Editing Evolutionary economics

{{Short description|A field in economics that considers economic evolution}}

{{Economics sidebar}}

'''Evolutionary economics''' is a school of [[economics|economic]] thought that is inspired by [[evolutionary biology]]. Although not defined by a strict set of principles and uniting various approaches, it treats [[economic development]] as a process rather than an [[economic equilibrium|equilibrium]] and emphasizes change (qualitative, [[change management|organisational]], and [[structural change|structural]]), [[innovation]], [[system theory|complex interdependencies, self-evolving systems]], and [[bounded rationality|limited rationality]] as the drivers of economic evolution.<ref name="Hodgson2012">[[Geoffrey Hodgson|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, [https://www.eolss.net]. [https://web.archive.org/web/20230424113216/https://www.eolss.net/sample-chapters/c04/E6-28-31.pdf Archived] from [https://www.eolss.net/sample-chapters/c04/E6-28-31.pdf] on April 24, 2023.</ref> The support for the evolutionary approach to economics in recent decades seems to have initially emerged as a criticism of the [[mainstream economics|mainstream]] [[neoclassical economics]],<ref name="Hodgson1993">[[Geoffrey Hodgson|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.</ref> but by the beginning of the 21st century it had become part of the economic mainstream itself.<ref name="Friedman1998">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. [https://web.archive.org/web/20220308170906/https://leeps.ucsc.edu/media/papers/EvolutionaryEconomics3-1-99.pdf Archived] from [https://leeps.ucsc.edu/media/papers/EvolutionaryEconomics3-1-99.pdf] on March 8, 2022.</ref><ref name="Hodgson2007">[[Geoffrey Hodgson|Hodgson, G. M.]] (2007). Evolutionary and Institutional Economics as the New Mainstream? ''Evolutionary and Institutional Economics Review, 4''(1), pp. 7-25. [https://web.archive.org/web/20200709220358/http://www.proglocode.unam.mx/system/files/HODGSON%20G.%20Evolutionary%20and%20Institutional%20Economics%20as%20the%20new%20Mainstream.pdf Archived] from [https://www.proglocode.unam.mx/system/files/HODGSON%20G.%20Evolutionary%20and%20Institutional%20Economics%20as%20the%20new%20Mainstream.pdf] on July 9, 2020.</ref>

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 economics|non-equilibrium processes]] that transform the economy from within and their implications, considering interdependencies and feedback.<ref name="Hodgson2012"></ref><ref name="Galor2005">[[Oded Galor|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.</ref> 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.<ref name="Hodgson2012"></ref>

==Roots of evolutionary economics==

===Early ideas===

[[File:Goldenes-Zeitalter-1530-2.jpg|thumb|right|From peace and harmony... ([[Lucas Cranach the Elder]], ''The Golden Age'', 1530)]]

[[File:Virgil_Solis_-_Iron_Age.jpg|thumb|right|... to war and sorrow ([[Virgil Solis]], ''The Iron Age'', 1581)]]

The idea of human society and the world in general as subject to evolution has been following mankind throughout its existence. [[Hesiod]], an [[ancient Greece|ancient Greek]] poet thought to be the first [[Western world|Western]] written poet regarding himself as an individual,<ref name="BarronEasteling1989">[[John Barron (classicist)|Barron, J. P.]], [[Patricia Easterling|Easterling, P. E.]] (1989). ''Hesiod''. In [[Patricia Easterling|Easterling, P. E.]], Knox, B. (eds.), The Cambridge History of Classical Literature: Greek Literature. Cambridge University Press, p. 51.</ref> described five [[Ages of Man]] &ndash; the [[Golden Age]], the [[Silver Age]], the [[Bronze Age (disambiguation)|Bronze Age]], the [[Greek Heroic Age|Heroic Age]], and the [[Ages of Man#Hesiod's Five Ages|Iron Age]] &ndash; following from divine existence to toil and misery. Modern scholars consider his works as one of the sources for early economic thought.<ref name="Gordon1975">Gordon, B. J. (1975). ''Economic Analysis Before Adam Smith: Hesiod to Lessius''. Palgrave Macmillan, p. 3.</ref><ref>[[Murray Rothbard|Rothbard, M. N.]] (1995). ''Economic Thought Before Adam Smith: Austrian Perspective on the History of Economic Thought, Vol. 1''. Cheltenham, UK.</ref><ref name="Brockway2001">Brockway, G. P. (2001) ''The End of Economic Man: An Introduction to Humanistic Economics, 4th edition''. W. W. Norton & Company, p. 128.</ref> The concept is also present in the ''[[Metamorphoses]]'' by [[Ovid]], an [[ancient Roman]] poet. His [[Ages of Man#Ovid's Four Ages|Four Ages]] include technological progress: in the Golden Age, men did not know arts and craft, whereas by the Iron Age people had learnt and discovered [[agriculture]], [[architecture]], [[mining]], [[navigation]], and [[national boundaries]], but had also become violent and greedy. This concept was not exclusive to the Greek and Roman civilizations (see, for instance, [[Yuga Cycle|Yuga Cycles]] in [[Hinduism]], the [[Three Ages of Buddhism]], [[Aztec|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===

