Friday, October 15, 2010

economics and evolution as different paradigms

Video - David Sloan Wilson and others discuss how we got to be the way we are.

EvolutionforEveryone | One important theme that emerged was the yawning gap between economic theory and evolutionary theory. Economists are very smart people, but when smart people take off in the wrong direction, they go a very long way. As Eric Beinhocker (one of the participants) recounts in his book The Origin of Wealth, neoclassical economics was originally inspired by physics and led to an enormous body of formal theory based on assumptions that are required for mathematical tractability but that make no sense from an evolutionary perspective.

How great is the gap between economic and evolutionary theory? How well do some of the newest branches of economics, such as behavioral economics, bridge the gap? That will be the subject of my next few posts, based on the conversations that took place at the "Nature of Regulation" conference.

To start, a discussion of paradigms is in order. A paradigm is a configuration of ideas that is internally consistent but incompatible with other configurations. Let's say that our current configuration of ideas is ABC but that the correct configuration is A'B'C'. Scientific progress is incremental when we can smoothly make the transition from ABC-->A'BC-->A'B'C-->A'B'C'. Problems occur when A'BC makes less sense than ABC because A' is incompatible with B and C. When this happens scientists will stubbornly resist the transition from ABC to A'B'C'. Intriguingly, paradigms can be regarded as the intellectual equivalent of local stable equilibria in complexity theory and adaptive peaks in evolutionary theory.

If economics and evolution are different paradigms with a yawning gap between them, then it will be very difficult to get from one to another in an incremental fashion. Every time we try to make one assumption in economic theory more realistic from an evolutionary perspective, it will conflict with the other assumptions and will be resisted by those accustomed to the economic paradigm. Scientific progress will require comparing the two paradigms as package deals and accepting or rejecting them on that basis.

Changing paradigms is never easy, but if ever there was a need, it is for our understanding of the nature of regulation.