Evolutionary economics and group selection


Jason Collins


February 7, 2011

As my research intersects economics and evolution, I have found it inconvenient that the term “evolutionary economics” is already taken. Evolutionary economics is an area of economics inspired by biological processes, with interactions between firms, industries and institutions examined using evolutionary methods. The economics is evolutionary by analogy.

I find the ideas in evolutionary economics attractive, which is natural given my interest in complex systems, out-of-equilibrium processes and the dynamic, emergent properties of economies. However, each time I read an evolutionary economics paper or book, I wonder if they are looking at the right level of selection. Should the agents in the models be firms or should they be the employees or managers of those firms (or their genes)? Putting it more bluntly, is evolutionary economics based on an inappropriate use of group selection?

The actions of firms in the lead up to the financial crisis provides an illustration. Could the web of financial firms and their interactions be usefully modelled without consideration of the range of incentives faced by employees and managers? Think Dick Fuld, his brinkmanship around saving Lehman brothers and the half a billion he was left with after it all went bad. An evolutionary economic model of this sector at the firm level might miss the major incentives (this could lead us to my previous question of what the objectives of these agents are).

So why we don’t start from a biological basis to begin with and then work up? Evolutionary economics would then become evolutionary in the truest sense. The flip side is that it is already difficult to model the interactions between firms. Adding more layers of employees, managers, creditors and shareholders may make the model more opaque, need a more complex set of assumptions and be more difficult to interpret. After all, the purpose of a model is to offer a set-up simple enough for analysis.

To assess what is the right balance, a fair starting point for analysis of an evolutionary economics paper is to ask whether the model would give the same predictions if an alternative, lower level of selection was examined? If not, it may be time for that evolutionary economic model to be evolutionary in fact and not by analogy.