[[Medieval]] views on society, economics and politics (at least in [[Europe]] and ''[[Pax Islamica]]'') were influenced by [[religious]] norms and traditions. [[Catholic]] and [[Islamic]] scholars debated on the moral appropriateness of certain economic practices, such as [[interest]].<ref name="ThomasAquinas">[[Thomas Aquinas]]. ''[[Summa Theologica]]''. New York: English Dominican Fathers, 1981. Part II, Q78, A1. [https://web.archive.org/web/20230329092403/https://www.newadvent.org/summa/2078.html Archived] from [https://www.newadvent.org/summa/2078.html] on March 29, 2023.</ref><ref name="Riba">Institute of Islamic Banking and Finance (2023). ''Riba''. [https://web.archive.org/web/20230604181703/https://www.islamic-banking.com/explore/glossary/glossary-financial-terms-r Archived] from [https://www.islamic-banking.com/explore/glossary/glossary-financial-terms-r] on June 4, 2023.</ref> 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.<ref name="Augustine">[[Augustine of Hippo]]. ''[[Confessions (Augustine)|Confessions]]'', Book XI. [[Project Gutenberg]]. [https://web.archive.org/web/20230419025656/https://www.gutenberg.org/files/3296/3296-h/3296-h.html Archived] from [https://www.gutenberg.org/files/3296/3296-h/3296-h.html] on April 19, 2023.</ref>

A major contribution to the views on the evolution of society was ''[[Leviathan (Hobbes book)|Leviathan]]'' by [[Thomas Hobbes]]. A human, according to Hobbes, is a matter in motion with one's own appetites and desires. Due to these numerous desires and the [[scarcity]] of resources, the [[State of nature|natural state of a human]] is a [[war of all against all]]:<ref name="HobbesLeviathan">[[Thomas Hobbes]], ''[[Leviathan (Hobbes book)|Leviathan]]'', Chapter XIII. [[Project Gutenberg]]. [https://web.archive.org/web/20230103021206/https://www.gutenberg.org/cache/epub/3207/pg3207-images.html Archived] from [https://www.gutenberg.org/cache/epub/3207/pg3207-images.html] on January 3, 2023.</ref>

<blockquote>"In such condition, there is no place for [[industry (manufacturing)|Industry]]; because the fruit thereof is uncertain; and consequently no Culture of the Earth; no Navigation, nor use of the [[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 feare, and danger of violent death; And the life of man, solitary, poore, nasty, brutish, and short."</blockquote>

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

===Economic development, natural state, and social evolution===

{{See also|The Wealth of Nations}}

[[File:Adam_Smith_The_Muir_portrait.jpg|thumb|upright|[[Adam Smith]] (1723–1790)]]

A landmark work in many senses, ''[[The Wealth of Nations]]'' by [[Adam Smith]] was also one to offer a description of economic development throughout the history of mankind — as well as insights into the nature of this development. In ''Book III (Of the different Progress of Opulence in different Nations)'', Smith constantly underlines the importance of the natural order of things, which economic improvements follow, and shows the feedback chain that allows economies to progress further, based on what has been achieved. This falls in line with the notion of [[natural rights]] shared by other [[Age of Enlightenment]] thinkers, such as [[John Locke]] and [[Montesquieu]].

A somewhat different view relates to the names of prominent [[socialists]] of the 19th century, who viewed economic and political systems as products of [[sociocultural evolution|social evolution]] (in contrast to the notions of [[natural rights]] and [[morality]]). In his book ''[[What is Property?]]'', [[Pierre-Joseph Proudhon]] noted:<ref name="Proudhon">[[Proudhon|Proudhon, Pierre-Joseph]] (1994). ''[[What is Property?]]'' [[Project Gutenberg]]. [https://web.archive.org/web/20230405101726/https://www.gutenberg.org/cache/epub/360/pg360-images.html Archived] from [https://www.gutenberg.org/cache/epub/360/pg360-images.html] on April 5, 2023.</ref>

<blockquote>“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.”</blockquote>

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.<ref name="GregoryStuart2005">[[Paul Roderick Gregory|Gregory, P. R.]], Stuart, R. C. (2005). ''Comparing Economic Systems in the Twenty-First Century, Seventh Edition''. South-Western College Publishing.</ref>

==Emergence as a separate field of study==

[[File:Veblen3a.jpg|thumb|upright|[[Thorstein Veblen]] (1857-1929) is considered by many as the "father" of evolutionary economics.]]

