On Evolutionary Theorizing in Economics and Management

J.W. Stoelhorst Amsterdam Business School University of Amsterdam

Outline

1. Introduction 2. Generalized Darwinism 3. Naturalistic organization theory 4. Economic growth as a Darwinian process 5. Conclusion

1. Introduction

My background Management Strategy in relation to technological change Evolutionary economics Philosophy of science Organization theory

Competition – Cooperation – Learning

Diagnosis Economics

Dominant paradigm (neoclassical economics) ‘Economic imperialism’ (rational choice) Heterodoxy versus orthodoxy

Management Fragmentation Microcosm of the social sciences Many schools of thought

Diagnosis (continued) Social sciences

Micro – macro divide Methodological individualism versus

methodological collectivism Model of man?

2. Generalized Darwinism

A metatheory of evolutionary change

Evolutionary Theory in Economics

American institutionalism (Veblen) Schumpeter Hayek Georgescu-Roegen New institutionalism (North) Neo-Schumpeterian economics (Nelson &

Winter)

Evolutionary Theory in Economics A relatively fragmented theoretical

landscape Looking for an alternative to neoclassical

equilibrium models Historical Dynamics Realism

No integrative paradigm

The Project of Generalized Darwinism (Aldrich et al. 2008; Hodgson 2002; Hodgson & Knudsen 2006; Stoelhorst 2005, 2008)

1. To derive a meta-theory for evolutionary explanations in the social sciences in general, and economics in particular, by identifying ontological communalities across biological and socio-cultural evolution

2. To apply the resulting meta-theory to the development of middle-range theories of specific socio-cultural and economic phenomena

There is no consensus on how to generalize Darwinism

-Variation – differential fitness – heritability -Replicator – interactor – (lineage) -Variation – selection – retention

My version of GD (Stoelhorst, 2005, 2008)

1. Open, complex systems 2. Explananda: Adaptive fit, variety from common

origins, accumulation of design 3. Explanantia: Variation, selection, retention 4. Recursive causal logic: Positive feedback loop

from system’s behavior to its design 5. Multi-level selection logic: within-group

competition vs. between-group competition

Evolutionary epistemology (Campbell, 1974; Popper, 1972; Plotkin, 1994, Dennett, 1995)

GD is uniquely suited to explain learning Knowledge = adaptation Learning = evolution When Darwin specified the logic of

evolution, he in fact specified the general logic of learning

Evolutionary ontology: GD “from the bottom-up”

Individuals as units of selection Individuals are agents Individuals are carriers of knowledge

Groups as units of selection Groups are not agents Groups are carriers of knowledge

3. Naturalistic Organization Theory

A theory of cooperation (based on work with Pete Richerson)

Purpose

To ground organization theory in the naturalistic paradigm that is emerging at the intersection of biology and the behavioral and social sciences

(cf. Binmore 2005; Fowler & Schreiber 2008; Gintis 2006; Henrich 2004; Mesoudi, 2011; Wilson & Wilson 2007)

Motivation

The belief that we can achieve a deeper understanding of modern organizations by building organization theory on an understanding of the evolutionary origins of the human ability to cooperate

The message in short Humans are moral animals with ‘social instincts’ that

derived from a long history of living in tribal scale groups in which culturally transmitted norms favored cooperation

Modern forms of organization are historically contingent socio-economic systems that sustain cooperation by applying cultural ‘work-arounds’ to tribal social instincts

These tribal social instincts lead to two endemic problems of human organization: within-group exploitation and between-group hostility

A naturalistic approach

Mayr (1961) Tinbergen (1963)

Proximate explanation 1. Mechanistic explanation 2. Ontogenetic explanation (developmental)

Ultimate explanation 3. Functional explanation 4. Phylogenetic explanation (evolutionary)

The puzzle Human socio-economic organization is an anomaly

in the animal world We are the only species that can sustain large-

scale cooperation among non-kin Explaining this anomaly is central to the

development of a naturalistic approach to social science

(e.g. Fehr& Fischbacher 2003; Gintis 2000; Henrich 2004; Kurzban & Hauser 2005; Richerson & Boyd 2005; Wilson & Wilson 2007)

