Monday, March 26, 2018

Homeostasis and its implications for economics

By Antonio and Hanna Damasio, Institute for New Economic Thinking, Working Paper Number 38, October 2015. The abstract:

"In its standard format, the concept of homeostasis refers to the ability, present in all living organisms, of continuously maintaining certain functional variables within a range of values compatible with survival. The mechanisms of homeostasis were originally conceived as strictly automatic and as pertaining only to the state of an organism’s internal environment. In keeping with this concept, homeostasis was, and still is, often explained by analogy to a thermostat: upon reaching a previously set temperature, the device commands itself to either suspend the ongoing operation (cooling or heating), or to initiate it, as appropriate. This traditional explanation fails to capture the richness of the concept and the range of circumstances in which it can be applied to living systems. Our goal here is to consider a more comprehensive view of homeostasis. This includes its application to systems in which the presence of conscious and deliberative minds, individually and in social groups, permits the creation of supplementary regulatory mechanisms aimed at achieving balanced and thus survivable life states but more prone to failure than the fully automated mechanisms. We suggest that an economy is an example of one such regulatory mechanism, and that facts regarding human homeostasis may be of value in the study of economic problems. Importantly, the reality of human homeostasis expands the views on preferences and rational choice that are part of traditionally conceived Homo economicus and casts doubts on economic models that depend only on an 'invisible hand' mechanism."

An excerpt:

"The notion of humans as exclusively self-interested in terms of means and goals, is closer to fiction than reality. [...] Because there is a dual nature to human homeostatic control, and because conscious deliberation is a patent human reality, the likelihood of economic systems operating well only on the basis of Adam Smith’s “invisible hand” (Smith, 1776) is low. The invisible hand idea fits well the homeostatic world of bacterial cells, an un-minded world in which quorum sensing accomplishes a lot of good governance and is indeed invisible. But the invisible hand does not apply fully to the human case. The wide variety of cultural instruments that human conscious feelingness and intellect have created, are subject to their own cultural evolution. The responses they generate may or may not coincide with those that the evolutionarily older invisible hand devices would produce" (22-3).

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