The term "evolutionary economics" might have been first coined by [[Thorstein Veblen]].<ref name="Hodgson2012"></ref> Veblen saw the need for taking into account cultural variation in his economic approach; no universal "human nature" could possibly be invoked to explain the variety of norms and behaviours that the new science of [[anthropology]] showed to be the rule rather than an exception.<ref name="Hodgson2004">[[Geoffrey Hodgson|Hodgson, G. M.]] (2004). ''The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism''. London and New York: Routledge.</ref> He also argued that social institutions are subject to selection process<ref name="CamicHodgson2011">[[Charles Camic|Camic, C.]], [[Geoffrey Hodgson|Hodgson, G. M.]] (eds.) (2011). ''Essential Writings of Thorstein Veblen''. London and New York: Routledge.</ref> and that economic science should embrace the [[Darwinian theory]].<ref name="Veblen1898">[[Thorstein Veblen|Veblen, T. B.]] (1898). Why Is Economics Not an Evolutionary Science? ''The Quarterly Journal of Economics, 12''(3), pp. 373-97.</ref><ref name="Veblen1899">[[Thorstein Veblen|Veblen, T. B.]] (1899). ''[[The Theory of the Leisure Class|The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions]]''. New York: Huebsch. [https://web.archive.org/web/20211122223110/https://oll-resources.s3.us-east-2.amazonaws.com/oll3/store/titles/1657/1291_Bk.pdf Archived] from [https://oll-resources.s3.us-east-2.amazonaws.com/oll3/store/titles/1657/1291_Bk.pdf] on November 22, 2021.</ref><ref name="Veblen1919">[[Thorstein Veblen|Veblen, T. B.]] (1919). ''The Place of Science in Modern Civilisation and Other Essays''. New York: Huebsch. [[Project Gutenberg]]. [https://web.archive.org/web/20230605105330/https://www.gutenberg.org/cache/epub/39949/pg39949-images.html Archived] from [https://www.gutenberg.org/cache/epub/39949/pg39949-images.html] on June 5, 2023.</ref><ref name="Hodgson2012"></ref>

Veblen's followers quickly abandoned his evolutionary legacy.<ref name="Hodgson2004"></ref><ref name="Rutherford2011">Rutherford, M. H. (2011). ''The Institutionalist Movement in American Economics, 1918–1947: Science and Social Control.'' Cambridge and New York: Cambridge University Press.</ref> When they finally returned to the use of the term “evolutionary”, they referred to development and change in general, without its Darwinian meaning.<ref name="Hodgson2012"></ref> Further researchers, such as [[Joseph Schumpeter]], studied [[entrepreneurship]] and innovation using this term, but not in the Darwinian sense.<ref name="Hodgson1993"></ref><ref name="Witt2002">[[Ulrich Witt|Witt, U.]] (2002). How Evolutionary is Schumpeter's Theory of Economic Development? ''Industry and Innovation, 9''(1/2), pp. 7-22.</ref> Another prominent economist, [[Friedrich von Hayek]], also employed the elements of the evolutionary approach, especially criticizing “[[The Fatal Conceit|the fatal conceit]]” of socialists who believed they could and should design a new society while disregarding human nature.<ref name="Hayek">[[Friedrich von Hayek|Hayek, F. A.]] (1988). ''[[The Fatal Conceit: The Errors of Socialism]].'' In William W. Bartley III (ed.), The Collected Works of Friedrich August Hayek, Vol. I. London: Routledge. [https://web.archive.org/web/20230324080010/https://www.mises.at/static/literatur/Buch/hayek-the-fatal-conceit.pdf Archived] from [https://www.mises.at/static/literatur/Buch/hayek-the-fatal-conceit.pdf] on March 24, 2023.</ref> However, Hayek seemed to see the Darwin theory not as a revolution itself, but rather as an intermediary step in the line of evolutionary thinking.<ref name="Hodgson2012"></ref> There were other notable contributors to the evolutionary approach in economics, such as [[Armen Alchian]], who argued that, faced with [[uncertainty]] and [[incomplete information]], firms adapt to the environment instead of pursuing [[profit maximization]].<ref>[[Armen Alchian|Alchian, A. A.]] (1950). [[Uncertainty, Evolution, and Economic Theory]]. ''Journal of Political Economy, 58''(2), pp. 211-22. [https://web.archive.org/web/20150501230715/http://econfaculty.gmu.edu/wew/syllabi/Econ811JournalArticles/AlchianJPE.pdf Archived] from [http://econfaculty.gmu.edu/wew/syllabi/Econ811JournalArticles/AlchianJPE.pdf] on May 1, 2018.</ref>

===''An Evolutionary Theory of Economic Change'' and beyond===

[[File:Geoffrey_Hodgson,_2006.jpg|thumb|right|[[Geoffrey Hodgson]], recognised as one of the leading figures of modern critical [[Institutional economics|institutionalism]], Emeritus Professor in Management, [[Loughborough University]]]]

