Another Misleading Paper on Evolution Theory

"this view of life; anything and everything from this view of life"(sponsored by the Evolution Institute: understanding and improving the human condition) HERE JULY 3, 2013

“Darwin’s Invisible Hand: Market Competition, Evolution And The Firm”

Michael E. Price, Dominic D.P. Johnson,MICHAEL E. PRICE, and Mark Van Vught   

“In our paper, we argue that multi-level selection theory is more useful than traditional economic theories for understanding behavior in firms—even traditional theories which themselves evoke evolutionary principles. In particular, we critically examine the common idea that competition among firms reflects the ruthless logic of Darwinian selection, whereby a free market is a struggle for survival in which successful firms survive and unsuccessful ones die. This idea has proven popular because it is to a limited extent grounded in reality, and because it appears to bolster three pillars of neoclassical economics: (1) that economic actors are self-interested; (2) that self-interest leads to public goods (Adam Smith’s “invisible hand”); and (3) that together these lead to market optimization. However, this application of Darwinian reasoning to competition between firms (as opposed to between individuals) leads to a paradox: firms are groups, and if the struggle for existence is occurring primarily between groups rather than individuals, then group selection will occur. And group selection leads to exactly the opposite predictions of neoclassical economics with regard to individual behavior, because it favors group-beneficial altruistic behavior and the suppression of individual self-interest.

As an escape from this paradox, we apply an alternative evolutionary model of economic competition—multi-level selection theory—which integrates the effects of selection at both individual and group levels. This approach reveals that, while individuals may generally pursue their own self-interest, they also have evolved traits that—as if led by an invisible hand—steer our self-interest to align with the good of the firm or wider society as well. But it is the hand of Darwin, not Smith.

By considering the effects of selection at both individual and group levels, we can build a more predictive and internally consistent theory of how firms (and the people which compose them) behave. The paradoxical prediction of traditional economic theory—that members of firms will be simultaneously selfish and selfless—is averted by a multi-level selection (MLS) theory which assumes that individuals are adapted to cooperate in groups, but to do so in individually-adaptive ways. This MLS theory is entirely consistent with mainstream evolutionary psychology’s emphasis on individual-level adaptation; it simply assumes that particular strategies for cooperating in groups were adaptive for ancestral individuals.

The MLS theory we propose makes a host of predictions about behavior in firms that are not made by traditional economic theories, and we review several of these predictions in the paper. Many have to do with individually-adaptive strategies for cooperation in groups (e.g. avoiding free riders, engaging in ‘competitive altruism’), but others have to do with behaviors such as the pursuit of status and prestige, engagement in leadership and dominance, reactions to perceived unfairness, and inter-group competition. By carefully considering the psychological adaptations that govern these behaviors, we will be better able to design corporate cultures that encourage the expression of the most productive and cooperative instincts that human nature has to offer.

Behavior in firms may be motivated by individual-level adaptations, but there will often be a vast area of common ground in which the interests of individual members converge with those of the firm. MLS theory is uniquely helpful for identifying the conditions under which such confluences of interest are likely to occur. As we note in the paper: “The key [to designing an effective organization] is not to strike some (inefficient) compromise between the interests of individuals and their group, but to work with the grain of human nature to bring individual and group interests into alignment”.

Comment

When economists (not only of the neoclassical persuasion) use evolution as part of the explanation for capitalist development they are not necessarily thinking of biological evolution solely of Darwinian biological evolution.  It is important to realise there can be a crucial difference, a mistake that I think is at root of Professor Franks’s thesis in his book “The Darwin Economy:
liberty, competition, and the common good” (Princeton University Press, 2011), of which I wrote a few days ago on Lost Legacy. In this regard, I consider the three authors of this paper, Michael Price, Dominic Johnson and Mark von Vught, make similar erroneous assumptions about the role of evolution.

Evolution comes from within past, and often, external events, that some individuals adjust to, or from internal events, over which the individual has no control, and over generations the fortuitous, lasting effects work to give individuals advantages or disadvantages.  Biologically, those individuals who are, say, taller and stronger may gain reproductive advantages over smaller and weaker individuals in the group, and produce taller progeny, and raise the average height of a group in a changing environment.  Nobody unilaterally decides to grow taller, or smaller, or sexier, or whatever, so that in future generations their progeny will dominate the group. If larger antlers may give some reindeers reproductive advantages that is an unintended outcome.

The difference in a competitive firm’s evolution is that the individuals running the firms can and do make choices that may or may not give them competitive advantages.  If such choices are successful they make higher profits than those choices that lead to falling profits from falling sales.  Entrepreneurs succeed or fail from the choices they make; not from biological changes they acquire or make to increase their individual fitness. Education may help better-informed decisions but as many non-formally educated individuals make better choices than other, perhaps formally educated, competitive rivals in their social environments.  Look at the demise of some major mainframe computer firms compared to a couple of young drop outs building their better devices in their parents garages.   

Hence, I find MLS theory unappealing, as I did Robert Franks’s book on his version of Darwinian evolution.  

I also noted that the three authors of the Abstract above have similarly taken the neoclassical '3 pillars' as having general applicability as representative of economics.  I neither agree with such reasoning nor with the views of those authors of evolution in general or with their assertion about “Adam Smith’s “invisible hand” (of which I shall nothing on this occasion – see Lost Legacy in the recent past).