Freakonomics Radio - 329. The Invisible Paw

Episode Date: April 5, 2018

Humans, it has long been thought, are the only animal to engage in economic activity. But what if we've had it exactly backward?

Hey there, podcast listeners. You are about to hear a new episode, one of my favorites in quite some time. It's about what sets humans apart from other animals and whether other animals engage in what we would recognize as economic activity. This is the kind of ridiculous, wonderful question that we get to ask on this show over and again, in large part, thanks to you. You are why we make this show over and again, in large part, thanks to you. You are why we make this show. And to some degree, you are how we make the show. Our producing partner is WNYC, a public radio station here in New York. And listener donations are a significant part of the public radio business model. They help pay for the research, production, studio time, music licensing, mixing, distribution,

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So please join the Freakonomics Radio team. Become a member. Text ECON, E-C-O-N, to 70101 right now or go to Freakonomics.com slash donate. All right. Thanks again for everything you do. And now, on to today's episode. Here's a question. What is the one thing that sets humans apart from all other animals?

I believe it is our curiosity, and specifically the curiosity of the why and the how that is the essence of our humanity and separates us from all other species on this planet. That's Bill Diamond. He's president of the SETI Institute that stands for Search for Extraterrestrial Intelligence. Other animal species may exhibit the curiosity of the what, as in, what was that noise? What do I see or smell?

Is it a threat or is it a meal? And we all know that curiosity may kill the cat, but our curiosity to understand the how and the why drives humans to learn, to explore, to discover and invent, all of which contribute to our success as a species, perhaps sometimes to a fault. Well, I think the thing that distinguishes humans from animals most obviously is language. And that is Anthony Appiah, who teaches philosophy at NYU. Language is what makes possible the accumulation of culture.

It makes possible the very complex forms of social collaboration that human beings do, which no other organism does with such flexibility. And it's why we're just not like any other animal on the planet. What does Appiah think that other animals, dogs maybe, would say if they could speak? There's a famous remark of Wittgenstein's, the effect of, if lions could speak, we wouldn't understand them. And I'm not entirely sure what he had in mind.

I mean, I think the main difference that dog speech would make to dogs is that they could talk to each other, and then they could collaborate in ways that they can't now they could say i'll meet you in five minutes at the sheep pen and stuff like that and then they could accumulate knowledge and share it through the generations and acquire more complicated uh doggy packages of ideas so um yeah it would make a huge amount of difference and and we'd have to be much more careful in our relations with dogs. My name is Keith Chen, and I'm a behavioral economist and a professor at the Business School at UCLA. So, Keith, if I were to ask you, as an economist, what's the one thing that makes humans human, what would you say?

Oh, my gosh. I mean, as an economist, I would say, you know, cooperative trade, like the ability to form complex social structures that allow the emergence of things like, you know, cooperation and effective economies. That strikes me as by far one of our most interesting kind of differences from animals. So I can see why you'd say that. I mean, I think of one of the most famous quotes in economic history from Adam Smith, who once wrote, nobody ever saw a dog make a fair and deliberate exchange of one bone with another dog. Nobody ever saw one animal by its gestures and natural cries signify to another. this is mine, that yours, I am willing to give this for that. But you yourself, I mean, you're the economist that I know of, at least, who's actually done experiments with animals, capuchin monkeys, particularly in tamarin monkeys, that seems to show that Smith was to a large degree, I don't know if I should call him wrong, but doesn't it seem like he was kind of wrong? Yeah, I mean, so Smith was definitely wrong.

Okay, maybe we could defend Smith and say he really meant just dogs specifically. Keith Chen's answer about what makes us human isn't all that surprising. Indeed, we sometimes call ourselves homo economicus because of our ability to trade, to create markets, to respond rationally to supply and demand. But what if we have that whole idea kind of backwards? Yeah, you should leave out the homo part and you're going okay. Today on Freakonomics Radio, monkey business, fish tales,

and if homo is not the only economicus, what does make us, us? That's a really challenging question and I'm a little reluctant to give an answer because I'm afraid it seems like it requires such, well, it requires a lot of thought we always give thoughtless answers to thoughtful questions on this show though that's from WNYC studios this is Freakonom Radio, the podcast that explores the hidden side of everything.

