Survival of the Most Foolish of Fools: The Limits of Evolutionary Selection Theory

The paper investigates whether evolutionary selection, in nature or the market, ensures the survival of rational agents. It argues that once rationality appears, evolutionary selection can account for its diffusion—but cannot account for its appearance in the first place. This issue differs from the investigation of whether history matters. The issue of history or path-dependency focuses on whether evolutionary selection can favor the survival of the potentially most productive apparatus (in the biological or technological sense). To show this, the paper commences with the much-neglected difference between efficiency and productivity. This revised version was published online in August 2006 with corrections to the Cover Date.     

Evolutionary developmental economics: how to generalize Darwinism fruitfully to help comprehend economic change

Darwinism is shown possible to generalize fruitfully to help comprehend economic change by drawing on evolutionary developmental biology (“evo–devo”)—its recent version, less concerned with replication of genes than with genomic instructing of development of organisms. The result is a conceptual model with multilevel applications, generalizing development as instructed self-organizing with inputs from environments, and evolution as experimental search for instructions making the development successful. Its economic interpretation suggests to unite several existing fields into evolutionary developmental economics, where economic change can be studied comprehensively as development instructed by actual institutional rules, intertwined with the evolution of these rules.     

The Economics and Bioeconomics of Folk and Scientific Classification

Synopsis This paper is the product of a collaboration between a biologist (Ghiselin 1997) who works on the philosophy of classification and an economist (Landa 1981, 1994) who works on the ‘Economics of Identity’: how and why people classify people based on identity in the context of a theory of ethnic trading networks. In developing the ‘bioeconomics’ (the synthesis of economics with biology) of classification, we crossed a number of disciplinary boundaries—anthropology, economics, sociology, biology, and cognitive psychology including evolutionary psychology’s ‘fast and frugal’ heuristics. Using a bioeconomics approach, we argue that folk classifications—the classifications used by ordinary persons—have much in common with scientific classifications: underlying both is the need for economy of information processing in the brain, for the efficient organization of knowledge, and for efficiency of information acquisition and transmission of information to others. Both evolve as a result of trial and error, but in science there is relatively more foresight, understanding, and planning.     

The theory of the experimentally organized economy and competence blocs: an introduction

This article presents the theory of the experimentally organized economy and competence blocs. The theory assumes that information is immense and that economic actors are boundedly rational. This makes practically all economic activities to some extent uncertain and unpredictable; they become experimental in nature. Economic growth is, hence, viewed as an evolutionary process of the discovery, use and selection of knowledge. So-called competence blocs—the minimum set of agents with different, but complementary competencies required to generate and commercialize new combinations—are identified as necessary for efficient resource allocation. The incentives given by the institutions to the actors in the competence bloc are crucial for economic performance.     

Regional innovation and competitiveness in a dynamic representation

This paper combines the various strands of literature on knowledge and innovation as drivers of regional growth in an evolutionary model, representing the internal dynamics of a regional system focusing on Arthurian dynamic increasing returns to scale. The model shows how different evolutionary patterns can arise starting from identical local systems, and that the effects of policies are different depending on the state of the system. Simulation evolutionary economic geography models also allow to represent the complexity of spatial economic development without radically simplifying it and to formalize concepts which are otherwise only expressed—by economic geographers—as logical arguments.     

Firms,agency, and evolution

A recent (though controversial) trend in economics has been to appeal to evolutionary theory when addressing various open questions in the subject. I here further investigate one particular such appeal to evolutionary biology: the argument that, since markets select (in a standard biological sense) firms as coherent units, firms should be seen to be genuine economic agents. To assess this argument, I present a model of firm/office selection in a competitive market, and show that there are cases where markets can select for firms/offices as collective units – and thus, as agents of their own – but also that there are cases where they do not. In this way, I try to make the evolutionary argument for the agency-based view of the firm more precise.     

