Book Review : Basic Instincts:Human Nature & The New Economics

Basic Instincts: Human Nature and the New Economics by author Pete Lunn

This book is an interesting and thought provoking commentary on the current state of the science of economics and the workings of capitalism. According to traditional, conventional theory peoples basic instincts are to be selfish, independent and rational in their financial dealings and firms’ primary reason for being is to maximise profit. Lunn labels this type of person as ‘Marketopian’ in his illustration. He suggests that these models make many assumptions about human nature which are not supported by empirical data and that there is an inherent unwillingness to change amongst economists despite contrary data having been available for over 40 years. Assuming an innate selfishness is a political judgement, which is convenient, makes the maths easy and the markets predictable (though wrongly so). Now the movement for change is growing in strength, with Pete Lunn a strong believer in the new, behavioural approach.

Lunn takes apart the traditional economic models in an accessible and readable way. He explains the approach of Behavioural Economics, which uses data from various psychological studies to show that whilst some people behave selfishly more people are likely to value things like fairness, trust and familiarity above selfishness and are very uncomfortable with risk and uncertainty. In his enlightening illustration this type of person is labelled ‘Muddleton’. He also asks some challenging questions such as if firms’ primary goal was to maximise profit, why don’t they cut wages more often?

Pete Lunn, with his background in neuroscience, journalism and now an economist, is a strong supporter of good science, believing that conventional theorists are struggling to make the facts fit the theory and that current economic theories have poor predictive power. He argues that both are signs of a poor theory but that many economists are very resistant to change. Lunn believes a new theory of economics based on good science should emerge based on the facts of how people actually behave rather than an inaccurate set of assumptions. This approach is the closest we can get to the truth. He also throws in some other interesting ideas such as proposing that marketing should be taxed! Lovely, let’s do it!

A well written, interesting and lively read, aimed at economists and lay people, which questions traditional assumptions of human behaviour.