Evolutionary economics

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Evolutionary economics is a school of

complex interdependencies, self-evolving systems, and limited rationality as the drivers of economic evolution.[1] The support for the evolutionary approach to economics in recent decades seems to have initially emerged as a criticism of the mainstream neoclassical economics,[2] but by the beginning of the 21st century it had become part of the economic mainstream itself.[3][4]

Evolutionary economics does not take the characteristics of either the objects of choice or of the decision-maker as fixed. Rather, it focuses on the non-equilibrium processes that transform the economy from within and their implications, considering interdependencies and feedback.[1][5] The processes in turn emerge from the actions of diverse agents with bounded rationality who may learn from experience and interactions and whose differences contribute to the change.[1]

Roots of evolutionary economics

Early ideas

From peace and harmony... (Lucas Cranach the Elder, The Golden Age)
... to war and sorrow (Virgil Solis, The Iron Age)

The idea of human society and the world in general as subject to evolution has been following mankind throughout its existence.

Aztecs’ Five Suns
), but a common feature is the path towards misery and destruction, with technological advancements accompanied by moral degradation.

Medieval and early modern times

Islamic scholars debated on the moral appropriateness of certain economic practices, such as interest.[10][11] The subject of changes was thought of in existential terms. For instance, Augustine of Hippo regarded time as a phenomenon of the universe created by God and a measure of change, whereas God exists outside of time.[12]

A major contribution to the views on the evolution of society was

war of all against all:[13]

“In such condition there is no place for

commodities
that may be imported by sea, no commodious building, no instruments of moving and removing such things as require much force, no knowledge of the face of the earth, no account of time, no arts, no letters, no society, and which is worst of all, continual fear and danger of violent death, and the life of man, solitary, poor, nasty, brutish, and short.”

In order to overcome this natural anarchy, Hobbs saw it necessary to impose an ultimate restraint in the form of a sovereign.

Economic development and socialism

Further theoretical developments relate to the names of prominent

What is Property?, Pierre-Joseph Proudhon noted:[14]

“Thus, in a given society, the authority of man over man is inversely proportional to the stage of intellectual development which that society has reached.”

The approach was also employed by Karl Marx. In his view, over the course of history superior economic systems would replace inferior ones. Inferior systems were beset by internal contradictions and inefficiencies that made them impossible to survive in the long term. In Marx's scheme, feudalism was replaced by capitalism, which would eventually be superseded by socialism.[15]

Emergence and development

Thorstein Veblen is considered by many as the "father" of evolutionary economics.

The term "evolutionary economics" might have been first coined by

Darwinian theory.[18][19][20][1]

Veblen's followers quickly abandoned his evolutionary legacy.

incomplete information, firms adapt to the environment instead of pursuing profit maximization.[24]

An Evolutionary Theory of Economic Change and beyond

The publication of An Evolutionary Theory of Economic Change by

Nicolai Foss, has been concerned with “the transformation of already existing structures and the emergence and possible spread of novelties.”[27] Economies have been viewed as a complex system, a result of causal interactions (non-linear and chaotic) between different agents and entities with varied characteristics.[28] Instead of perfect information and rationality, Herbert Simon's concept of bounded rationality[29]
has become prevailing.

By the 1990s, as put by Geoffrey Hodgson,[1]

“it was possible to write of an international network or ‘

invisible college
’ of ‘evolutionary economists’ who, despite their analytical differences, were focusing on the problem of analyzing structural, technological, cultural and institutional change in economic systems… They were also united by their common dislike of the static and equilibrium approaches that dominated mainstream economics.”

In 2020, Yoshinori Shiozawa published a paper "A new framework for analyzing technological change" Journal of Evolutionary Economics 30: 989-1034, in which the author proved that (1) technological change induces the economic growth in the sense that real wage rate increases for all workers and (2) it is the major source of economic growth.

Evolutionary economics and the Unified Growth Theory

Main article:
Unified Growth Theory
Unified Growth Theory, Oded Galor
employs principles that may belong to evolutionary economics.

The role of evolutionary forces in the process of economic development over the course of human history has been further explored during the past few decades, primarily by

Unified Growth Theory, Galor depicts economic growth and development throughout human history as a continuous process driven by technological progress and the accumulation of human capital
as well as by the accumulation of those biological, social and cultural features that favour further development. In Unified Growth Theory (2011), Galor presents a dynamic system capable of describing economic development in this way.

