Reconciling The Rationality/Efficiency View With Making Bonehead plays

Econ students are taught about Adam Smith and his notion "the invisible hand" that guides the privately good behavior to produce socially efficient outcomes.  Biology students are taught about a different sort of competition - Darwin's Survival of the Fittest.  Individual "behavior" is genetically determined.  But genes can mutate.  Some mutations produce advantage and those that do tend to propagate.

In the last several years, some economists have been trying to apply Darwin's approach to economic competition.  There are a few reasons for doing do and one is given by the title of this post.  Behavior can be based on traditional belief, which is very much like behavior being determined by genes.  But sometimes we try new things, which is like having a mutation.  When the new thing seems better than the old thing we call it an innovation. One doesn't need full rationality to explain innovations. All it takes is a search for doing better than at present and then learning by experience from the experiment in trying.  Often that learning suggests the next experiment to try.  This view may be somewhat more realistic - humans learn but aren't fully rational.  I find that an appealing approach.

There is a different reason for economists to emulate Darwin.  Robert Frank, an economist in the Business School at Cornell, has been writing about this idea.  This is a very interesting read and won't take you long to get to the gist.  Competition is about individual advantage.  Individual advantage that propagates often also creates advantage for the species. Once in a while, however, traits that create individual advantage can actually be harmful to the species.  In the linked piece, Frank says the latter can happen when the advantage is relative only. The metaphor is that the overall pie is smaller but the individual gets so much bigger a slice that the individual is better off.  So there can be individually good but socially destructive innovation.  This is meant as an argument for some regulation and against laissez-faire.