Candidate explanations (cf. Nowak 2006) Kin selection - ‘inclusiveness fitness’

(Hamilton 1964; Dawkins 1976)

Reciprocity (Trivers 1971; Axelrod 1984)

Reputation - ‘indirect reciprocity’ Network interaction Group selection - ‘multi-level selection’

(Sober & Wilson 1998; Wilson & Wilson 2007)

Principle I: Human cooperation is based on universal tribal instincts

-Humans are an animal species -The pace of genetic evolution is slow -Therefore, human cooperation is based on tribal instincts

Which instincts?

Experimental economics (e.g. Berg et al. 1995; Fehr & Falk,

1999; Abbink et al. 2000; Gaechter & Falk, 2002)

Self-regarding 20-40% Reciprocators 40-60% Altruists 10-15% Spiteful punishers 8-15%

Social psychology (e.g. Messick & McClintock, 1968;

Van Lange 1999)

Pro-self 20% Pro-socials 65% Altruists 8% Competitors 7%

Principle 2: Human organizations compete on the basis of enforced cultural norms

-Any level of organization needs to channel competition at a lower level. (Campbell, 1994; Maynard Smith & Szathmary, 1995)

-Therefore, human cooperation is fragile -Cooperation needs to be enforced

Which mechanisms? -Kinship -Reciprocity -Reputation -Network interaction -Group selection -Reward -Punishment

Principle 3: Cultural norms are complex game-theoretic equilibria (cf. Aoki, 2001; Binmore, 2005; Greif, 2006)

-Cultural norms are complexes of contested ‘what-if’ rules that govern social interaction. -Therefore, cultural norms evolve as the result of political processes

Which norms?

Rule-based punishment can stabilize arbitrary norms and institutions (Boyd & Richerson, 1992)

In the long run, norms need to channel intra-

group competition in ways that benefit the group in inter-group competition

The moral problems of human organization Between group hostility Within group exploitation

4. Economic Growth as a Darwinian Process

A theory of collective learning

Economic growth in neoclassical economics Classical growth theory

Focus on quantitative change Qualitative change: residual (error term) External shock to the system

Endogenous growth theory From firm as black box to R&D function as

black box (‘productive knowledge is produced like bananas and tires’)

The message in short 1. Economic growth is the result of qualitative

change of the economic system from within 2. GD specifies the causal logic of this process 3. GD leads to a theory of economic growth in

which firms fulfill the role of ‘Darwin machines’ (Calvin, 1987; Plotkin, 1994)

Three Challenges To account for the process by which individual

agency leads to the accumulation of collective knowledge

To pinpoint the locus of this collective knowledge through a meaningful specification of the design of firm’s productive activities

To specify the v-s-r mechanisms that drive the accumulation of succesful designs of productive activities

The firm as a Darwin machine I

Knowledge accumulates as design (cf. Dennett, 1995)

Design = components + architecture Firms’ components: human and non-human

resources Firms’ architectures: administrative

framework Administrative framework: roles and rules

The firm as a Darwin machine II

Firms as configurations of resources, roles, and rules

These configurations are the locus of productive knowledge – they enable and constrain firms’ routines and productive capabilities

These configurations evolve as individual members of the firm introduce changes

The firm as a Darwin machine III

Individuals introduce changes randomly or purposefully

Changes are introduced to further individuals’ own interests in within-group competition, or the firm’s interests in between-group competition

Successful firms’ configurations of R,R,R channel within group competition in ways that increase their success in between-group competition

A Darwinian view of economic growth Economic growth is a multi-level selection

process that leads to qualitative changes in economic output as the result of the evolution of firms’ configurations of resources, roles, and rules

5. Conclusion

‘Nothing … makes sense except in the light of evolution” Theodosius Dobzhansky

The value of evolutionary theory for the social sciences Offers a meta-theory to study how social

systems change themselves from within Points to realistic behavioral foundations Offers a theoretical perspective to bridge

the micro-maro divide Helps overcome fragmentation Informs ethical reflection