According to Galor's model, technological advancements in the early eras of the mankind (during the

living standards, the position of the working class as necessary in order to complement technological progress (contrary to Marx and his followers, who predicted its further impoverishment), and the position of women, paving the way for further social and gender equality improvements.[5][31]
Interdependent, these elements facilitate each other, creating a unified process of growth and development, although the pace may be different for different societies.

Galor's theory also refers to other fields of science, including

human hand as key advantages that bolstered the development of humans (both as a species and as a society).[31] In The Journey of Humanity: The Origins of Wealth and Inequality (2022) Galor provides some statements that exemplify his evolutionary approach:[31]

“Consider… two large clans: the Quanty and the Qualy… Suppose that Quanty

carpenters
and other trades who can manufacture tools and more efficient machines. This increase in earning capacity would place the Qualy clan at a distinct evolutionary advantage. Within a generation or two, its families are likely to enjoy higher incomes and amass greater resources.”

Galor, his colleagues and contemporaries have also used the evolutionary approach in order to explain the origins of more particular elements of economic and social behavior. Using the genealogical record of half a million people in

behavioural economics, such as risk aversion and loss aversion, were also studied through evolutionary lenses. For instance, Galor and Savitsky (2018) provided empirical evidence that the intensity of loss aversion may be correlated with historical exposure to climatic shocks and their effects on reproductive success, with greater climatic volatility in some regions leading to more loss-neutrality among contemporary individuals and ethnic groups originating from there.[36] As for risk aversion, Galor and Michalopoulos (2012) suggested there was a reversal in the course of human history, with risk-tolerance presenting an evolutionary advantage during early stages of development by promoting technological advancements, and with risk-aversion being an advantage during later stages, when risk-tolerant individuals channel less resources towards children and natural selection favours risk-averse individuals.[37]

Adaptive market hypothesis

Main article: Adaptive market hypothesis

efficient market hypothesis
as well as evolutionary principles such as adaption and natural selection.

Criticism

The emergence of modern evolutionary economics was welcomed by the critics of the neoclassical mainstream.[4][1] However, the field, especially the approach by Nelson and Winter, has also drawn critical attitude from other heterodox economists. A year after An Evolutionary Theory of Economic Change was published, Philip Mirowski expressed his doubts that this framework represented genuine evolutionary economics research (i.e., in the vein of Veblen) and not just a variant of neoclassical methodology, especially since the authors admitted their framework could include neoclassical orthodoxy.[38] Some Veblenian institutionalists claim this framework is only a “protective modification of the neoclassical economics and is antithetical to Veblen's evolutionary economics.”[39] Another possible shortcoming recognized by the proponents of modern evolutionary economics is that the field is heterogenous, with no convergence on an integrated approach.[1]

Related fields

Evolutionary psychology

Main article: Evolutionary psychology
See also:
Behavioural economics

Evolutionary psychology is a theoretical approach in psychology that examines cognition and behaviour from a modern evolutionary perspective.[40][41] It seeks to identify human psychological adaptations with regards to the ancestral problems they evolved to solve. In this framework, psychological traits and mechanisms are either functional products of natural and sexual selection or non-adaptive by-products of other adaptive traits. Economic concepts can also be viewed through these lenses. For instance, apparent anomalies in decision-making, such as violations of the maximization principle, may be a result of the human brain evolution.[42] Another concept suitable for evolutionary analysis is the utility function, which may essentially be represented as the fitness evolutionary function.[42] 

    Evoltunionary Psychology and Economic Behavior

There have been efforts to apply the insights of evolutionary psychology to understand economic behavior. An important part of this effort has been to use evolutionary psychology to analyze and add structure to the human utility function. 

     Paul H. Rubin has made significant contributions to this area of resesrch.  His influential book, "Darwinian Politics," delves into the intersection of evolutionary theory and political and economic behavior, exploring how evolutionary principles shape human political preferences. This book shows that many errors in political decision making,  such as a dislike of free trade,  are based in our evolved mental architecture.  This analysis is extended in "Folk Economics" which shows that our evolved brains are subject to zero-sum thinking.
   Rubin, P. H. (2002). "Darwinian Politics." Rutgers Uuniverdity Press.

