Academic journal article Economic Inquiry

Rationality, Evolution, and Acquisitiveness

Academic journal article Economic Inquiry

Rationality, Evolution, and Acquisitiveness

Article excerpt

A classic article has "staying power" and impact. Alchian's 1950 article "Uncertainty, Evolution, and Economic Theory" has plenty of both, and there is no need to extol its obvious virtues. Yet, I am sure that Alchian would find things to modify in this article were he to rewrite it today, some forty-five years after its publication. One task I set for myself here is to supply some food for thought should Alchian be tempted to engage in a rewrite. I also discuss arguments and concepts put forth by other economists whose writings have influenced perceptions about rationality and evolution, thus moving the discussion beyond the limits of Alchian's article. The meaning of rational economic behavior is discussed next. Finally, I explore how rational behavior might be a product of evolution.

The notion of evolution as the shaper of economic institutions has been a minor theme in economics for two centuries. It is present in the works of Malthus and Smith, whose writings later influenced Darwin, Marx, and Schumpeter. The evolution theme even played a role in the late nineteenth century policy debates about the Sherman Antitrust Act. Many of the leading economists of that time, particularly those who helped to create the American Economics Association, opposed the Sherman Act. One of the more important economists, John Bates Clark, who was not among those most enamored with evolutionary concepts, wrote:

Combinations have their roots in the nature of social industry and are normal in their origin, their development, and their practical working. They are neither to be depressed by scientists nor suppressed by legislators. They are the result of an evolution, and are the happy outcome of a competition so abnormal that the continuance of it would have meant widespread ruin. A successful attempt to suppress them by law would involve the reversion of industrial systems to a cast-off type, the renewal of abuses from which society has escaped by a step in development.(1)

Clark's negative view of the efficacy of an antitrust law, shared by many leading economists of the time, had little influence on legislative matters. The Sherman Act became law.

These earlier references by economists to evolution are mainly casual and superficial, and in this respect they do not anticipate and are no substitute for Alchian's discussion. Alchian's unique contributions were to use evolution analytically in a model of economic behavior and to offer it as a substitute for rationality. Alchian's critique of the presumption that economic behavior is to be explained by rational action, which means profit maximization in the case of the firm of neoclassical theory, constitutes a fundamental challenge to one of orthodoxy's cherished principles. Section I of the present paper discusses the difficulties in analyzing economic behavior without recourse to rationality, and it illustrates these by reference to Alchian's article.

I.

Four major themes run through "Uncertainty, Evolution and Economic Theory." The first is the difficulty that uncertainty creates for the neoclassical assumption that businessmen maximize profit, or, to put this more broadly, the difficulty that uncertainty creates for the rational behavior assumption. The second is that there is a process at work - natural selection - that determines which business decisions lead to viable outcomes and which do not. I take for granted and do not discuss the proposition that a natural selection process is at work. The third theme relates to the particular filter that is used by the evolutionary process when it comes to business decisions; the filter that Alchian puts in place is the test of whether decisions result in positive profit. The fourth theme is that decisions that survive this filter are disseminated through the economy by the imitative efforts of other firms.

The difficulty in behaving rationally (and irrationally also). Knight [1921] was the first prominent economist to attack the notion that all or that most economic decisions are guided by rational calculation. …

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