Here's your host, Stephen Dubner. The UCLA economist Keith Chen did his monkey research back when he was a graduate student at Harvard and then while teaching at Yale. Yeah, that's absolutely right. We should say the monkeys that you've done work with, capuchins and tamarin, they're way down the tree from us in terms of intelligence, yes? Well, you know, so I should be a little careful, right? So a primatologist will tell you that what we know about monkey intelligence is very multifaceted, but the monkeys I worked with, they're so-called new world monkeys, meaning they're found in kind of North and South America. They're more distantly related from us than the whole group of, of what we'd call old world monkeys, monkeys that are found in Africa

and Asia. And in general, they're less intelligent than old world monkeys. I love that you, I love that you don't want to insult their intelligence. That's how much you care about them. Exactly. Well, they might take it personally, right? Yes, of course. They're smart enough to take it personally if you call them dumb. Yeah.

Exactly. Exactly. The first monkey experiments Chen worked on with the primatologist Mark Hauser explored the ideas of reciprocity and altruism. The researchers would put two tamarins in separate cages where they could see each other. We set up situations where, you know, one tamarin could pull a lever

and it would drop like a marshmallow into your world. Like monkey A pulls the lever and it drops just a marshmallow into your world. And then the question is later, are you nice to this monkey? Niceness was measured by whether monkey B would reciprocate by pulling its lever to give monkey A a marshmallow. Often they did, about 40% of the time. This compared to just 7% of the time for a monkey who hadn't given his partner a marshmallow. The takeaway for Tamarins was this. You do something nice for me, I'll do something nice for you.

You do nothing for me, I'll pass. Situation two is Monkey pulls a lever. It drops a marshmallow into your world and a marshmallow into his world. So it looks like he's being nice to you, but only as kind of a byproduct of doing himself this kind of favor. And what happens when Monkey B sees his marshmallow as a mere byproduct of Monkey A's self-interest? In this case, Monkey B reciprocates only 3% of the time, even less than if Monkey A hadn't given him a marshmallow at all. Like a true altruist versus an accidental altruist.

Monkeys are smart enough to distinguish. And did that surprise you, that distinction? Oh my gosh, yeah, absolutely. This distinction was surprising because it looks an awful lot like what humans do while making economic decisions. So I do experiments on politicians, on CEOs, on car salesmen, on school teachers and school kids. That's John List from the University of Chicago. He's one of the foremost practitioners of economic experiments on humans. And where I start is I say, what are the fundamental building blocks from economics

that we can test to see if these people conform to economic theories. And the thing that you'd point to is the law of demand. It says, I'll buy less if I face higher prices. It almost seems absurdly obvious. So when I do experiments like that, you know, when I increase price, what happens in the markets? Nearly every time, politician, CEO, school teacher, they will always conform to that particular law. Three, four, five-year-olds conform to that law. And would you say that's maybe the one law in economics that is actually a law? I guess what I really want to know is, is it the truest law of economics laws? Exactly. I think that the truest law of economics laws would be the law of demand. Now, would it surprise you if animals, if non-human animals responded to that law less consistently than human animals? I guess that would surprise you, right? Because they're not as brilliant as us. Yeah, I think that if you talk about

rationality and reasoning being important in satisfying this particular law, then I would say in so much as those are important, we should find more violations of that law than what we find amongst humans. That's correct. In other words, those not-very-brilliant New World monkeys that Keith Chen was working with, you'd assume they would not respond to the law of demand like we do. But Chen wanted to find out for sure.