"Rubin, P. H. (2008). "Folk Economics." Southern Evonomic Journal


Evolutionary game theory

Main article: Evolutionary game theory

Evolutionary game theory is the application of game theory to evolving populations in biology. It defines a framework of contests, strategies, and analytics into which Darwinian competition can be modelled. It originated in 1973 with John Maynard Smith and George R. Price's formalisation of contests, analysed as strategies, and the mathematical criteria that can be used to predict the results of competing strategies.[43]

Evolutionary game theory differs from classical game theory in focusing more on the dynamics of strategy change.[44] This is influenced by the frequency of the competing strategies in the population.[45]

Evolutionary game theory has helped to explain the basis of altruistic behaviours in Darwinian evolution. It has in turn become of interest to sociologists, anthropologists, philosophers, and economists.[46]

See also

References

  1. ^ a b c d e f g h i j k Hodgson, G. M. (2012). Evolutionary Economics, in Fundamental Economics, edited by Mukul Majumdar, Ian Wills, Pasquale Michael Sgro, John M. Gowdy, in Encyclopedia of Life Support Systems (EOLSS), Developed under the Auspices of the UNESCO, EOLSS Publishers, Paris, France, [1]. Archived from [2] on April 24, 2023.
  2. ^ a b Hodgson, G. M. (1993). Economics and Evolution: Bringing Life Back Into Economics. Cambridge, UK and Ann Arbor, MI: Polity Press and University of Michigan Press.
  3. ^ Friedman, D. (1998). Evolutionary Economics Goes Mainstream: A Review of the Theory of Learning in Games. Journal of Evolutionary Economics. 8(4), pp. 423–432. Archived from [3] on March 8, 2022.
  4. ^ a b Hodgson, G. M. (2007). Evolutionary and Institutional Economics as the New Mainstream? Evolutionary and Institutional Economics Review, 4(1), pp. 7-25. Archived from [4] on July 9, 2020.
  5. ^ a b Galor, O. (2005). From Stagnation to Growth: Unified Growth Theory. In P. Aghion and S. Durlauf (eds.), Handbook of Economic Growth, Vol. 1A, pp. 224–235.
  6. Easterling, P. E.
    , Knox, B. (eds.), The Cambridge History of Classical Literature: Greek Literature. Cambridge University Press, p. 51.
  7. ^ Gordon, B. J. (1975). Economic Analysis Before Adam Smith: Hesiod to Lessius. Palgrave Macmillan, p. 3.
  8. ^ Rothbard, M. N. (1995). Economic Thought Before Adam Smith: Austrian Perspective on the History of Economic Thought, Vol. 1. Cheltenham, UK.
  9. ^ Brockway, G. P. (2001) The End of Economic Man: An Introduction to Humanistic Economics, 4th edition. W. W. Norton & Company, p. 128.
  10. ^ Thomas Aquinas. Summa Theologica. New York: English Dominican Fathers, 1981. Part II, Q78, A1. Archived from [5] on March 29, 2023.
  11. ^ Institute of Islamic Banking and Finance (2023). Riba. Archived from [6] on June 4, 2023.
  12. ^ Augustine of Hippo. Confessions, Book XI. Project Gutenberg. Archived from [7] on April 19, 2023.
  13. ^ Thomas Hobbes, Leviathan, Chapter XIII. Project Gutenberg. Archived from [8] on January 3, 2023.
  14. What is Property? Project Gutenberg. Archived from [9]
    on April 5, 2023.
  15. ^ Gregory, P. R., Stuart, R. C. (2005). Comparing Economic Systems in the Twenty-First Century, Seventh Edition. South-Western College Publishing.
  16. ^ a b Hodgson, G. M. (2004). The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism. London and New York: Routledge.
  17. ^ Camic, C., Hodgson, G. M. (eds.) (2011). Essential Writings of Thorstein Veblen. London and New York: Routledge.
  18. ^ Veblen, T. B. (1898). Why Is Economics Not an Evolutionary Science? The Quarterly Journal of Economics, 12(3), pp. 373-97.
  19. ^ Veblen, T. B. (1899). The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. New York: Huebsch. Archived from [10] on November 22, 2021.
  20. ^ Veblen, T. B. (1919). The Place of Science in Modern Civilisation and Other Essays. New York: Huebsch. Project Gutenberg. Archived from [11] on June 5, 2023.