The publication of ''An Evolutionary Theory of Economic Change'' by [[Richard R. Nelson]] and [[Sidney G. Winter]] in 1982 marked a turning point in the field of evolutionary economics. Inspired by Alchian's work about the decision-making process of firms under uncertainty and the behavioural theory of the firm by [[Richard Cyert]] and [[James March]],<ref name="CyertMarch1963">[[Richard Cyert|Cyert, R. M.]], [[James March|March, J. G.]] (1963). ''[[A Behavioral Theory of the Firm]]''. Engelwood Cliffs, NJ: Prentice-Hall.</ref><ref name="Hodgson2012"></ref> Nelson and Winter constructed a comprehensive evolutionary theory of business behavior using the concept of [[natural selection]]. In this framework, firms operate on the basis of organizational routines, which they evaluate and may change while functioning in a certain selection environment.<ref name="NelsonWinter1982">[[Richard R. Nelson|Nelson, R. R.]], [[Sidney G. Winter|Winter, S. G.]] (1982). ''An Evolutionary Theory of Economic Change''. Cambridge, MA: Harvard University Press. [https://web.archive.org/web/20230323020332/http://inctpped.ie.ufrj.br/spiderweb/pdf_2/Dosi_1_An_evolutionary-theory-of_economic_change..pdf Archived] from [http://inctpped.ie.ufrj.br/spiderweb/pdf_2/Dosi_1_An_evolutionary-theory-of_economic_change..pdf] on March 23, 2023.</ref> Since then, evolutionary economics, as noted by [[Nicolai Foss]], has been concerned with “the transformation of already existing structures and the emergence and possible spread of novelties.”<ref name="Foss1994">[[Nicolai Foss|Foss, N. J.]] (1994). Realism and Evolutionary Economics. ''Journal of Social and Evolutionary Systems, 17''(1), pp. 21-40.</ref> 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.<ref>Saviotti, P. P. (1996). ''Technological Evolution, Variety and the Economy''. Aldershot: Edward Elgar.</ref> Instead of perfect information and rationality, [[Herbert A. Simon|Herbert Simon's]] concept of [[bounded rationality]]<ref name="Simon1975">[[Herbert A. Simon|Simon, H. A.]] (1957). ''Models of Man: Social and Rational. Mathematical Essays on Rational Human Behavior in a Social Setting''. New York: Wiley.</ref> has become prevailing.

By the 1990s, as put by [[Geoffrey Hodgson]],<ref name="Hodgson2012"></ref>

<blockquote>“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.”</blockquote>

==Recent developments in evolutionary economics==

[[File:ALo_WhiteShirtTie_1.jpg|thumb|upright|[[Andrew W. Lo]], a Hong Kong-born Taiwanese-American economist and academic, [[MIT Sloan]] professor]]

