above game with which one player can defeat the other. Game theory examines games using logical and mathematical methods. This mathematical game theory is a normative theory that determines optimal strategies. However, how “real” people behave in such games is the subject of “behavioral game theory” [Gin14]. Game theory is an analytical method for investigating social interactions. It applies to all living organisms; therefore, game theory also finds applications in biology, economics, computer science, artificial intelligence, psychology, and sociology.

The children’s game “Rock, Paper, Scissors” is a so-called zero-sum game. The gain of one player is the loss of the other. Such zero-sum games often occur in reality, such as in competition. In sports, one always wins at the expense of the other. If two companies in the economy offer a very similar product, they are in a zero-sum game. Every additional sale comes at the expense of the competitor. In some countries, “haggling” over the price is allowed. This “haggling” is also a zero-sum game. One wins at the expense of the other.

The Prisoner’s Dilemma is an example of a non-zero-sum game [Fre14]. Two persons, A and B, are caught together by the police during a burglary and are put into separate cells. They cannot communicate with each other. Both are to be interrogated by the police, and the sentence depends on whether they confess or not. The following table expresses the game:

The evidence is quite thin, and if both players remain silent, they will both be imprisoned for only two years. If both players confess, they will both be imprisoned for five years. If only one player confesses while the other remains silent, the confessor goes to prison for only one year, and the one who stayed silent spends ten years behind bars.

What should the players do? Unlike the previous game “Rock, Paper, Scissors,” the players are not playing against each other, but they would benefit if they cooperate. It is a non-zero-sum game. The smartest thing is to remain silent. But then there is the danger that the other person will “betray” you, as one year in prison is better than two years. Can the player trust the other player? It is a dilemma. The Prisoner’s Dilemma is an example where egoism does not pay off. Because if both act egoistically, both are definitely worse off than if they act socially and cooperate.

The Prisoner’s Dilemma can be generalized into the following table:

The two players can cooperate or defect (boycott) [Sig09]. There are four different values in the cells:

• Reward R for cooperation
• Punishment P for defection
• Temptation T
• Sucker’s payoff S

Many games can be formulated with this. If T > R > P > S holds, then it is a variant of the Prisoner’s Dilemma.

Such dilemmas appear frequently in the world. A well-known example is the “Cold War” in the 1980s between the West and the Eastern Bloc. At that time, they faced the question of whether they should arm themselves—meaning produce and install more nuclear weapons—or whether they should disarm. Cooperation in this example is disarming, and defection is arming.

Another game is the Stag Hunt [Sky03]. Let’s imagine two prehistoric cavemen considering what they should hunt today for their families. If each goes out alone, each can hunt two hares, which feed two people. If they join forces, they can hunt a stag, which feeds 10 people. If one wants to hunt stags but the other wants to hunt hares, there are only two hares to eat. The following table describes the game:

Here too, both are better off through cooperation. Here R > P = T > S.

In the Prisoner’s Dilemma or the Stag Hunt, it makes a big difference whether the game is played once, twice, or indefinitely often [Gin14, Sig09, Sky03]. This is because humans have a memory and do not forget if the fellow player treats them unfairly. What would happen if one burglar in the Prisoner’s Dilemma came out of prison after ten years? Would he want revenge? Would he make the same mistake again? People also remember who treats them well and form friendships. In the Stag Hunt, you can literally see friendships emerging because hunting together has great advantages.

Which strategy is optimal for a game repeated indefinitely?

From a mathematical perspective, it is best to cooperate in the first move and then always do what the opponent did. You “copy” the behavior of the opponent. This strategy is called “Tit for Tat”. But humans are only boundedly rational. Behavioral game theory has investigated how people actually behave [Gin14]. If someone only ever maximizes their own advantage, they are egoistic (“self-regarding”). Another term for such people, who have no empathy for others and no regard for the situation of others, is sociopath. The opposite, if someone always maximizes the advantage of the other, is self-sacrificing (“other-regarding”) or altruistically cooperating. If the opponent proves to be an egoist, one can punish them in the next move by also not cooperating. If a player is willing to accept personal disadvantages for the sake of punishment, it is called “altruistic punishment”.

Scientists have found that humans are generally conditional cooperators and altruistic punishers [Gin14]. They normally tend towards cooperation, but in cases of misconduct, when someone violates social norms and is egoistic, they tend towards altruistic punishment.

Important: Most people are conditional cooperators and altruistic punishers.

However, a small portion of people also has an inequality aversion. These people act so that as little inequality as possible arises. If these people see themselves disadvantaged by inequality, however, they tend towards stronger measures than if they themselves disadvantage others.

Thus, humans are neither the selfless altruists of utopian political theories nor the egoists of economics. They seek win-win situations and punish those who behave otherwise.

Two Visions of Humanity

There are many different “theories” about the ideal human society and how to deal with justice, equality, freedom, power, and rights. Examples of these are socialism, communism, and anarchism. Strictly scientifically, these political worldviews should not really be called “theories” because a theory must be scientifically proven. These political “theories” are rather conjectures or hypotheses. Interestingly, many of these “theories” are incompatible with each other. Not only are very different theories, such as socialism and the market economy, incompatible, but even specific subgroups of these directions show great differences.

The economist Thomas Sowell traced these different “theories” back to two different “visions” [Sow07]:

• the unconstrained vision
• the constrained vision

In the unconstrained vision, humans are basically good. However, they are not guided by circumstances and society to show this “goodness” in real life. Humans are improvable, “perfectible”. In principle, humans would be capable of becoming perfect moral beings who think only of the common good and are altruistic. This ideal is also enforceable on earth; heaven on earth is achievable. And no sacrifices or costs should be spared to reach this goal. Costs are often justified with slogans like “That is simply the price of equality.” Since the costs do not matter, representatives of this version rarely see themselves ready for compromise. As a typical philosophical work, Sowell mentions “Enquiry Concerning Political Justice” by William Godwin (1756 - 1836) from 1793. William Godwin divided human actions according to two criteria: whether they were intentional or unintentional actions and whether the result was good or bad [Sow07]. The following table provides an overview:

If one intentionally does good, it is virtue. Intentionally doing something bad is a vice. According to Godwin, one can only do bad unintentionally. For Godwin, there was no unintentional good. Yet the unintentional good is an emergent property of the system. It arises “bottom-up” from people seeking win-win situations. It is more than the sum of its parts. Even today, people who follow the unconstrained vision often do not see the existence of this “bottom-up” dynamic.

In the constrained vision, on the other hand, humans are not essentially improvable; they are mostly egoistic, sometimes altruistic. Humans are not morally perfect; some people are even immoral. A society must reckon with these constraints and provide appropriate institutions to deal with them, such as a legal system and the police. Society must also have incentives for good behavior so that society as a whole still develops positively. As an example of this, Sowell mentions “The Theory of Moral Sentiments” by Adam Smith (1723 - 1790) from 1759.

The two great revolutions of the 18th century can be seen as realizations of these two visions: the unconstrained vision behind the French Revolution (1789–1799) and the constrained one behind the American Revolution (1763–1789).

As the book progresses, the constrained vision will be treated in more detail.