When I look around at nature- it’s hard to miss the fact that everything is competing for resources. Take all plants, they are hardwired to compete for and consume resources. Plants and trees try to grow the fastest or grow the tallest to secure access to the main resource they need- light.
That got me thinking- are we humans genetically or evolutionarily hard-wired to consume resources and compete with each other? I know- it might be a stretch but entertain the idea for me.
From what I’ve known about our history is that we started off in Africa’s vast Savanah around 50,000 to 10,000 years ago. And at that stage, much of our brains programming was already in place, inherited from our prehuman ancestors. Life on the Savannah was short and hard. Food supply and resources were unreliable and varied in quality.
It was imperative for early human’s survival to consume as many resources as they could when they were available. After all, there was no advantage in saving resources for later. Early humans were at the mercy of wild predators or impending natural disasters- so later was not always guaranteed. The risks were real back then.
Invention of agriculture
Then about 10,000 years ago everything changed. Humans started to grow their own food through agriculture. Often termed the invention of agriculture- this suddenly allowed people to accumulate resources and live in larger concentrations. With the abundance of food, there was more time for humans to pursue other activities.
From this period of agriculture to our modern society our world has changed dramatically, but the way in which we live is somewhat similar. We cluster in groups that depend on agriculture. In essence, we are more like our agricultural past than our nomadic past. And sure, over that time period, we have experienced large social changes brought around by technology.
But some of our early traits still remain, fast consumption of resources being one of them. You see, as far as I can tell, and I’m no evolutionary scientist, 10000 years is not long enough for evolutionary change to take a significant hold. And beyond that- it is believed that because humans have now become so scattered around the planet that beneficial genetic mutations could not possibly spread throughout the entire species.
Thus, there are evolutionary scientists and psychologists that argue humans have not changed, although the world has. So some traits linger on in modern humans that can arguably be traced to our ancestors.
Consumption and Consumerism
One of our most basic needs is food- and the consumption of which, along with other resources, is directly linked to our ability to not only survive but reproduce and then provide for a family. In early nomadic times- it was unlikely that a single-family or tribe could gather enough food on a regular basis to make any further consumption available. They did not have the luxury of accumulating food.
Since there was a limited amount of food back then, there was little need for the evolution of a trait to limit our consumption. In essence- these early people were living from payday to payday. Not knowing when the next payday would come- but it wouldn’t matter- because they may not make it to the next payday.
Fast forward to the agricultural period- to today- we have developed the means to produce more food than the entire world population can consume. But since we may have never evolved a trait of limiting our consumption- there tends to be overconsumption of food when it’s easily available. Could our evolution be explained for why there is nearly a parity of obese people compared to starving people?
The same trait of consuming resources when they are available may explain our overuse of water, oil and many other resources. To get individuals ahead in the short term- ignoring any long term implications. Arguably the individual trait manifests itself into a corporate trait. It’s essentially the I’ll get mine today mentality.
But then again- humans, like some other animals, have the ability to plan for the future and accumulate resources to better their living conditions over the long run- which is what we are doing when we invest. So there seems to be both a trait for consuming all the resources we can right now, fighting against a trait to invest in our future.
Keeping up with the Jones
Keeping up with the Jones is an interesting trait that I think you can link to our human ancestors.
To establish your status in early society it is thought that there where often contests and battels- especially amongst males. Alongside battels and contests- it’s thought that status could also be displayed by the amount of resources you had or the amount of resources you could gather and control. The ultimate goal of both was to secure yourself a partner so you could pass on your genes.
In modern society- it’s often looked down upon to set up physical battels in most situations- so that only leaves the status that comes from the resources you have. The problem is that in our modern world- it’s hard to judge on face value if someone who is portraying status with their new BMW or fancy house really does have the wealth- or is just portraying wealth fueled by debt.
This is possibly where keeping up with the Jones stems from. The idea that you want your social status to improve over time- at least you want your status to stay the same over time. And social pressures to have the newest thing or conform to a social norm might be the pressure to take on more debt than we should. With the goal to show status in our society.
Gathering material objects and symbols through debt or through wealth can both have the desired effect- improving your status in society.
Early humans who survived in the harsh world of the savannah learned to avoid loss at all cost. After all, when living this close to the edge even a small loss can mean that your existence was in jeopardy. So it makes sense for early humans to not take big risks.
It was only in our agricultural period where we felt safe enough in our resource supply to start exploring the world and developing ideas. This cautious approach to loss increased early humans chances of staying alive and reproducing. And so it goes that this trait of loss aversion continues through the generations.
On the flip side of living close to the edge- sometimes our ancestors lived over the edge. They could find them selfs starving if a hunt wasn’t successful. Or they could have been attacked by predators or even just injured. All life-threating events in this time. There is obviously no record of what humans did in that time- but it’s easy to see that in this situation they would be willing to do anything to save themselves.
What does Risk Aversion have to do with Investing?
We all might be hardwired to avoid risk when we are comfortable, but scramble madly and take on risk when we are uncomfortable- or threatened.
You can relate this behaviour to investing in the share market. If you bought a stock and it starts to fall your instinct might be to madly scramble and avoid further losses and sell out your position. Essentially realising your loss. Or, you could double down and buy more- increasing your risk.
The same can be said if your shares start increasing in value. When people see gains they might be tempted to sell out their position and take the profit. Even if the share value is still rising. Both cases are examples of risk aversion. In one instance you are trying to avoid the risk of losing more, and the other case you are avoiding the risk of not realising your profits.
Risk aversion, to me at least, is one of the behaviours that I think ultimately leads to individual share pickers losing money over the long term. The desire to avoid risk leads people to sell when the share price rises and to sell when share prices fall. That’s why I avoid buying individual shares and invest in indexes instead. And I don’t take much much notice of the variation in price. I know I would probably succumb to my instances of risk aversion if I was to pick individual shares.
Evolutionary traits- Friend or foe?
Consumption, Keeping up with the Jones, Risk Aversion, Hierarchy, Empathy, and even Gossip are all traits that evolutionary psychologists think stem from our ancestors.
Now, these traits aren’t in themselves a bad thing- in fact- we all need to consume to survive. And the consumption of resources is what keeps the market and our economy going. It’s wasteful consumption that I’m having a go at here. Trying to understand why I have the urge to eat more than what is required to sustain me. Or why I want the latest 68 inch TV or the new car to show my status. Or why I should avoid checking my investment every day to avoid my internal risk aversion trait.
The fact is that I don’t need more food than what can sustain me, nor do I need a new TV- my 10-year-old TV is working perfectly fine. And I should avoid my risk aversion biases as much as possible when investing- so watching them closely is not a good idea. They will both help you on your journey to financial independence.
I need to be aware of my evolutionary traits, so I can make an informed decision.