The role of evolutionary forces in the process of economic development over the course of human history has been further explored during the past decades. For example, [[Paul Rubin]] extensively described how apparent anomalies in decision-making, such as violations of the maximization principle, a [[zero-sum thinking|zero-sum way of thinking]], or a dislike of competition and [[free trade]], may be a result of the human brain evolution.<ref name="Rubin2002">[[Paul Rubin|Rubin, P. H.]] (2002). ''Darwinian Politics: The Evolutionary Origin of Freedom''. Rutgers University Press.</ref><ref name="Rubin2008">[[Paul Rubin|Rubin, P. H.]] (2008). Folk Economics. ''Southern Economic Journal, 70''(1), pp. 157–171. [https://web.archive.org/web/20250129175000/https://download.ssrn.com/0208/ssrn_id320940_code020821500.pdf?response-content-disposition=inline&X-Amz-Security-Token=IQoJb3JpZ2luX2VjEIn%2F%2F%2F%2F%2F%2F%2F%2F%2F%2FwEaCXVzLWVhc3QtMSJGMEQCIBofLSKJr14UD6ADE%2BNlZdIN3f%2BN6vtV7xMzak%2BrTNiFAiA3fCzpVrZE9nj3ijbcaiqPF5LgJBY2Q0Yb56A2Rni%2FBSrHBQiS%2F%2F%2F%2F%2F%2F%2F%2F%2F%2F8BEAQaDDMwODQ3NTMwMTI1NyIMZHO6WqQIaADSj0ZPKpsFKnqtcuKnfEAYYLAGlzYojdiPsV0WfFNUYtxsCbQnvs%2FEU8a0tqLD9zdyIAl1zLxbDwiUVQxcjxEoyStSljxz2WEBLv5eTYMrVz%2F6W74zI%2FgysmKhk2XMXNOOHc92LoYpMkyLsic2k83sSsu2C5zAk5fer3cC2M5kjfSCIjYxoyeiUY75tMLJzuFt0egefuDp1RQQzXNzl9DesX0eiNH09qn5AKsSpgYNKBqYJbfQ8aZo5MBmWpf2I1TI6yUsq15aSMEVlOCmrDd%2FvZVbymj6jotMZfBPKjkI%2BPAcCf7pZCzxgNO2D1YSpHwgdIyik0LOOAM3Z7lkwnIR%2F9MxO2BLsMrjXQj5I%2BwVr8JYxEFeMYphim8RQZwgqMC3R4CVi923dmu5na0iFaLqrg77XPurP8oIyyZjfTJBNLWiba9VBkix1jhPYPF7XCeYfqPCJiqLl2s7LTw%2FyqFsYQDWiGmwa5mX6u%2FqGj31lFhNieu8XGO8VqARETAe90flQyw4Czn04ANMripCMAHqKBFCfZV6hQXhAnh0Dr6oJqaE%2BqTsVsmL5nWSy7aN2CaPyFUm%2BDMdiC5mwQEQ26CpCy7QR7iId58VBM6lSb2xGvzSwC5f%2Bu%2Fd%2BtaU1ghiVS3Q3O0czUapZJvVPcXmfcEGK3ScU2OanHJvIalcmq1dntZH8XbgRS4VzYZPkeEF%2B3%2F%2Fo43uA5pCkBtDEs7VBsCDy66h2xHJixTyY3RVomq9zr0rNrJNRIv%2BpQqKEjcNzLVQF%2B87URd2pYITsklcDfeGJhG3MzInh9CGNS8du1aPUV4dreh2mtQO1IIN3w%2BDEdumkioks5%2FAjiuMrpSv2CibmvqAuYcEvhDdBxwhJNGCncuG6STBgZ3MQsKovBHh6TMXwzDfsOm8BjqyAbLjc4WetFoYGTaXVlkHMQaPdvsGnx7A9TAJ7cifAKyimmJQDNkEox%2F7Ur5gljG3NpW6%2FljBrcQanVHlw6%2Fh88%2F8Ef%2B2DU11Pjcru74D6SRejKoP6bCBjSVtDPgujJ%2BpAOVnk6Z2SQCYhw%2BFFGsVh4W1XVsTtiJEHSELUlWP9Q4wNw5%2Fj7gjhxM%2BuHuXULWKOqggBG5zI26LfUSoq8gUmCmxvXI4v6VKvsRs1DZXngOf34g%3D&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Date=20250129T174928Z&X-Amz-SignedHeaders=host&X-Amz-Expires=300&X-Amz-Credential=ASIAUPUUPRWE3X4CHUHA%2F20250129%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Signature=5a1ca8421933f29f01771f4efcb880f82fa124ffae784b08039ca4f1051dcf67&abstractId=320940 Archived] from [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=320940] on January 29, 2025.</ref> Another concept Rubin and his colleagues viewed through the lenses of evolutionary analysis is the utility function, which may essentially be represented as the fitness evolutionary function.<ref name="RubinCapra2011">[[Paul Rubin|Rubin, P. H.]] Capra, C. M. (2011). ''The Evolutionary Psychology of Economics.'' In Roberts, S. C. (ed.), Applied Evolutionary Psychology. Oxford University Press.</ref>