First, he would have to teach a bunch of capuchin monkeys to use money. You know, that took a long time. As money, he used metal washers, the kind you get at a hardware store. So some monkeys never get it. Some monkeys, I mean, we gave up after about half a year of trying to teach them to kind of patiently pick up a washer and then, you know, hand it to an experimenter who would then trade it for food. These tended to be younger monkeys that would kind of like never get the task, but no monkey picked it up immediately. It was very kind of artificial to them, this kind of physical trade. But once some monkeys did learn how to use money

and buy different food and make choices, basically, you were able to produce what we would recognize as economic research, yes? Absolutely. So once they understood the concept of money and once they started to use it kind of fluently, all of a sudden it felt like a lot of other components of economic activity suddenly became unlocked. Like they suddenly seemed very natural at responding to price changes, right? So, you know, yesterday, apple slices only cost a coin. You know, today they're on sale and one coin will buy me two apple slices. They immediately got that and respond in ways that, you know, that look incredibly textbook economically rational.

Yeah. So what you just described is, I guess you'd call it a price shock, right? Would you say that the capuchin monkeys responded worse as well or better than the average human in responding to a price shock? Well, we conducted this relatively technical test, but it's called GARP in economic lingo, the generalized axiom of revealed preference. Economists think of GARP as basically the test which asks, like, are humans responding in a rational way to prices? Like, you know, we don't want to call people irrational just because they like peanut butter more than jelly or if they like jelly more than peanut butter. But GARP basically says, regardless of how you feel about peanut butter and jelly, you know, you should eat more

jelly if we double the price of peanut butter. And it puts kind of bounds on behavior, which we'll call kind of rational responses to price shocks. And when we test the capuchin monkeys on this basic rationality of this basic rational response to price shocks, they pass GARP as well as any human beings that you can test. In fact, it's not until about age like 10 or 11 that humans even start to pass GARP at this basic level that we observe the capuchin monkeys passing it at. Okay, so capuchin monkeys seem to understand price shocks and the law of demand pretty well. On that dimension, they are looking fairly human. But what about some other dimensions that make us human, like some of the quirks and biases we exhibit when making decisions? Chen wondered whether those parallels would hold up

as you went down the evolutionary ladder. We tested this kind of long-standing economic puzzle, which is called the endowment effect. Where you give like, you give some students a coffee mug and others a pen and ask them to trade it. Is that the idea? Exactly. So, you know, in Econ 101 classes around the country in their first year, half of econ students are handed mugs and half are handed pens. And, you know, the economically rational thing is for half of all students to request a trade. Basically, you either like a pen more or you like a mug more, and you had a 50% chance of getting what you liked more. So about half of students should trade for the other thing.

And then what we typically observe is only about, you know, somewhere between 10 and 20% of students trade instead of the economically rational 50. And that's exactly what we saw with capuchin monkeys as well. We find they look just like countless experiments that you run with Econ 101 students in large lecture halls. Even though we think of the endowment effect as economic language now, just describe what you think is the sort of psychological, you know, formation that results in our wanting to keep what is ours. Yeah, that's something called loss aversion. Loss aversion is this basic idea that once you have something, it feels more painful to give it up than it would have felt good to acquire it in the first place. So quite robustly, students act as if it hurts two and a half times more to be asked to give up the mug

than it felt good to be given the mug in the first place. It's almost as if it, you know, just instantaneously this sense of ownership makes it a painful loss to give up the mug as opposed to kind of a smaller gain to acquire it in the first place. And what that does is it basically suppresses trade. It means that we just don't see nearly as much economic activity as we see between humans. So Keith Chen found that capuchin monkeys, once they were taught to use money, behaved rationally, like we do when it comes to price theory, and irrationally, like we do when it comes to the endowment effect. We were surprised every month, like every month, we would just be flabbergasted again at how

sophisticated our monkeys looked, specifically at economic activity. But also the subtle ways in which they looked irrational and they looked emotional in exactly the same ways that people do. Maybe we shouldn't be too surprised that other primates behave like us in these ways. We do share more genetic material with them than other animals. That is something pointed out by the renowned primatologist Frantz de Waal when we asked him what makes humans human. I've been doing this for a long time, like 40 years. And the question whether humans are different and how they are different is for me a sort of weird question because for me humans are primates.

So they're not fundamentally different. Darwin, of course, said that we descend from the apes, but I think he didn't go far enough. We are basically apes. There's no good reason to distinguish us from apes. And there are taxonomists who have argued that we should not even have a special genus. We are just part of chimpanzees and bonobos, because in terms of DNA, we are 98.5% identical. In every respect I consider human intelligence and cognition a variation on animal intelligence and cognition, I don't see it as fundamentally different. Okay, I see DeWaal's point.

