The Darwin Economy: Liberty, Competition, and the Common Good

The Darwin Economy: Liberty, Competition, and the Common Good

The Darwin Economy: Liberty, Competition, and the Common Good

The Darwin Economy: Liberty, Competition, and the Common Good


Who was the greater economist--Adam Smith or Charles Darwin? The question seems absurd. Darwin, after all, was a naturalist, not an economist. But Robert Frank, New York Times economics columnist and best-selling author of The Economic Naturalist, predicts that within the next century Darwin will unseat Smith as the intellectual founder of economics. The reason, Frank argues, is that Darwin's understanding of competition describes economic reality far more accurately than Smith's. And the consequences of this fact are profound. Indeed, the failure to recognize that we live in Darwin's world rather than Smith's is putting us all at risk by preventing us from seeing that competition alone will not solve our problems.

Smith's theory of the invisible hand, which says that competition channels self-interest for the common good, is probably the most widely cited argument today in favor of unbridled competition--and against regulation, taxation, and even government itself. But what if Smith's idea was almost an exception to the general rule of competition? That's what Frank argues, resting his case on Darwin's insight that individual and group interests often diverge sharply. Far from creating a perfect world, economic competition often leads to "arms races," encouraging behaviors that not only cause enormous harm to the group but also provide no lasting advantages for individuals, since any gains tend to be relative and mutually offsetting.

The good news is that we have the ability to tame the Darwin economy. The best solution is not to prohibit harmful behaviors but to tax them. By doing so, we could make the economic pie larger, eliminate government debt, and provide better public services, all without requiring painful sacrifices from anyone. That's a bold claim, Frank concedes, but it follows directly from logic and evidence that most people already accept.


Behavioral economics has been the economics profession’s runaway growth area of recent decades. Scholars in this area work largely at the intersection of economics and psychology. Much of their attention has focused on systematic biases in people’s judgments and decisions. As the late Amos Tversky, a Stanford University psychologist and a founding father of behavioral economics, liked to say, “My colleagues, they study artificial intelligence. Me? I study natural stupidity.”

In the early 1980s, I taught one of the first undergraduate courses in behavioral economics. Because few students had heard of this nascent field, my first challenge was to come up with a course title that might lure some to enroll. in the end, I decided to call it “Departures from Rational Choice.” Naturally, there was no standard syllabus then. After much thought, I decided to cover material under two broad headings: “Departures from Rational Choice with Regret” and “Departures from Rational Choice without Regret.”

Under the first heading, I listed studies that document the many systematic cognitive errors to which people are prone. For example, although standard rational choice models say that people will ignore sunk costs (costs that are beyond recovery at the moment of decision), such costs often influence choices in conspicuous ways. Suppose you’re about to depart for a sporting event or concert at an arena 50 miles away when an unexpected heavy snowstorm begins. If your ticket is nonrefundable, your decision whether or not to drive to the event should not be influenced by the amount you paid for it.

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