{{Main|Adaptive market hypothesis}}

Elements of evolutionary approach have also appeared in [[financial economics]]. Around 2004, [[Andrew Lo]] proposed [[Adaptive market hypothesis|the adaptive market hypothesis]] — an extension of the [[efficient market hypothesis]] that treats financial market agents as "species" who exist in some environment (e.g., the number of competitors, profit opportunities) and behave accordingly.<ref name="Lo2004">[[Andrew Lo| Lo, Andrew W.]] (2004). The Adaptive Markets Hypothesis: Market Efficiency from an Evolutionary Perspective. ''Journal of Portfolio Management, 5''(30), pp. 15–29. [https://web.archive.org/web/20250129180217/https://download.ssrn.com/04/10/08/ssrn_id602222_code17399.pdf?response-content-disposition=inline&X-Amz-Security-Token=IQoJb3JpZ2luX2VjEIr%2F%2F%2F%2F%2F%2F%2F%2F%2F%2FwEaCXVzLWVhc3QtMSJHMEUCIDSGXcFtpZklJPiQgwwlBkbnfoVIyOAZzV73%2BRcmCm15AiEA2UoKGBlbjWesuZBRXzrphhRl0k0k%2By2NE%2FZ8R%2BVzDPEqxwUIk%2F%2F%2F%2F%2F%2F%2F%2F%2F%2F%2FARAEGgwzMDg0NzUzMDEyNTciDPa2%2B1%2BTJHJGdnKE4CqbBSiuXxNs6zxNxJhTTo8RWlFJF4nXSWftSYkosnW8cPWTMMjdnTTTaSYxXTEEZw7ybHxk5EOSSY3t3fkhcQ2Kl0%2F%2BdtjEkC9JTdh8rbW%2FI00N59lz1WoIj%2FORf4AzUPUjSjhIRHR1XURF3Xu3MwxQpRoktdD3Nws1TadFZ42Y6ebA6fp3dRO%2FinlVsLB8i0pKoUpjoepALIcGK8%2F%2Ben2qit6ngCU32WoyjqFvpdc%2FMvA3gLhOPyeqockzk0t8C7UXX3Krwx3cZjCl6mYcio%2BV5IdV0FOLM2ipkVtQWaD5r79oouUVFQrNz2QXnc7BMEueu4gxH40HfuOL9J7vEosawDKMDPpTesRXV%2B9lcDeReBK3b5vjuTws4UDi8We82GZ31lLVhEcmkybskvOzMwUJudYZCP8T5mkEfx45Ow%2FKV6z8ltalbszMq%2FidK7aLsbWQU4KpDftaU9TSAVYBDk2EqQO3RptP6fTXaMXQ12obVOxEvyQnvP%2F1ldzQNLNH0P8k5FMlOsjhh%2BeHEfNCZce3Si5asvCD7Y4NuJoQZ%2FcCYYyeADIVqqX98aX3WfmqTVyzWiKIzyp3X%2FDx6fIDiZO%2B4nFMwRwRYHDigomwbPgzMrdHO0eGdrvoFjNZlGXiRMj9cIWjWp7j5VDrHxiOYSd4Ys0%2BwdEu%2Buyjr3HnAKQ6jns2zab5tHOrzsTfag%2BrgvbSoUwX4%2FFZe9j9qUvSrGcwDX0HyMoC%2FpbR471yUCoN6qhiwvKsivRzjj9jfYJg3vp3sw7HtQRiTytYRE9XeDcLygr%2FunyuQl2ur5WF5oXGlgvbPehDIyhCv2xzEVTuAX%2BpU9vWKdW26%2Bwr1AxEg9z0al5omBROd21AevY0DMHu1C5Doym0mK%2BNPEsQ%2Bm8wvsvpvAY6sQHxnCC8ngI0qLb996%2F5b7z6Jqtb8%2BsYZeBbeUhrVRW%2BiVb7L1%2BcoFxdphgoUKj5zqIDmwmZMN1N5EXwC4xYIfZZQO7spIfd8xTqi9uB8Wtu3fKr2AISgc26p19lo7HkL5IwUeuHXhibyo6Y4fWui2G6gXIhb1IwRHCRF%2BhnEwuLakmRekOBSstA0PfS%2FLcLbzDMF2nbWR1AnM4JI%2Fsr1G%2BoditVdOkUlSxzj%2FDLfPP0Zn8%3D&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Date=20250129T180055Z&X-Amz-SignedHeaders=host&X-Amz-Expires=300&X-Amz-Credential=ASIAUPUUPRWETP6HURO7%2F20250129%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Signature=543f91e77e6cc1d914f25cac894aa7ea83bc6069cc9347acc1411fa0d42dd22b&abstractId=602222 Archived] from [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=602222] on January 29, 2025.</ref><ref name="Lo2017">[[Andrew Lo| Lo, Andrew W.]] (2017). ''Adaptive Markets: Financial Evolution at the Speed of Thought.'' Princeton University Press.</ref> This hypothesis does not deny that efficient financial market equilibria may exist, but it necessarily suggests that other states may emerge and evolve due to adaption and natural selection. Although quite recent, Lo's hypothesis has already been empirically tested with regard to a number of cases, such as the analysis of influence of religious holidays and political regimes on financial markets in Islamic countries <ref name="ShahidSattar2017">Shahid, M. N., Sattar, A. (2017). The Behavior of Calendar Anomalies, Market Conditions, and Adaptive Market Hypothesis: Evidence from Pakistan Stock Exchange. ''Pakistan Journal of Commerce and Social Sciences, 11''(2), pp. 471-504. [https://web.archive.org/web/20250129180545/https://www.econstor.eu/bitstream/10419/188301/1/pjcss378.pdf Archived] from [https://www.econstor.eu/bitstream/10419/188301/1/pjcss378.pdf] on January 29, 2025.</ref> or the evolution of [[Bitcoin]] market.<ref name="KhuntiaPattanayak2018">Khuntia, S., Pattanayak, J. K. (2018). Adaptive Market Hypothesis and Evolving Predictability of Bitcoin" ''Economics Letters. 167'', pp. 26-28.</ref>

===The Unified Growth Theory===

{{Main|Unified Growth Theory}}

[[File:Oded_Galor_pic_(cropped).jpg|thumb|upright|Known for his [[Unified Growth Theory]], [[Oded Galor]] employs principles that may belong to evolutionary economics.]]

A considerable contribution to the understanding of economies as constantly evolving systems was provided by [[Oded Galor]] and his colleagues. A pioneer of the [[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.

