This paper examines the idea of Milton Friedman and others that the foundations for behavioral as... more This paper examines the idea of Milton Friedman and others that the foundations for behavioral assumptions usually made in economics should be found in "economic elimination of the unfit", that is, replacement of (individuals with) behavior that does not accord with principles and concepts such as profit maximization or Nash equilibrium. We consider playing-thefield, symmetric games played recurrently between individuals. Behavior is governed by two forces. One is "Darwinian selection": if current behavior leads to payoff differences, at least individuals with behavior yielding lowest payoff have strictly positive probability of being replaced by individuals with arbitrary behavior. The other is "mutation": any individual has at any point in time a strictly positive, very small probability of shifting to an arbitrary behavior. We define a static, intuitively motivated solution concept as well as a solution concept explicitly rooted in a dynamic process capturing these forces. We establish a close relation between the two concepts, which are often equivalent. Using the relatively manageable static solution concept, we identify the economic implications of Darwinian selection and mutation in a number of specific games of economic interest as well as in general games with externalities. A main conclusion is that if externalities are positive (negative), "economic Darwinism" implies even more under-(over-) activity than does Nash equilibrium: not only is economic Darwinism not supportive of Nash equilibrium, it systematically leads to socially worse outcomes.
This paper examines the idea of Milton Friedman and others that the foundations for behavioral as... more This paper examines the idea of Milton Friedman and others that the foundations for behavioral assumptions usually made in economics should be found in "economic elimination of the unfit", that is, replacement of (individuals with) behavior that does not accord with principles and concepts such as profit maximization or Nash equilibrium. We consider playing-thefield, symmetric games played recurrently between individuals. Behavior is governed by two forces. One is "Darwinian selection": if current behavior leads to payoff differences, at least individuals with behavior yielding lowest payoff have strictly positive probability of being replaced by individuals with arbitrary behavior. The other is "mutation": any individual has at any point in time a strictly positive, very small probability of shifting to an arbitrary behavior. We define a static, intuitively motivated solution concept as well as a solution concept explicitly rooted in a dynamic process capturing these forces. We establish a close relation between the two concepts, which are often equivalent. Using the relatively manageable static solution concept, we identify the economic implications of Darwinian selection and mutation in a number of specific games of economic interest as well as in general games with externalities. A main conclusion is that if externalities are positive (negative), "economic Darwinism" implies even more under-(over-) activity than does Nash equilibrium: not only is economic Darwinism not supportive of Nash equilibrium, it systematically leads to socially worse outcomes.
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Papers by Henk GJ Rebel