First, a small confession: When the book, The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous, came out earlier last year, I ignored it. I found its title, which refers to its acronym for modern society – Western, educated, industrialized, rich, and democratic – gimmicky; and its primary thesis, that the roots of modern prosperity originated from the Church’s prohibition on cousin marriage, absurd on its face.
Both of those first impressions were mistakes.
A prolonged podcast interview with its author, Joseph Henrich, left me impressed with his deep grasp, not only of economics, but also of social psychology, evolutionary psychology, institutional history, and anthropology (the last of which is no surprise, since that was his academic field), so I finally read the book.
If you’re fond of the term “mind candy” to describe novel, intriguing, and insightful concepts, then The WEIRDest People in the World is an eight-pound Costco box of it. Here’s an example, which occupies the first random page I chose: All financial practitioners are familiar with the “endowment effect,” the attachment we form with our possessions, and which, when applied to financial assets, makes us inappropriately resistant to selling them.
When experimental subjects, for example, are randomly given either blue or yellow lighters, they are willing to trade them for one of the opposite color only about ten percent of the time. It turns out that this is WEIRD behavior and is not seen in aboriginal societies; when this experiment was performed, for example, with members of the east African Hazda tribe who live in remote hunter-gatherer settlements, they acted as perfectly rational economic actors, willing to trade about half the time. On the other hand, their more urban cousins, who are exposed their local market economy, will trade only about one-quarter of the time, behavior approximately mid way between Westerners and their rural tribal members.
There are tidbits like this on almost every page, and the book’s text is almost 500 pages long.
Henrich’s personal history is both fascinating and relevant. He started out as an aerospace engineer, but after two years at GE decided to extend his Notre Dame minor in anthropology into a Ph.D. His ascent, powered by his scientific and quantitative mind set, was rapid, from Emory University to University of British Columbia, and finally to Harvard, where he chairs the evolutionary biology department and supervises a large multidisciplinary team.
Here’s another large bite of mind candy that illustrates the breadth and power of his research. Several years ago, he found himself intrigued by the correlation of economic development in early medieval Europe with the presence of monasteries of the Cistercian order, which placed commercial industriousness on an equal footing with piety. His scientific training impelled him to examine alternative hypotheses: What if the effect was not specific to the Cistercians, but was seen with other religious orders? He obtained the original researchers’ data, collected his own data on the geography of other orders and found that when he controlled for these that the correlation of economic growth with the density of Cistercian monasteries strengthened. Hypothesis confirmed.
Why should you, as a finance practitioner, read this book? At a bare minimum, you’re managing money for WEIRD clients, and the above example of the endowment effect (and where it comes from) is just one of many examples that will explain their – and your – behavior.
The other reason you should read this book is that it, by far, makes a huge contribution to the “Yali’s Question” literature (from Jared Diamond’s Guns, Germs, and Steel: “Why is it that you white people developed so much cargo, but we black people had little cargo of our own?”). In other words, why are some nations much wealthier than others?
Diamond’s explanation, which has to do with the unique biological endowment of the Fertile Crescent, does not satisfy most economists, who credit Western prosperity either primarily to technology (such as Joel Mokyr and Deirdre McCloskey) or primarily to institutions (such as Douglass North, Barry Weingast, and Mancur Olson).
Which gets us to Henrich’s “cousin hypothesis.” The medieval church, to break the chain of property entailment and so divert estates into its own coffers, forbade not just first cousin marriage, which does have a firm biological basis, but also, second, third, fourth, and in some cases even fifth cousin marriage, which do not.
If you can’t marry even your fourth or fifth cousin, then you have to leave your ancestral town to find a mate, which in turn breaks the kinship bonds of traditional societies and greatly expands the “radius of trust” so characteristic of wealthy modern societies.
This hypothesis is catnip especially to those, like me, in the institutionalist camp, who emphasize the importance of the common law as the answer to the question, “Why was England first?” The common law derived from English folk wisdom, but where exactly did that come from? The English, as pointed out by historian Allan Macfarlane in the 1970s, were the first to force their sons to leave their ancestral villages and abandon their father’s occupation in search of wives and their first employment, usually as domestic servants or apprentices. The cousin hypothesis provides the answer: Widening the radius of trust weakens the kinship connections, which hobble developing world economies to this day, and strengthens trust in strangers and in impersonal institutions.
For the student of institutional history, this is a particularly fascinating insight; two of the more obscure sections of the Magna Carta, chapters 41 and 42 of the 1215 version, stipulate that foreign merchants be accorded the same travel rights as English merchants, a startling assertion for that age.
And for the practitioner, Henrich provides valuable insight into just why we and our clients behave as they do, and from where their, and our, wealth is ultimately derived.
William J. Bernstein is a neurologist, co-founder of Efficient Frontier Advisors, an investment management firm, and has written several titles on finance and economic history. He has contributed to the peer-reviewed finance literature and has written for several national publications, including Money Magazine and The Wall Street Journal. He has produced several finance titles, and four volumes of history, The Birth of Plenty, A Splendid Exchange, Masters of the Word, and The Delusions of Crowds about, respectively, the economic growth inflection of the early 19th century, the history of world trade, the effects of access to technology on human relations and politics, and financial and religious mass manias. He was also the 2017 winner of the James R. Vertin Award from CFA Institute.
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First, a small confession: When the book, The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous, came out earlier last year, I ignored it. I found its title, which refers to its acronym for modern society – Western, educated, industrialized, rich, and democratic – gimmicky; and its primary thesis, that the roots of modern prosperity originated from the Church’s prohibition on cousin marriage, absurd on its face.