Maybe we shouldn't be surprised that other primates engage in what looks like the other primates engage in what looks like the economic activity we engage in. But still, let's remember, Keith Chen's experiments happened in a lab after he and his colleagues had painstakingly taught the monkeys to use money. You don't see capuchins setting up banks and stock exchanges in the wild. And you certainly wouldn't expect to see economic activity in animals further down the chain, like fish, would you? I said, well, if that works, it'll eat my head.

Over the past few decades, an idea has been percolating through the field of biology, that economic activity may be happening in the wild. We'll hear about that after the break, but first, here is the Princeton sociologist Dalton Conley when we asked him what makes humans different from all the rest. The answer is absolutely nothing. One by one, the supposed attributes that we had thought were unique to humans have been shown to be present in other species. Crows use tools.

Elephants can recognize themselves in a mirror. Whales form social networks of the same size and complexity as we do. Penguins mourn their dead. Gibbons are monogamous. Bonobos are polyamorous. Ducks rape. Chimpanzees deploy slaves. Velvet spiders commit suicide,

dolphins have language, and the quicker we get over the Judeo-Christian notion that we are somehow qualitatively different from the rest of the biome, the quicker we will learn to live healthier lives for ourselves and for the planet. We've been asking people, what is the one thing that distinguishes humans from other animals? In a sentence, the one thing that makes humans human is our ability to think in the future tense. And that is... Rabbi Lord Jonathan Sachs, former Chief Rabbi of Britain and the Commonwealth, currently a university teacher, author, thinker. Thinking in the future tense. I like that notion. Not sure I buy it entirely.

Squirrels gather nuts for the winner. Is the median squirrel really worse at saving for the future than the median human? In fact, many of the distinguishing marks of humanity that we've been hearing about today are, well, arguable, especially this one. I mean, as an economist, I would say cooperative trade. That, again, is the economist Keith Chen, whose own research suggests that monkeys at least do quite resemble humans when it comes to matters of trade. But as we've noted, monkeys are genetically pretty close to humans. And further, those were nice, tight lab experiments in which Chen spent many months teaching the monkeys how to use money. What if we were to take this question

of animal economics out of the lab and into nature? Okay. My name is Ben Krier, and I'm a journalist living in Berlin. I write mainly about science and wildlife. Krier wrote a fascinating article for Bloomberg called The Secret Economic Lives of Animals. We started our conversation with the question we've been asking everyone else today. So as someone who's written about animals a lot and who is a human animal yourself,

what would you say is the one thing that makes humans different from all other animals? That's such a hard question. I think a lot of biologists would say that, you know, that we do have a lot in common with animals so that it's not really clear where to draw this line, you know, that understanding ourselves as animals provides us probably a way to understand other animals as well. So I think these lines are actually getting harder to define that what is animal and what is human. It used to seem more distinct. Getting harder because we're learning more about animal behavior? Yeah. And human behavior as well. And just what is intelligence, what produces

intelligence in animals and finding it in unexpected places. And, you know, in animals, things like octopuses that are so distant from us evolutionarily, but that exhibit behaviors that we would categorize as extremely intelligent. Ben Krier's pursuit of animal economics began where many great stories begin, in the footnotes. I was researching something else, and I saw a reference to biological market theory, and it struck me as a contradiction or an oxymoron of a biological market, because a market is a realm of economic activity, and only humans engage in economic activity, I thought. So I followed the footnotes back. It led me to...

I'm Ronald Noé. Ronald Noé. I'm a professor here at the University of Strasbourg in France. And are you technically a biologist or some other kind of... I'm a pure biologist, yeah. I'm a primatologist

to be more exact. Talk to me for just a moment about why you began to study animal behavior and how you got started. I'm afraid I have to say that as many young biologists, you're just attracted to animals because they're fun to look at. And I was attracted to mammals because they are just nice and hairy and whatever. It's still the reason that most of my students ask me to do primates.