  21. ^ Rutherford, M. H. (2011). The Institutionalist Movement in American Economics, 1918–1947: Science and Social Control. Cambridge and New York: Cambridge University Press.
  22. ^ Witt, U. (2002). How Evolutionary is Schumpeter's Theory of Economic Development? Industry and Innovation, 9(1/2), pp. 7-22.
  23. The Fatal Conceit: The Errors of Socialism. In William W. Bartley III (ed.), The Collected Works of Friedrich August Hayek, Vol. I. London: Routledge. Archived from [12]
    on March 24, 2023.
  24. ^ Alchian, A. A. (1950). Uncertainty, Evolution, and Economic Theory. Journal of Political Economy, 58(2), pp. 211-22. Archived from [13] on May 1, 2018.
  25. March, J. G. (1963). A Behavioral Theory of the Firm
    . Engelwood Cliffs, NJ: Prentice-Hall.
  26. ^ Nelson, R. R., Winter, S. G. (1982). An Evolutionary Theory of Economic Change. Cambridge, MA: Harvard University Press. Archived from [14] on March 23, 2023.
  27. Foss, N. J.
    (1994). Realism and Evolutionary Economics. Journal of Social and Evolutionary Systems, 17(1), pp. 21-40.
  28. ^ Saviotti, P. P. (1996). Technological Evolution, Variety and the Economy. Aldershot: Edward Elgar.
  29. ^ Simon, H. A. (1957). Models of Man: Social and Rational. Mathematical Essays on Rational Human Behavior in a Social Setting. New York: Wiley.
  30. ^ Galor, O. (2011). Unified Growth Theory. Chapter 5. Princeton University Press, 2011.
  31. ^ a b c Galor, O. (2022). The Journey of Humanity: The Origins of Wealth and Inequality. Penguin Random House, 2022.
  32. ^ Galor, O., Klemp, M. (2019). Human Genealogy Establishes Selective Advantage to Moderate Fertility. Nature Ecology & Evolution, 3(5), pp. 853–857. Archived from [15] on June 5th 2023.
  33. ^ Galor, O., Moav, O. (2002). Natural Selection and the Origins of Economic Growth. The Quarterly Journal of Economics, 117(4), pp. 1133-1191. Archived from [16] on June 5, 2023.
  34. ^ Collins, J., Baer, B., Weber, E. J. (2014). Economic Growth And Evolution: Parental Preference For Quality And Quantity Of Offspring. Macroeconomic Dynamics, 18(8), pp. 1773–1796.
  35. ^ Galor, O., Özak, Ömer (2016). The Agricultural Origins of Time Preference. American Economic Review, 106(10), pp. 3064–3103. Archived from [17] on June 5, 2023.
  36. ^ Galor, O., Savitskiy, V. (2018). Climatic Roots of Loss Aversion. NBER Working Paper No. 25273, National Bureau of Economic Research. Archived from [18] on June 5, 2023.
  37. ^ Galor, O., Michalopoulos, S. (2011). Evolution and the Growth Process: Natural Selection of Entrepreneurial Traits. NBER Working Paper No. 17075. Archived from [19] on October 14, 2022.
  38. ^ Mirowski, P. (1983). An Evolutionary Theory of Economics Change: A Review Article. Journal of Economic Issues, 17(3), pp. 757-768.
  39. ^ Jo, Tae-Hee (2020). A Veblenian Critique of Nelson and Winter's Evolutionary Theory. MPRA Paper No. 10138. Archived from [20] on May 15, 2021.
  40. ^ Schacter, D. L., Gilbert, D. T., Wegner, D. M. (2010). Psychology. Macmillan, p. 26.
  41. ^ Longe, J. L. (2016). The Gale Encyclopedia of Psychology (3rd ed.). Gale Research Incorporated, pp. 386–388.
  42. ^ a b Rubin, P. H., Capra, C. M. (2011). The Evolutionary Psychology of Economics. In Roberts, S. C. (ed.), Applied Evolutionary Psychology. Oxford University Press.
  43. ^ Maynard Smith, J., Price, G. R. (1973). The Logic of Animal Conflict. Nature. 246(5427), pp. 15–18. Archived from [21] on June 6, 2023.
  44. ^ Newton, J. (2018). Evolutionary Game Theory: A Renaissance. Games, 9(2), p. 31. Archived from [22] on June 6, 2023.
  45. ^ Easley, D., Kleinberg, J. (2010). Chapter 7. Evolutionary Game Theory. In Easley, D., Kleinberg, J., Networks, Crowds, and Markets: Reasoning About a Highly Connected World. Cambridge University Press, 2010. Archived from [23] on June 6, 2023.
  46. ^ Michihiro, K. (1997). Evolutionary game theory in economics. In Kreps, D. M., Wallis, K. F. (eds.). Advances in Economics and Econometrics: Theory and Applications. Vol. 1. Cambridge University Press. pp. 243–277.

Further reading

Journals

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