Karela Fry

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Why is there money?

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An interesting article by economists Gabriele Camera, Marco Casari and Maria Bigoni, in PNAS, explores how money could arise spontaneously:

Through an experiment, we present evidence for the existence of a relevant behavioral dimension in addition to the standard theoretical arguments. Subjects faced repeated opportunities to help an anonymous counterpart who changed over time. Cooperation required trusting that help given to a stranger today would be returned by a stranger in the future. Cooperation levels declined when going from small to large groups of strangers, even if monitoring and payoffs from cooperation were invariant to group size. We then introduced intrinsically worthless tokens. Tokens endogenously became money: subjects took to reward help with a token and to demand a token in exchange for help. Subjects trusted that strangers would return help for a token. Cooperation levels remained stable as the groups grew larger. In all conditions, full cooperation was possible through a social norm of decentralized enforcement, without using tokens. This turned out to be especially demanding in large groups. Lack of trust among strangers thus made money behaviorally essential. To explain these results, we developed an evolutionary model. When behavior in society is heterogeneous, cooperation collapses without tokens. In contrast, the use of tokens makes cooperation evolutionarily stable.

We know today that cooperative behaviour arose in the human lineage before humans, in the form of small family groups and tribes living together. The rise of cooperation between strangers, according to this study, involved exchanging a token of help. The study involves playing an open-ended game. The token itself was intrinsically worthless, but was given meaning by participants in the game. The paper is interesting and may point us towards productive new questions, but there is a major loop hole in the argument. The participants in the games are modern humans, who are used to the idea of exchange of abstract symbols as a carrier of value and promise. How would one test that the notion of money arose in this way in pre-civilization villages? How would the idea of fungible tokens arise: spontaneously, or through central organization?


Written by Arhopala Bazaloides

September 1, 2013 at 12:37 pm

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