Bacterial evolution offers clues to tradeoffs in financial investments
August 14, 2013
Scientists have found that bacteria have the potential to teach valuable investment lessons.
The research, published in the journal Ecology Letters, takes advantage of the fact that bacteria, like humans, have limited resources and are constantly faced with investment decisions.
Bacteria though are successful with their investments and have colonized every inch of the surface of our planet.
The researchers, from the Universities of Exeter and Sydney, used mathematical models and lab-based synthetic biology, to predict bacterial investment crashes and boom-bust cycles.
The study reveals how the diversity of life we see around us is maintained and demonstrates that the outcomes of investment decisions can be precisely defined. It explains why a single-celled, fat cat investor didn’t win out long ago.
The scientists developed the mathematical model to predict the best way for bacteria to invest resources in a trade-off between growth and investment in stress resistance. While humans invest in cash, bacteria trade in costly proteins to reduce their stress levels or to increase consumption and so grow faster.
Evolution is the decision making process with different choices encoded in the genes. Each bacterium makes an investment decision; the bad investors fall by the wayside, the good ones survive.
A set of strains of E. coli bacteria were created which had a broad range of abilities to deal with stress and invest in growth; those that were better at stress were worse at investing in growth. The bacteria were exposed to stress conditions — salt and acid — representing different market conditions. This allowed the researchers to precisely define, for the first time, the exact nature of the bacterial trade-offs seen in the lab.
Co-author Dr Tom Ferenci from the University of Sydney said: “The breakthrough was in using synthetic biology to create bacteria with different investment strategies, some investing in growth and others in stress resistance. This is the cleanest system yet that precisely defines a relationship between traded objects in a living ‘market’.”
Co-author Dr Ivana Gudelj from Biosciences at the University of Exeter added: “Combining engineered bacteria with mathematical models, we have shown that very similar investment opportunities can require different investment strategies. These strategies are constrained by the subtleties in trade-offs that are usually invisible or ignored in real markets. The study is a classic demonstration of Darwinian economics and survival of the fittest.”
It has been believed for decades that tradeoffs in the decision-making process give biological investors different niches to exploit as is the case in evolutionary decisions but until now, no-one has been able to prove or disprove it.
Dan Lovallo, Professor of Business Strategy at the University of Sydney and senior research fellow at the Institute for Innovation Management and Organization at the University of California, Berkeley, who was not involved in the research, said: “This paper breaks exciting new ground in the integration of the sciences and provides compelling new evidence on resource allocation that will be of interest to multiple fields: economics, finance, business strategy, and biology.”
This research was funded by Natural Environment Research Council (NERC), the Biotechnology and Biosciences Research Council (BBSRC), the Engineering and Physical Sciences Research Council (EPSRC) and the Australian Research Council.