If you ask them why, what are your questions, they go silent. And actually, they want adventure, they your questions, they go silent and actually they want adventure, they want Africa, they want nice animals. And I must admit that was my basic reason as well as a young boy. As soon as you get into the university, of course, you're confronted with the fact that you need to ask real questions. The real questions Noé had were about cooperation in primates. He got his start as a grad student under Frans de Waal, in fact, observing chimpanzees at the Arnhem Zoo in the Netherlands.

By the early 1980s, Noé was observing baboons in the wild in Kenya. In these baboon groups, alpha males had access to females and kept the lower-ranking males away. But Noé found that lower-ranking males could band together to challenge the alphas. And if you are successful at that, then you have a certain time-exclusive access to that female. It's called the consort ship. And the low-ranking males only have a chance if they cooperate together and chase the high-ranking male away from that female. But there's a dilemma. If two low-ranking males work together to steal a female from an alpha, only one of them could mate with the female.

You can't split a female in two. So how was a decision made? How could this cooperation work? At the time, there were, in biology circles, two primary theories of cooperation. One was kin selection, which involves helping out a closely related individual to make it more likely for your own genes to be passed on. But the baboons Noé was observing weren't that closely related. The other theory was called reciprocal altruism. You scratch my back, I'll scratch yours. Kind of like the marshmallow monkeys that Keith Chen had studied. According to this theory, the lower-ranking males should

alternate who gets access to the female after they've chased away the alpha male. If you don't alternate, then the one that did not have the female often enough should walk away from it, should not accept that. Nowhere was observing three baboons. Ben Crayer again. They're all low ranking, but the most powerful one was named Stu. He was sort of the best partner. And what he realized was that when Stu and one of the other baboons successfully challenged a higher ranking male and drove him off, and then had the opportunity to mate with a female, Stu was getting most of the mating time. They weren't sharing it 50-50. And the other male still formed coalitions with him. And that started me thinking about how the heck is this possible?

Noe realized that reciprocal altruism could not explain the behavior he was seeing. It had to be something else. And as Noah observed them more closely, what he realized, Stu was like a really clever animal. Stu was more valuable to each of those baboons than they were to each other, because they weren't as strong. And Stu realized that he could basically get more mating time after a successful challenge,

because if the guy he was with tried to say, well, I want 50-50, Stu would just leave him and then go work with the other one. And that one would probably be happier to accept maybe 30% of the time with Stu than not have Stu at all. And so what Noah realized is that there was this element of partner choice going on. Partner choice. That was Ronald Noe's big idea. Stu could choose between partners, effectively bargaining to raise the price of his cooperation.

And with that insight, Noé realized that what he was observing was an economic transaction. Partner choice is what drives markets, what drives trade, what drives everything. Because you force the others to outbid in competition. And that's basically what a market is. When Noé published his research in the early 1990s, he called this situation a biological market. It was essentially one of the first times biologists have really tried to apply economic ideas to nature. The idea didn't go over so well with biologists or the big biology journals.

We, of course, sent it to nature, and then nature didn't want to have it. Biologists didn't think economics had much to say about their field, and economists didn't want to hear from a biologist either. In the usual, slightly arrogant way of economists, they say, well, we knew all this, and we have all these models before. But over time, Noé's biological market idea gained some traction. If you go back to just this question of why does cooperation exist in nature, I think

that this theory has been accepted as a really credible and correct explanation for why that is. It picked up very slowly. These days, it's cited much more per year than it was in the early five, six years. One of the biologists who picked up the idea and extended it way beyond primates was a student of Noé's. My name is Redwar Mshari. I'm a professor in behavioral ecology. That means I study animal behavior. Mshari teaches at the University of Neuchatel in Switzerland.

He started out doing fieldwork in Africa with Ronald Noé. And Bashari was good, really good. He proposed to do experiments in the field, which is very difficult in a forest. So I bought leopard cloth to wrap around my body and approach monkeys and see how they respond. And I said, well, if that works, I'll eat my head. And who gives alarm calls first? Because I was studying mixed species associations.