Primates’ fertilization systems and the evolution of the human brain

Since the time of Darwin and Wallace, the origin of the human brain has been a controversial issue in evolutionary biology. The development of the human brain has been a matter of dispute between those who attribute it to the forces of natural selection and those who emphasize the role of sexual selection. Building on Darwin’s original insights, in this paper we argue that the uniquely human cognitive capabilities are likely to have been initially spurred by sexual selection. We consider the incentive properties of fertilization systems and, pursuing this ‘economic’ perspective, we compare human gender relations with those of other primates. We argue that, because of its potential egalitarian nature and its consequent quasi-monogamic gender relationships, the human fertilization system is much more likely to have given selective advantages to investments in emotional and rational intelligence, thus favoring the development of many fundamental human capabilities. Even if our brain was initially spurred by sexual selection, after some time, unlike the famous case of the peacock’s tail, it proved extremely useful also in the domain of natural selection. Thus, differently from explanations based on the effects of either natural or sexual selection alone, we show that favorable selection complementarities may have had a crucial role in the evolution of the human brain.      

Evolvability and progress in evolutionary economics

This paper develops an account of evolutionary progress for use in the field of evolutionary economics. Previous work is surveyed and a new account set out, based on the idea of evolvability as it has been used recently in evolutionary developmental biology. The biological underpinnings of this idea are explained using examples of a series of phenomena that influence the evolvability of biological systems. It is further argued that biological and economic selection pressures and developmental processes are sufficiently similar to make this biological concept useful in economics. The new account is defended against a number of common objections to the notion of progress in evolving systems, including the claim that all stipulated measures of evolutionary progress are essentially arbitrary and the idea that economic evolutionary progress might not accord with the preferences of economic actors. It is argued that progress, understood as an increase in evolvability over time, is both philosophically well-justified and provides useful predictive and explanatory resources to those seeking to understand and manipulate evolving economic systems.     

Commentary on Janet Landa's Paper

In her paper, Janet Landa argues that the key behind the success of the ethnically homogeneous Chinese middleman group (EHMG) is their highly developed in-group cooperation. She places the EHMG phenomenon within the framework of evolutionary biology by calling it 'a cultural transmission unit' subject to the influence of both genes and culture. Landa suggests that the individual members of the EHMG comprise the units of selection for EHMG groups much like the genes comprise the units of selection for individual organisms. However, evolution occurs through the differential survival and reproduction of individual organisms. In order to meet the criteria of biological group selection, it would have to be demonstrated that groups in competition with EHMGs had gone extinct. The fact that the EHMGs are simply faring better than their competitors is not evidence for group selection. The other reason biological group selection is not really applicable to EHMGs is that there are no physical/biological barriers to exogamous mating, and cultural barriers are intrinsically unstable.     

Darwinism in economics: from analogy to ontology

Several social scientists, including ‘evolutionary economists’, have expressed scepticism of ‘biological analogies’ and rejected the application of ‘Darwinism’ to socio-economic evolution. Among this group, some have argued that self-organisation is an alternative to biological analogies or Darwinism. Others have seen ‘artificial selection’ as an alternative to natural selection in the socio-economic sphere. Another objection is that Darwinism excludes human intentionality. It is shown that all these objections to ‘biological analogies’ and ‘Darwinism’ are ungrounded. Furthermore, Darwinism includes a broad theoretical framework for the analysis of the evolution of all open, complex systems, including socio-economic systems. Finally and crucially, Darwinism also involves a basic philosophical commitment to detailed, cumulative, causal explanations. For these reasons, Darwinism is fully relevant for economics and an adequate evolutionary economics must be Darwinian, at least in these fundamental senses. However, this does not undermine the need for auxiliary theories and explanations in the economic domain.     

The Bioeconomics of Cooperation

When transactions and information are costly and exchange is non-simultaneous, ‘institutions matter’. They matter because exchange under these circumstances subjects the participants to potentially harmful behaviors by other participants, among which are: opportunistic behavior, agency, the free-rider problem, cheating, moral hazard, and adverse selection. Institutions constrain these behaviors, allowing the participants to take advantage of the gains from trade and specialization, and thereby facilitating cooperation. Individuals adhere to institutional rules because they gain by doing so. Because the individual gains are inseparable from the structure of the institutions, the institutions themselves necessarily become the focus of the analysis—as we see in the new institutional economics (NIE). The new group selection position in biology involves a similar shift in focus from the level of the individual to the group when studying the evolution of altruism. But some of the proponents of group selection go further, arguing that altruism in biology evolves because it is in the interest of the group, but not the individual. In fact, group level analysis is necessary in biology, as in the NIE, because it allows for the discovery of ‘institutions’ that constrain cheating, opportunistic behavior, etc., thereby making participation in the group in the long-run self-interest of the individual. This revised version was published online in August 2006 with corrections to the Cover Date.     