According to Galor's model, technological advancements in the early eras of the mankind (during the [[Malthusian]] epoch, with limited resources and near-[[subsistence]] levels of income) would lead to increases in the size of population, which in turn would further accelerate technological progress due to the production of new ideas and the increase in demand for them. At some point technological advancements would require higher levels of [[education]] and generate the demand for educated [[labour force]]. After that, an economy would [[phase transition|move into a new phase]] characterised by [[demographic transition]] (given that investment into less children, although more costly, would yield higher returns) and sustained [[economic growth]].<ref name="Galor2011"> [[Oded Galor|Galor, O.]] (2011). ''Unified Growth Theory''. Chapter 5. Princeton University Press, 2011.</ref> The process is accompanied by improvements in [[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 equality|social]] and [[gender equality]] improvements.<ref name="Galor2005"></ref><ref name="Galor2022">[[Oded Galor|Galor, O.]] (2022). ''The Journey of Humanity: The Origins of Wealth and Inequality''. Penguin Random House, 2022.</ref> Interdependent, these elements facilitate each other, creating a unified process of growth and development, although the pace may be different for different societies.

In ''The Journey of Humanity: The Origins of Wealth and Inequality'' (2022) Galor provides some statements that further solidify his evolutionary approach:<ref name="Galor2022"></ref>

<blockquote>“Consider… two large clans: the Quanty and the Qualy…
Suppose that Quanty households bear on average four children each, of whom only two reach adulthood and find a reproductive partner. Meanwhile, Qualy households bear on average only two children each, because their budget does not allow them to invest in the education and health of additional offspring ''[sic!]'', and yet, thanks to the investment that they do make, both children not only reach adulthood and find a reproductive partner but they also find jobs in commercial and skill-intensive occupations… Now suppose the society in which they live is one where technological development boosts the demand for the services of blacksmiths, 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.”</blockquote>

==Criticism==

The emergence of modern evolutionary economics was welcomed by the critics of the neoclassical mainstream.<ref name="Hodgson2007"></ref><ref name="Hodgson2012"></ref> However, the field, especially the approach by Nelson and Winter, has also drawn critical attitude from other [[heterodox economics|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.<ref name="Mirowski1983">[[Philip Mirowski|Mirowski, P.]] (1983). An Evolutionary Theory of Economics Change: A Review Article. ''Journal of Economic Issues, 17''(3), pp. 757-768.</ref> Some Veblenian [[institutional economics|institutionalists]] claim this framework is only a “protective modification of the neoclassical economics and is antithetical to Veblen's evolutionary economics.”<ref name="JoTaeHee2020">Jo, Tae-Hee (2020). ''A Veblenian Critique of Nelson and Winter's Evolutionary Theory''. MPRA Paper No. 10138. [https://web.archive.org/web/20210515085912/https://mpra.ub.uni-muenchen.de/101380/1/MPRA_paper_101380.pdf Archived] from [https://mpra.ub.uni-muenchen.de/101380/1/MPRA_paper_101380.pdf] on May 15, 2021.</ref> Another possible shortcoming (recognized by the proponents of modern evolutionary economics) is that the field is heterogenous, with no convergence on an integrated approach.<ref name="Hodgson2012"></ref>

==Related fields==

===Evolutionary psychology===

{{Main|Evolutionary psychology}}

{{See also|Behavioural economics}}

Evolutionary psychology is a theoretical approach in [[psychology]] that examines cognition and behaviour from a modern evolutionary perspective.<ref name="SchachterGilbertWegner2010"> [[Daniel Schacter|Schacter, D. L.]], [[Daniel Gilbert (psychologist)|Gilbert, D. T.]], [[Daniel Wegner|Wegner, D. M.]] (2010). ''Psychology''. Macmillan, p. 26.</ref><ref name="Longe2016">Longe, J. L. (2016). ''The Gale Encyclopedia of Psychology (3rd ed.)''. Gale Research Incorporated, pp. 386–388.</ref> 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, as demonstrated by [[Paul Rubin]], among others.<ref name="Rubin2002"></ref><ref name="Rubin2008"></ref><ref name="RubinCapra2011"></ref>

===Evolutionary game theory===

{{Main|Evolutionary game theory}}

Evolutionary game theory is the application of [[game theory]] to evolving populations in biology. It defines a framework of contests, [[strategy (game theory)|strategies]], and analytics into which Darwinian competition can be modelled. It originated in 1973 with [[John Maynard Smith]] and [[George R. Price|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.<ref name="MaynardSmithPrice1973">[[John Maynard Smith|Maynard Smith, J.]], [[George R. Price|Price, G. R.]] (1973). The Logic of Animal Conflict. ''Nature. 246''(5427), pp. 15–18. [https://web.archive.org/web/20230606120101/https://cpb-us-e1.wpmucdn.com/sites.usc.edu/dist/5/476/files/2019/12/246015a0.pdf Archived] from [https://cpb-us-e1.wpmucdn.com/sites.usc.edu/dist/5/476/files/2019/12/246015a0.pdf] on June 6, 2023.</ref>