And he actually did it and he pulled it off. So if I have it right, you're essentially climbing into trees wearing a kind of leopard skin coat? No? No, so a leopard is approaching over the forest floor. So I was stalking the monkeys. Ah, okay. So there are red colobus monkeys and Diana monkeys. They're not particularly famous for non-primatologists

because they just occur in primary rainforests in Africa. They are difficult to observe, and that's why there are not that many people studying them. But Bashari decided he did not want to spend his career wrapped up in a leopard skin in the hot jungle. He had come into contact with somebody in our lab who worked in the Red Sea on fish. And Bashari thought, hey, maybe scuba diving would be better than jungle stalking.

I really learned diving because of the project. He camped out by the Red Sea in Egypt for a couple of months. I lived in the middle of nowhere in a tent with a little straw roof above for protection against the sun. No fridge, so quite vegan eating. Apart from once a week, we go to the next village and that was probably the only time in my life that I really enjoyed to go to McDonald's. Once Bishari learned how to dive and started working on the coral reef, he discovered that this habitat was ideal for studying animal behavior.

The nice thing about a coral reef is that predator and prey, they live so close together that if you are there as a human, the fish don't really care about you. So you're immediately part of it. Whereas if you go studying monkeys in a rainforest, first of all, you spend one year habituating the monkeys to your presence before they hide from you. And once they are used to you, they're still 20 meters up in the trees, in the canopy. So it's very difficult to observe anything in a rainforest,

whereas it's extremely easy in a coral reef. One little fish captured Bishari's attention. It's called a cleaner wrasse. Wrasse is W-R-A-S-S-E. So the cleaner wrasse is a small fish, 10 centimeters max, that lives from the Red Sea to Australia and the whole Indo-Pacific. This particular wrasse is called a cleaner because of the rather unusual niche it fills on the coral reef. These are the fish that essentially eat the parasites and dead scales off of other fish. Little crustaceans or little flatworms that would eat either the mucus or the skin or the

blood of the clients. That's obviously like a tick. And you don't want to swim around with ticks, so you go to a cleaner fish and the cleaner fish then removes these parasites. Each cleaner wrasse sets up shop at a particular spot on the reef, kind of like a string of car washes, and the client fish line up at their favorite station to have their parasites removed. That's the reason of being, so to speak, in a coral reef. From sunrise to sunset, 11 hours, they clean. They have 2,000 interactions per day, and a single client typically goes 5 to 30 times a day to see a cleaner fish. The cleaner wrasse will even serve as predators,

like the barracuda. One of the scariest-looking fishes in the ocean, it's got like a crocodile mouth with needle-sharp teeth. And the cleaner wrasse will go in its mouth and eat the parasites from between its teeth. So Redawan Bashari was hanging out underwater at the coral reef, watching all this cleaner-rass action, and he began to observe patterns. For one thing, there were two different types of client fish.

There were the fish with limited range, who had access to just one cleaner-rass. Bashari called these fish residents. He compares them to people who live out in the country. You live in a little village. There's one hairdresser. If you want to have your hair cut, you go to this one hairdresser or you don't have your hair cut at all. And then there were the fish with more range, who had their pick

of many cleaning stations. If they didn't like the service they got at one, they could choose another. These fish, Bashari called visitors. So this is like the big city life. In other words, if you don't like one hairdresser, you can find another one nearby. And the cleaner fish know the difference between visitors and residents. What's incredible here is the cleaner vessels themselves are able to recognize and understand

which species of fishes have other options, and they will actually tailor their level of service depending on the competition. For instance, they might make a resident fish wait while they service a visitor, knowing that a visitor might take his business elsewhere if there's a line. And that's exactly what visitors are doing. If the service is good, there's a high chance that you go back to the same station for your next inspection. If the service is lousy, you go to a different station for your next inspection. They also provide another service too, which is they use their fins to basically massage the fish they're servicing. And the predators receive way more tactile stimulation from the cleaner asses than the non-predators and the residents

receive much less. This was exactly what Bishari had been looking for. The client fish were choosing their partners, and the cleaner fish were dialing their service up or down in response to the amount of choice that each client had. And, as economic theory would predict, the client fish with more choice reaped greater benefits. Obviously, I was extremely excited. I was hoping for this market effect. But there is a central tension between cleaner wrasses and their clients. Eating parasites and dead scales is all well and good, but that is not what the cleaner wrasse truly wants.