The origins of meso economics

The paper starts from Schumpeter’s proposition that entrepreneurs carry out innovations (the micro level), that swarms of followers imitate them (meso) and that, as a consequence, ‘creative destruction’ leads to economic development ‘from within’ (macro). It is argued that Schumpeter’s approach can be developed into a new—more general—micro-meso-macro framework in economics. Center stage is meso. Its essential characteristic is bimodality, meaning that one idea (the generic rule) can be physically actualized by many agents (a population). Ideas can relate to others, and, in this way, meso constitutes a structure component of a ‘deep’ invisible macro structure. Equally, the rule actualization process unfolds over time—modelled in the paper as a meso trajectory with three phases of rule origination, selective adoption and retention—and here meso represents a process component of a visible ‘surface’ structure. The macro measure with a view to the appropriateness of meso components is generic correspondence. At the level of ideas, its measure is order; at that of actual relative adoption frequencies, it is generic equilibrium. Economic development occurs at the deep level as transition from one generic rule to another, inducing a change of order, and, at the surface level, as the new rule is adopted, destroying an old equilibrium and establishing a new one.     

Complexity and the limits to learning

In this paper we look at the manner in which ideas coming from complexity science change our understanding of the cognitive powers of agents that is really necessary to explain the evolution of markets and of firms. The general ideas behind complex systems dynamics and evolution are presented and then two examples are treated in detail. The first in an evolutionary model of a market in which some new product is developed by competing firms and their “task” is to find a strategy in terms of quality and price that will be sustainable. This essentially requires agents/firms to discover mutually compatible strategies, and to create thereby sustainable market niches. The second example considers the internal structure of firms, in terms of their constituent working practices and skills. It demonstrates that it is precisely their ignorance of the consequences of adopting any particular practice that generates diversity in the emergent capabilities of firms, exploring the dimension of potential demand and therefore leading to a successful and sustainable business sector. The work supports the notion that the cognitive abilities that are involved are not about deduction and logic, as a traditional view of rationality might suggest, but are about the development and contraction of interpretive frameworks, which will be different for each player. The paper links these examples to a general recognition of the idea that complex, multi-agent systems evolve through successive “structural attractors”—multi-dimensional dynamical systems—with temporary structural stability. Because real systems contain both the structure and deviations from it, then there is a constant probing of structural stability and the possibility of qualitative change to a new structural attractor. This resembles the ideas in biological evolution related to “punctuated equilibria,” but it also links this to the idea of emergent and evolving networks of interaction, never of course near thermodynamic equilibrium.      

How useful is generalized Darwinism as a framework to study competition and industrial evolution?

The role of Darwinist concepts in evolutionary economics has long been a contentious issue. The controversy has recently been rekindled by the proposal of a “Universal” or “generalized” Darwinism, which holds that the ontology of all evolutionary systems accords to the Darwinist scheme of variation, selection and inheritance. This paper focuses on the application of the generalized Darwinist framework to the analysis of markets and industries. It argues that selection and inheritance concepts narrowly construed after the biological example are of limited usefulness. As an alternative to the ‘top–down’ approach of Universal Darwinism, the development of ‘bottom–up’ theories is advocated.

Sustainable Development and a Dwindling Carbon Space

Curbing global warming by setting long term maxima for temperature rise or concentrations of greenhouse gases defines spaces within which further emissions of these gases are to remain (referred to here as ‘carbon spaces’). This paper addresses questions related to how to share between countries the carbon space and/or efforts to stay within it, in the perspective of sustainable development; different allocation mechanisms are reviewed, responding to criteria such as ‘responsibility’ for climate change, ‘capability’ to engage in abating it, and ‘potential’ or future contribution. The carbon space remaining at any time will depend on effective mitigation up till that time, and will condense if more stringent maxima are to be set; per capita this space becomes smaller with rising population. Sharing the carbon space in a fair way requires “convergence” of currently widely unequal per capita emissions. If the world is to stay within the carbon space consistent with <2° warming, then developed economies—the wealthiest sources of greenhouse gases should quickly and deeply engage in mitigation. Also, substantial mitigation is to take place in developing countries and that this will require substantial support to developing countries (financially, technologically). Changing development paths can make a major contribution to climate change mitigation; this requires changes in investment, production and consumption patterns. Green New Deals as proposed in the context of a widened response to the current economic crisis could become a first phase of a fundamental transition towards a decarbonised global economy worldwide. Concerns to do with equity as well as sustainability must be incorporated and integrated into coherent transitory strategies.     