Evolutionary game theory has helped to explain the basis of [[altruism|altruistic behaviours]] in Darwinian evolution. It has in turn become of interest to sociologists, anthropologists, philosophers, and economists.<ref name"Michihiro1997">[[Michihiro Kandori|Michihiro, K.]] (1997). ''Evolutionary game theory in economics''. In [[David M. Kreps|Kreps, D. M.]], Wallis, K. F. (eds.). Advances in Economics and Econometrics: Theory and Applications. Vol. 1. Cambridge University Press. pp. 243–277.</ref>

== See also ==
{{Portal|Business and economics}}
{{Portal|Economics}}
{{div col|colwidth=18em}} 
* [[Adaptive market hypothesis]]
* [[Behavioural economics]]
* [[Complexity economics]]
* [[Cultural economics]]
* [[Heterodox economics]]
* [[Institutional economics]]
* [[Mainstream economics]]
* [[Neoclassical economics]]
* [[Non-equilibrium economics]]
* [[Ecological model of competition]]
* [[Population dynamics]]
* [[Creative destruction]]
* [[Innovation system]]
* [[Evolutionary psychology]]
* [[Scientific socialism|Evolutionary socialism]]
* [[Universal Darwinism]]
* [[Association for Evolutionary Economics]]
* [[European Association for Evolutionary Political Economy]]
* [[Andrew W. Lo]]
* [[Geoffrey Hodgson]]
* [[Oded Galor]]
* [[Paul H. Rubin]]
* [[Richard R. Nelson]]
* [[Sidney G. Winter]]
* [[Thorstein Veblen]]
{{div col end}}

==References==
{{Reflist}}

== Further reading ==
* [[Thorstein Veblen|Veblen, T. B.]] (1898). Why Is Economics Not an Evolutionary Science? ''The Quarterly Journal of Economics, 12''(3), pp. 373-97.
* [[Thorstein Veblen|Veblen, T. B.]] (1899). ''[[The Theory of the Leisure Class|The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions]]''. New York: Huebsch. [https://web.archive.org/web/20211122223110/https://oll-resources.s3.us-east-2.amazonaws.com/oll3/store/titles/1657/1291_Bk.pdf Archived] from [https://oll-resources.s3.us-east-2.amazonaws.com/oll3/store/titles/1657/1291_Bk.pdf] on November 22, 2021.
* [[Richard R. Nelson|Nelson, R. R.]], [[Sidney G. Winter|Winter, S. G.]] (1982). ''An Evolutionary Theory of Economic Change''. Cambridge, MA: Harvard University Press. [https://web.archive.org/web/20230323020332/http://inctpped.ie.ufrj.br/spiderweb/pdf_2/Dosi_1_An_evolutionary-theory-of_economic_change..pdf Archived] from [http://inctpped.ie.ufrj.br/spiderweb/pdf_2/Dosi_1_An_evolutionary-theory-of_economic_change..pdf] on March 23, 2023.
* [[Geoffrey Hodgson|Hodgson, G. M.]] (2004) ''The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism''. London and New York: Routledge.
* [[Geoffrey Hodgson|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, [https://www.eolss.net]. [https://web.archive.org/web/20230424113216/https://www.eolss.net/sample-chapters/c04/E6-28-31.pdf Archived] from [https://www.eolss.net/sample-chapters/c04/E6-28-31.pdf] on April 24, 2023.
* [[Paul Rubin|Rubin, P. H.]] (2002). ''Darwinian Politics: The Evolutionary Origin of Freedom''. Rutgers University Press.
* [[Andrew Lo| Lo, Andrew W.]] (2017). ''Adaptive Markets: Financial Evolution at the Speed of Thought.'' Princeton University Press.
* [[Oded Galor]] (2022). ''The Journey of Humanity: The Origins of Wealth and Inequality''. Penguin Random House.

===Journals===
* [https://www.tandfonline.com/journals/mjei20 ''Journal of Economic Issues''], sponsored by the [[Association for Evolutionary Economics]].
* [https://www.springer.com/journal/191 ''Journal of Evolutionary Economics''], sponsored by the International Josef Schumpeter Society.
* [https://www.cambridge.org/core/journals/journal-of-institutional-economics ''Journal of Institutional Economics''], sponsored by the [[European Association for Evolutionary Political Economy]].

{{Economics}}
{{Schools of economic thought}}
{{Thorstein Veblen}}
{{Evolutionary psychology}}
{{Macroeconomics}}
{{Microeconomics}}
{{Instecon}}

{{Authority control}}

{{DEFAULTSORT:Evolutionary economics}}
[[Category:Schools of economic thought]]
[[Category:Thorstein Veblen]]
[[Category:Criticisms of economics]]
[[Category:Evolutionary biology]]
[[Category:Evolutionary psychology]]
[[Category:Macroeconomics]]
[[Category:Microeconomics]]
[[Category:Institutional economics]]
[[Category:Innovation economics]]