




The collapse of our economy for lack of regulation was preceded by the collapse of rational choice theory. It became clear that the single minimalistic principle of self-interest could not explain the length and breadth of human behavior. Economists started to conduct experiments to discover the actual preferences that drive human behavior. The field of experimental economics was born and two of its founders (Vernon Smith and Daniel Kahneman) were awarded the Nobel Prize in 2002.

Actual human preferences are all about regulation. A microcosm of America's economic collapse can be created in the laboratory in a single afternoon. Yank a group of people off the street, give them a task that requires cooperation, and most of them will play along as solid citizens. Unfortunately, a few will game the system if there is any way to cheat. Once the solid citizens realize that they're being ripped off, they withdraw their cooperation as their only defense. Provide them with an opportunity to punish the cheaters, and some (but not all) punish with zeal. Even the cheaters punish other cheaters with zeal! Once the capacity for regulation is provided in the form of rewards and punishments that can be implemented at low cost, cooperation rises to high levels. Regulation is required or cooperation will disappear, like water draining from a bathtub.

These social preferences go beyond our own species. Cooperation and cheating are behavioral options for all social species, even bacteria, and cooperation survives only to the extent that it is protected against cheating. The eternal conflict between cooperation and cheating even takes place within our own bodies, in the form of genes and cell lineages that manage to game the system at the expense of the organism upon which they depend. We call them diseases, but they are really the failure of a vast system of regulations that enable us to function as organisms as well as we do.


Why are we so different from all other primate species? Because we are so cooperative. Why are we so cooperative? Because it is so easy to regulate each other's behavior in small face-to-face groups. It happens so naturally that we don't even notice it. Alexis de Tocqueville, the great French social theorist who wrote Democracy in America (1835, 1840), also said this about small human groups: "The village or township is the only association that is so perfectly natural seems to constitute itself." This self-organizing ability to function as cooperative groups is "so perfectly natural" because it evolved by a long process of natural selection, in humans no less than bees.


These constructions can work well or poorly. They can arise by a raw process of cultural evolution--many inadvertent social experiments, a few that succeed-- or by a less wasteful process of intentional planning. Tocqueville marveled at the vitality of the American democratic experiment planned by the founding fathers, compared to French society as an inefficient accretion of history. He also perceptively observed that America's vitality could not be attributed entirely to intentional planning. Mexico copied the United State's constitution, but the results were not the same. Something more contributes to America's vitality that we vaguely call "culture" but must study to understand. Tocqueville also speculated that the American democratic experiment could unravel in an eerie premonition of our current turbulent times.