It actually prefers to take a bite of healthy scales or healthy mucus. This mucus, this is what makes the fish so slimy. Tastes better. It's probably more nutritious. That's actually quite nutritious. The mucus protects the skin and the scales of the fish. But if it does that, it hurts the fish. The fish will probably swim away. So the client obviously has no interest whatsoever that the cleaner fish eats the mucus. And so there's this conflict of interest. The cleaner fish wants to eat mucus, the client wants the cleaner fish to eat parasites, and therefore the clients have to find means to make the cleaner

fish eat against its preference. So what happens? Bashari found that the cleaner wrasse is much more likely to cheat and take mucus from a resident fish, the kind that can't just move his business to another cleaner. It's like monopoly power. They can extract a higher price, whereas in a more open market where the fish can travel and shop, they have to raise the quality of service so they're more gentle.

Here is something else Bashari found. If the supply of cleaner wrasses in a given area decreased, the remaining cleaners had more leverage. So when Bashari would manipulate conditions in the reef, if he just took half of the wrasses out of the reef, the ones that remained immediately started taking more bites from their clients. But the clients do have recourse. If a cleaner wrasse takes too big of a bite,

the client will chase the cleaner fish away. And the cleaner fish will remember that this particular client chased it. And when this particular client comes back 20 minutes later, half an hour later, the cleaner fish will remember, OK, here my relationship with this client is not particularly good, so I have to make up for the bad service last time. And the cleaner fish will give this resident a particularly good service. And there's no doubt in your mind that they really do remember the individual fish? Yeah, we did experiments on this. Sundays. Yeah.

Redouan Bashari has by now spent two decades studying the cleaner mass, long enough to convince him and his fellow animal behaviorists that they plainly engage in what humans would recognize as economic transactions. And there's growing evidence that biological markets exist across a very wide range of animals. Paper wasps, for instance. They live in nests that are controlled by a single queen, and they earn their keep by foraging for food. But they're free to go work in another nest if they'd like.

Ben Crer again. Ben Crer, It's labor is sort of the price it pays to get into a nest. If you suddenly double the number of nests, the price should go down. And that is exactly what researchers found. When the number of nests in a given area rose, the worker wasps could get away with foraging less. The dominant breeders were suddenly willing to tolerate smaller contributions in terms of the amount of time the subordinates were spending in the field foraging. So is it like when the unemployment rate goes down, wages go up? in terms of the amount of time the subordinates are spending in the field foraging. So is it like when the unemployment rate goes down, wages go up?

I've thought about it more in terms of like a real estate market. So when there's a larger supply of homes available in the market, the price of rent is cheaper. And when that supply is really restricted, the price of rent goes up. Perhaps the purest biological market, at least according to Ben Krier, lies outside the animal kingdom. They're underground markets between the roots of plants and fungi. As you may remember from high school, fungi are really good at harvesting nutrients from the soil, like nitrogen and phosphorus, while plants are good at turning sunlight and carbon dioxide into sugar molecules.

So both parties give some molecules that the other needs. That, again, is the biologist Ronald Noe. Those markets are, in fact, nutrient exchange markets. A fungus-to-plant nutrient exchange is, of course, pretty far from what we humans think of as markets. There's no cognition going on there, or at least what we think of as cognition.

Doesn't trade require an intention to trade? What about all the emotions that accompany intention? Perhaps. But for Ronald Noe, that is what makes biological markets more rational than human ones. Homo economicus, I don't think, exists really in humans because they're not that rational. But natural selection can, of course, end up with, after many, many generations and a lot of selection, you can end up with an organism that is doing things that look very rational. It's not using reason, of course. It's using innate mechanisms, but it is programmed to do things that look very rational.

Let's put it that way. That's so interesting. So as I'm sure you well know, this year Richard Thaler won the Nobel in Economics for essentially arguing that Homo economicus is greatly overrated. You're saying that Ho economicus is really the idea of that is probably more fully present in other animals other than humans then, yeah?