Entrepreneurial competition and its impact on the aggregate economy

This paper models entrepreneurship as the entrepreneur’s information processing activity in order to predict changes in demand and reallocate resources. The results show that allocative efficiency—and therefore aggregate productivity—increases through intensified competition by entrepreneurs grasping at opportunities. This fierce competition leads to price reductions that result in the improvement of measured aggregate productivity. The price reduction also forces relatively less able entrepreneurs to become workers. As resources are then dealt with only by relatively talented entrepreneurs, this selection effect also increases aggregate productivity. The paper also discusses how the selection effect influences the distribution of firm size.      

The evolution of human cooperation

We argue that cooperation is instinctual. Human cooperation conferred advantages to individuals in the ancestral environment in which evolution occurred. Explanations of the evolution of cooperation for any species (human, pre-human, and non-human) have to be consistent with the biological, physiological, and environmental constraints that existed in the ancestral environment during which evolutionary selection occurred. Our explanation is consistent with: (1) the anatomical evolution of humanity; (2) the paleontological and chronological evidence; and (3) modern biology.     

Domestication experiments reveal developmental link between friendliness and cognition

The goal of economics is to understand human preferences. Most research focuses on adult humans and does not take an evolutionary approach. In biology experimental evolution has been able to shift the preferences of animals. As an example, artificial selection for friendly behavior toward humans results in a syndrome of changes that strongly resembles differences between wild and domestic animals. These domestication experiments have revealed precise genetic and neurobiological systems that are altered by the selection and linked through expanded windows of development. Similar evolutionary experiments selecting for a range of social, risk or discounting preferences could push economics toward consilience with biology. Prospects for a unified theory of economic behavior would be drastically improved.     

Making economic sense of brain models: a survey and interpretation of the literature

Neuroeconomics draws attention to motive forces that are ignored in the standard framework of economic theory. The present paper develops a conceptual approach that, similar to Pennings et al. (Journal of Bioeconomics 7: 113–127, 2005), tackles the issues at the systemic level by analyzing and modeling the brain processes that decide on behavior. It takes as the basic unit of analysis potential stimulus-response actions which—when selected—become actual behavior. The objective of these potential stimulus-response actions is to increase utility. At any moment of time, several of these potential actions compete with each other for the privilege of becoming actual behavior. This competition can be modeled on the basis of economic principles. The behavior that materializes may cover the range from the rational to the foolish, depending on which of the potential responses gathers the greatest emotional strength. The emotional strength of a potential response, in turn, is determined by the individual’s past experience and her capacity for rational action. Given that the objective is always to increase utility, it can normally be expected that the more or less rational dominates the foolish, but this need not always be the case. Which potential actions become behavior in a concrete instance is decided by a mechanism implemented by the basal ganglia, a structure in the brain serving as the action selection mechanism. The insights provided by this approach afford coherent explanations of behaviors that are not readily explicable by the standard approach of economic theory.      

Economics research in Spain during the 1990s: a literature review

This paper reviews the results of the literature on the ranking of centers of excellence in economics. There are two objectives: (1) to examine the evolution during the 1990s of certain features of economics research—such as the gap that exists between the US and the rest of the world, the dominant position of the UK within Europe, and the low productivity of economic scholars everywhere—and (2) to document the significant progress that Spanish research institutions have experienced during this period. Results by several broad fields of specialization are summarized here for the first time. This work was carried out under project SEJ2004-01959 financed by the Spanish Ministry of Education and Science. I would like to thank Eduardo Ley, José Luis Ferreira, and Diego Moreno for their comments, as well as Bruno Cassiman for his editorial work.