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Putting the fun back into being a fungi

Summary:
Economists often use models where firms are assumed to maximize profits. Non-economists sometimes criticize these models, arguing that their assumptions about human nature are too simple. This debate over the behavior of humans won’t be resolved anytime soon. Meanwhile, there is increasing evidence that fungi entrepreneurs respond rationally to incentives: A study just published in Current Biology by Toby Kiers of the Free University of Amsterdam suggests that, like cunning merchants who know how to make a profit, fungi exploit resource scarcity by marking up their prices. They demand more nutrients from plants in return for their valuable mineral commodities. . . . As [Toby Kiers] monitored the collection and trading of the phosphates from fungi to carrots she

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Economists often use models where firms are assumed to maximize profits. Non-economists sometimes criticize these models, arguing that their assumptions about human nature are too simple. This debate over the behavior of humans won’t be resolved anytime soon.

Meanwhile, there is increasing evidence that fungi entrepreneurs respond rationally to incentives:

A study just published in Current Biology by Toby Kiers of the Free University of Amsterdam suggests that, like cunning merchants who know how to make a profit, fungi exploit resource scarcity by marking up their prices. They demand more nutrients from plants in return for their valuable mineral commodities. . . .

As [Toby Kiers] monitored the collection and trading of the phosphates from fungi to carrots she found that the fungi enthusiastically transported them across the hyphal network from areas of abundance to zones of scarcity.

Moreover, though she was unable to measure directly what price the carrots paid for their phosphates, she managed to do so indirectly. She found that hyphae growing in resource-poor patches put on more weight per unit of phosphate transferred to nearby roots than did those in patches of abundance. This, she argues, makes it clear that fungi in zones of scarcity are marking up the price of their products.

One argument in favor of the profit maximization model is that the forces of competition will gradually weed out human firms that do not behave in such a way as to maximize profits.  Presumably, over the past 200 million years the forces of natural selection have gradually eliminated non-profit maximizing fungi from the gene pool.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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