Yeah, you should leave out the homo part and you're going okay. Yeah, I think the less you use cognitive mechanisms, the least brain you have. If you have no neurons, you have a better chance of being very rational in your behavior than when you use them. When you use your brain, you can make all kinds of mistakes.

What you just said is a summary of what's attracted me to economics and behavioral economics these last 20 years, because the anomalies or the holes in the rational theory has been pointed out. But when you say it like that, it kind of blows me away because you're basically saying that the more we think, the more capacity we have for cognitive activity or decision-making, the more likely we are to be less rational, yeah?

There is, of course, a big advantage of using a brain for all kinds of solutions. You're very plastic, you can react to all kinds of novel situations. And things without brains, like bacteria, fungi, or whatever, cannot react instantly to all kinds of different situations. They are well selected to act in a certain environment. If they are in that environment, however, then they are very good at it. They are selected to do exactly the right thing in thousands to millions of generations to do the right thing in the right moment.

And in that respect, if you look at that and you would say, well, how would a human react in the same kind of situation? In the most rational way, he would do exactly the same as that fungus or that bacterium. Thinking about Ronald Noe's argument for the intense rationality of biological markets, I went back to Keith Chen, the economist. In light of the biological evidence, I wanted to take one more run at his answer about what sets us apart from other animals. You know, obviously, they don't do as much as we do. They don't drive cars. They don't write down math and so on. And how much of it was an exhibition of, I guess, you know,

human triumphalism or species superiority that you just assume that because we're the humans and they're the animals, there's this whole set of economic like activity that, of course, you're not going to be able to do. How much of it was that, do you think? Yeah. think that animals can't engage in very rich economic activity because you just look out at the animal kingdom and you just typically don't see very rich economic activity, right? But when you start to actually test those assumptions by bringing animals into the laboratory and just try and create the conditions for them to learn economic trade and subtle aspects of reputation maintenance and cheater detection and cheating punishment is that it doesn't take very much, that adding just very thin layers of institutions for

trust, adding very thin layers which allow the emergence of abstract money just immediately engender very, very rich economic activity, even among monkeys. So when I asked you at the beginning, what is it that makes us human, makes humans human, your answer was basically, you know, trade. But you've spent a lot of your economic research life disproving your very argument, haven't you? Okay. You're giving me a hard time here. I think that's right. Okay. I feel like I have an endowment effect towards my earlier answer, and I'm going to kind of like, it's going to feel painful to give up on it. But absolutely. Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. That was Adam Smith's contention. I think we can all agree that if this sentiment isn't outright wrong, it's certainly not quite right.

And since Smith was picking on dogs specifically, we'll give the last word today to one of my very favorite dog experts. Again, on the question of what sets humans apart. I'm Alexandra Horowitz. I'm a researcher and professor at Barnard College, where I run the Dog Cognition Lab. We study the sensory and cognitive abilities of dogs, with my aim to be to understand what it might be like to be a dog. Horowitz has written a couple of fascinating books, Inside of a Dog and Being a Dog. I've studied and taught animal cognition and comparative psychology for decades.

And this question, what's the one thing that distinguishes humans from non-human animals, is clearly the driving force of much research. We might trace it back to Plato, who described man as a featherless biped. But the smart aleck Diogenes then plucked a chicken and said triumphantly, here is Plato's man. To which Plato simply pivoted, adding, okay, a featherless biped with broad nails, not claws. And so it has been since, trying to find the feature that will verify the human species' uniqueness. It's imitation, it's culture, it's teaching, it's language, it's a theory of mind, each confidently proposed and then collapsing under the weight of actual evidence. The one thing that makes humans human? Our obsession with asking and answering this question.

As far as I know, we're the only species so concerned with distinguishing ourselves from other animals. Of course, research could prove me wrong. Touché, Alexandra Horowitz, and thank you. Also, please remember that if you would like to donate to the production budget of this podcast, we would love to have you. Just text the word ECON, E-C-O-N, to 70101 or go to Freakonomics.com slash donate. Coming up next time on Freakonomics Radio, it's almost tax day. I know how excited you are about that.

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